With the acceleration of Web3, the innovations brought by blockchain technology require accountants and software publishers to adapt or risk being quickly overwhelmed…
Web3 rethinks the accounting function
Web3 and its blockchain-based applications (DApps) are creating an independent and decentralized financial system, alongside the traditional banking system. In this ecosystem, individuals and businesses carry out transactions almost instantly (purchase, credit, loan and investment) without resorting to banks. Accounting professions must deal with digital assets (crypto-currencies and non-fungible tokens (NFT)) stored in virtual wallets (like MetaMask) and “Exchanges” (Binance, Coinbase…). This paradigm shift involves a revolution of actors and accounting practices in 4 directions.
1. Develop a “crypto-accounting” culture
The challenge for an accounting department is to mutate into a “crypto hub” capable of dealing with and anticipating management issues for its clients. To do this, it is key to flush out the best talents inclined to master crypto-accounting. Accounting firms must also make their Copernican revolution and develop this expertise internally. Crypto-accountants must be up to date with tax and legal regulations, but also understand DeFi (Decentralized Finance), its ecosystem and its codes.
2. Take ownership of crypto accounting tools
Since many Web 3.0 transactions occur outside of the traditional banking system, accounting firms need new tools that will automatically interact with their traditional accounting system. Indeed, few ERPs can currently effectively manage digital asset accounting. New issues may arise such as the differential between the cost of acquiring a Token and the price at which it is earned, sold or traded. This requires the extraction of data from different sources and the appropriate tax treatment for each transaction. Therefore, accountants must learn to use new platforms such as Gilded, Bitwave or Tactic…. The latter have advantages in the tax and accounting management of crypto-assets. In particular, they account for a company’s crypto-currency assets and offer an overall view of the cash associated with it.
3. Integrate crypto into its accounting practices
The challenge is to be able to categorize and “reconcile” crypto, DeFi and blockchain transactions and synchronize them in its accounting or ERP system. Illustration: if a company wishes to boost its cash flow by investing in DeFi, it must be able to follow its crypto cash flow through “exchanges”, custodians and DeFi protocols and merge this information with its currency-based accounting system. FIAT (Euro, Dollar…). This also goes for companies that charge in crypto and/or have crypto on the balance sheet like Tesla.
4. Be at the forefront of regulations
In terms of innovation, the fiscal and legal framework is still lagging behind. Web3 is no exception to the rule. New types of digital assets are evolving every day and are being used in ways that don’t fit neatly into existing tax and regulatory frameworks. A craze such that, in its Blockchain & crypto 2022 study, PWC states a percentage of 30% of companies with assets in cryptocurrencies. Accounting firms therefore need to keep up to date with the latest legal developments to understand the risks and regulations that may impact their clientele.