The COVID-19 pandemic drove an intense acceleration of cloud, artificial intelligence and data analytics adoption. Blockchain did not enjoy quite the same boost, but that doesn’t mean regulators aren’t paying attention to the space. In fact, Congress is putting forth blockchain-related legislation at a fast pace, and accountants who lean into adoption only stand to gain.
One of the key factors that will continue to legitimize blockchain technology and cryptocurrencies is regulation and legislation. Just this year, Congress has introduced 19 bills (so far) that impact blockchain or crypto, ranging from legislation seeking to define and promote blockchain (the Blockchain Promotion Act of 2021) to proposals to make the U.S. competitive in cryptocurrencies on the global market (the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2021).
The ramping up of regulatory interest and activity makes it all the more clear that in the near future, cryptocurrency won’t be the uncertain, volatile investment that it can be today, and blockchain technology will touch almost every industry.
In some ways, the emergence of blockchain technology will contribute greatly to the accounting profession. Not only will it enable new technological capabilities in audit, assurance and attestation; it will also be a vast source of revenue for firms that offer services around it, especially cryptocurrency. But before the benefits are reaped, the learning curves and growing pains will match those of the cloud adoption period, which the profession is mostly past.
“President Biden’s infrastructure bill says the expected tax revenue from cryptocurrency investments could be up to $28 billion,” said Kell Canty, CEO of Verady, which makes Ledgible, a crypto tax and accounting platform. “That tells me that, one, crypto is not going away, even though some practitioners have said that it’s too complex; and two, the taxation and accounting of it is of the utmost priority. Tax is a huge priority for government and for the profession. This is building a new asset class that the Fed is saying is not going away. The professionals that recognize that and dig in will be rewarded.”
Still, Canty said, some of those in the accounting profession he has spoken to see crypto as a problem and not an opportunity. Those accountants are happy to be retiring before they have to make crypto their problem, but crypto remains as an inevitably emerging revenue source for firms, should they embrace it.
While the U.S. government is taking taxation of cryptocurrencies seriously, Canty pointed out a potential concern — namely, excessive regulation driving crypto companies out of the U.S. Another Senate bill proposed rules for crypto trading firms and brokers (as well as banks and other financial institutions) having to report additional information about some transactions, including any over $10,000.
“Yes, increased taxation and regulation may mean an increased use of our software, which can help companies generate tax info like 1099s,” Canty said. “But if you do thoughtful analysis, what if the bill takes those companies outside the U.S.? It could reduce the ecosystem we’re part of by having unrealistic demands on industry that impedes growth or makes some of these companies consider leaving. We’ve seen a little of that from crypto companies. If people are going to invest in and grow a company, they’d like to know the rules of the road with some certainty — that they are stable and that they can grow around them.”
Trust in blockchain
In its recent “Enterprise Reboot” report, Big Four firm KPMG found that business investment is up for blockchain, though the pandemic did affect its rate of growth. The top objectives for investments in early 2020, during the first two months of the pandemic (which drove investment in technology across the board), were blockchain as a foundation for infrastructure, modernization to improve decision-making, and cost reduction.
As the pandemic wore on, the investment objective shifted to simply improving competitive positioning. It’s worth noting that the objective for investing in technologies rated automation, artificial intelligence and analytics — but not blockchain — as “essential for future survival.”
“We’re seeing blockchain as an enabling technology that businesses are contemplating using,” said Heather Paquette, national technology assurance leader for audit at Big Four firm KPMG. “In our Enterprise Reboot survey, we found that more than half of executives are investing in blockchain. They are revisiting business practices to see if they can use blockchain as a means of transacting business with others.”
Experts, including those at KPMG, believe that especially because of its ability to underpin digital trust, blockchain will be key to how Web 3.0 will develop. Web 2.0 is our current iteration of the web, a system of interconnectedness that goes beyond static, noninteractive, information web pages. Web 2.0 was enabled by the interaction of cloud, mobile and social media technology; Web 3.0 will be enabled by edge computing, decentralized data networks (basically, safe, interconnected networks — like blockchain) and artificial intelligence. The new web will be open and “trustless,” which means that the network itself has trust built in inherently. This is made possible by blockchain.
Blockchain’s three most important features are its ability to address problems in auditability, security and trust. KPMG’s U.S. blockchain leader Arun Ghosh noted in the report that, “Many initial blockchain pilots failed because the business was focused on what the technology can do. Blockchain investments weren’t approached strategically. The better approach is understanding where the business needs more trust given how it operates within its partner ecosystem and using blockchain to enable trust in those targeted processes”
Paquette noted, “It’s key that finance professionals know what they want to use blockchain for. Usually there is an element of trust through transparency, and trust through understanding who you’re transacting with inside the blockchain. You see companies developing consortiums with each other, and looking to blockchain to enhance data integrity.”
Education remains a priority
As the blockchain and crypto space stretches its legs and encounters growing pains, a significant part of its future will be forged on the university campus. Dr. Sean Stein Smith, a CPA, is teaching CUNY Lehman College’s first cryptocurrency class, a collaboration between the department of economics and business (under which the accounting degree falls) and the School of Continuing and Professional Studies. A grant-funded class, it covers crypto terminology, and how cryptocurrency connects to corporate accounting.
“We bring in students and alumni to get the community more engaged and more aware of issues around crypto — what it is and how it works,” Stein Smith said of Lehman’s approach.
The college introduced its Blockchain Credential Pilot program in 2019 as a way for graduates to manage their Lehman degree as a secure, verifiable digital credential through blockchain technology. When another institution or employer views the credential page, they will see a “verify” button to accomplish that task — a form of a smart contract, one of the most significant use cases for blockchain in business.
Other universities and colleges have similar programs, and the technology was developed at the Massachusetts Institute of Technology for academic credentials, professional certifications and other records.
Stein Smith has researched and published extensively on blockchain and cryptocurrency technology (his most recent book, “Blockchain, Artificial Intelligence (AI) and Financial Services — Implications and Applications for Financial Professionals,” was published in 2020). Based on his observations, he recommends that firms interested in breaking into the space take the following three steps:
- First, ask your current clients if they are using cryptocurrency, or if they are on any blockchain system, to get a feel for how involved in the space they are.
- Second, make a decision as a firm whether you will take payment in cryptoassets, or whether you want to have that discussion with your clients to help them get their feet wet.
- Third, allocate funds to train and educate staff on cryptocurrency.
“No one wants to hear that, but this is of the utmost importance and it cannot be overstated,” Stein Smith said of his last point. “We have to be actively engaged.”
He suggested the American Institute of CPAs and the Wall Street Blockchain Alliance as good places to start getting educated. And, of course, Accounting Today.