Cryptocurrencies: Be Afraid

What is a cryptocurrency and why should we care? Before dismissing it as another fad, consider that Fast Food giant Burger King has partnered with blockchain platform Wave to launch its own crypto-currency in Russia called WhopperCoin. Customers who buy the chain’s popular Whopper burger are now able to receive one WhopperCoin via digital wallet for every rouble they spend; a Whopper burger can be bought using this virtual currency. Burger King has plans to make an app available for the programme on Android and iPhone.

Like other crypto-currency, WhopperCoins can be traded online, enabling customers to either save their rewards or sell them to interested parties.

In publishing, there is evidence of what are being referred to as “tokens”. One publisher has adopted as “general currency” for all transactions a token. In their ecosystem, authors can offer to pay illustrators, editors, cover artist, proof-readers with their tokens without having to give thought to which currency the payee prefers.

What is it?

These illustrations come on the back of a boom time for digital currencies which have surged in popularity over the past year. Consumer confidence in cashless payments has increased due to the widespread adoption of contactless cards and payment apps

By definition, a cryptocurrency is a digital currency that does not exist in physical form. The currencies are not backed by any government or tied to any commodity or underlying asset. You may already have heard of Bitcoin and Ethereum. There are over 100 players in the fintech sector, each offering a different cryptocurrency.

A wake up call

Digital currencies are not going away any time soon. Inevitably they will become mainstream, especially as central banks are getting in on the action, including China and Denmark.

The challenge for accountants and bookkeepers is twofold: one is that a professional’s client may wish to invest in Bitcoin Cash (or any of the other cryptocurrencies) and this raises a multitude of questions and issues concerning the treatment of the Bitcoin or cryptocurrency as cash or cash equivalent or how to get it on the balance sheet.

The Blockchain

The attraction of cryptocurrencies is the Blockchain; everybody has a record of every transaction ever made between everybody. That makes fraud and such leakages easy to spot. Any party can check how much has been transferred between two parties and no suspicious transaction has occurred.

It is no longer just the banks that have a record of transactions – but everybody has a record of all the transactions.

The second challenge for the accounting and bookkeeping profession is, will their associations be ahead or behind the actual world in which such transaction are already occurring and therefore how bookkeeping professional are expected to respond to a client? “Sorry but I don’t know how to deal with the cryptocurrency in your digital wallet.” This scenario is not science fiction. Watch this space.