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Wednesday, August 28, 2019

How to Start Using Cryptocurrency in Your Business: 10 FAQs for CFOs


Should your organization start transacting in cryptocurrencies, and if so, how?

  1. Why should I accept cryptocurrency as a form of payment?
  2. It’s becoming increasingly mainstream. Almost half of millennials think crypto will become widely used for legal transactions in the next 10 years, according to YouGov Omnibus data, while 68% of high-net-worth individuals are already invested or plan to invest in crypto by 2022, according to a deVere Group global survey.

    This could also be your first step in future-proofing your organization for the digital money future.

  3. Do people really use cryptocurrency to buy things?
  4. Transaction volumes on digital asset networks are steadily increasing. Recently Facebook, along with Visa, Mastercard, Paypal, Uber, Ebay and others, announced their intention to create a digital currency called Libra. JP Morgan and Wal-Mart are also creating their own digital currencies. Meanwhile, major retail companies such as AT&T, Whole Foods and Starbucks are all transitioning to accept cryptocurrency as payment.

  5. What exactly is cryptocurrency?
  6. Cryptocurrency is digital money built on blockchain technology. Digital money transactions can benefit from low transaction fees since they don’t rely on a series of intermediaries to settle. Transactions instead take place in a (pseudo) peer-to-peer way.

  7. Is it safe to transact in cryptocurrency?
  8. There are a few risks. Here are some ways to mitigate them.

    1. How can I prevent hacking, theft or loss?
      First, you will need a safe custody solution for your newly acquired digital assets. A combination of cold storage (offline wallet) devices like Ledger, KeepKey or Trezor, and hot storage (an online digital wallet) like Coinbase Wallet, Blockchain, Abra or ShapeShift, can significantly reduce your risk. Second, you will need to set up controls around the custody solution that further minimize your risks.
    2. What if the cryptocurrency loses all its value?
      Make sure to set up your environment to enable instant conversion to U.S. dollars (USD). Conversion is typically done through exchanges like Kraken, Coinbase and ShapeShift. Additionally, there are cryptocurrencies called “stablecoins” that are designed to maintain a steady value, like TrueUSD, Gemini Dollar, USD Coin, Dai and Tether.
    3. Am I complying with securities laws and tax regulation?
      There are no restrictions on buying or selling the most popular cryptocurrencies. To be safe, we recommend sticking with the ones traded over U.S.-based exchanges, such as Coinbase, Kraken and ShapeShift. The IRS generally considers cryptocurrency to be property, not currency. It is highly recommended that you create policy on how you will track the cost basis of each crypto asset as it goes out the door. While that may seem burdensome, there are great software tools that automate this process.
  9. Can I accept payment in cryptocurrency without ever owning the cryptocurrency?
  10. Yes, but there are inherent limitations to this solution. A third party, like BitPay, will auto-convert your incoming bitcoin payments into USD in exchange for a transaction fee. This can be good short-term solution. Think of this like having an email address that would connect to a printer and automatically send a letter for every email received.

  11. Okay – I’m ready, where do I start?
  12. You need a USD-to-crypto ramp that connects with your existing banking infrastructure. This includes a payment processor, like CoinPayments, and an exchange account. The payment processor handles the technical side of the transaction, automates manual tasks such as liquidation to USD or transfer to another wallet, and allows for invoicing. The exchange is used to sell (or buy) cryptocurrency. Finally, you need a custody solution (cold storage recommended), appropriate controls and a policy to avoid any unwanted tax implications.

  13. Why can’t I leave the cryptocurrency on the exchanges?
  14. The phrase “not your keys, not your coins” is one of the commandments of the crypto industry. You will need a wallet solution. Hot wallets on your computer or phone are best for easy payments, but still carry exposure. Think of them as checking accounts. Cold wallets (external devices) are extremely secure with no access to an online connection. Think of them as savings accounts.

  15. My first payment in cryptocurrency came in — do I need any special accounting entries?
  16. Once the volume becomes material, you will want to separate out transaction fees and any gains or losses over the USD amount (typically a transaction adjustment or foreign exchange account).

  17. What if I hold on to these cryptocurrencies?
  18. If you end up holding on to cryptocurrencies, you may need to set up a new balance sheet account (digital assets) and determine how to account for unrealized gains and losses (mark to market or test for impairment).

  19. I am holding on to some cryptocurrency; can I automate the accounting process?
  20. Yes! We recommend a crypto accounting subledger solution to price your transactions, track them directly from the blockchain, and tag the transaction for accounting purposes. Ideally this crypto accounting solution has a bridge built out to your existing ERP system.

Have more questions about getting started with crypto? Contact our Cryptocurrency team.

Andries Verschelden

Clayton Lowery

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