Blockchain might be the most buzzworthy word in accounting today, and the trend continued at the Accounting and Finance Show L.A. July 25-26.
Multiple sessions covered the emerging technology, with one keynote speaker, Robert Massey, partner at Deloitte, giving a brief primer on the hot topic.
“Blockchain is one of the most significant evolutions we’ve seen,” said Massey, who leads Deloitte’s cryptocurrency and blockchain practice globally. “Blockchain is to value as the internet is to information. It’s an exponential change, to share information between decentralized parties, in real time. It decentralizes the ability to record information, and enable transactions. It’s the next step in the evolution of commerce.”
Massey, himself a CPA, finds it helpful to think of blockchain as a “big shared ledger.”
More specifically, “a distributed ledger which allows digital assets to be transacted in real time, in an immutable manner.”
Many people are familiar with blockchain as the technology behind cryptocurrencies like bitcoin and ethereum, and Massey dedicated a portion of his session to addressing those virtual currencies, as did other panelists at the conference.
All panelists stressed the status of cryptocurrency as property, based on guidance issued by the Internal Revenue Service in 2014.
Stephen Turanchik, an attorney in the tax practice at law firm Paul Hastings LLP, spoke about the perplexing nature of cryptocurrency taxation during another conference session. He explained that virtual-currency exchanges are not required to report to the IRS, so “a lack of detection, and the ability to hide it still exists.” But, he continued, “if you think that gives you the license to commit tax fraud, think again.”
On July 2 of this year, the IRS announced its virtual currency compliance campaign, and will be conducting more audits on virtual currencies, Turanchik warned the audience.
The IRS is also stepping up outreach and education efforts, and soliciting taxpayer and practitioner feedback for these campaigns. The service is urging taxpayers with unreported virtual currency transactions to “correct their returns as soon as practical,” Turanchik reported, though the IRS is not contemplating voluntary disclosure programs.
“The IRS simply doesn’t have the technical expertise to give guidance in this area,” Turanchik said. He cited a “John Doe” summons the IRS served to virtual-currency exchange Coinbase in November 2016, seeking customer data. Before the petition was granted, the IRS had to narrow the scope of the summons, to Coinbase users with accounts of at least $20,000 in any one transaction type, in any single year between 2013-15.
Overall, Turanchik explained, there is a “significant lack of transparency” in the cryptocurrency space, which he said keeps him busy, and provides big opportunities for tax preparers.
Cryptocurrency was discussed during another conference panel on blockchain, though the panelists focused more on how accountants should plan to harness the technology within their practices.
Practitioners should start with educating themselves on the blockchain, all panelists agreed. David Cieslak, chief cloud officer and EVP at business consulting firm RKL eSolutions, suggested that firms add a blockchain leader, while Ron Quaranta, chairman of the Wall Street Blockchain Alliance, recommended seeking resources on the topic from the American Institute of CPAs.
“Technology has disrupted the profession previously—this is not a new conversation,” said Danetha Doe, founder of financial mentorship program Money and Mimosas. “It’s the speed of the change. The next generation is adopting quickly, and you’re going to start to see a shift in the profession… how blockchain can be applied to different use cases outside the box.”
“All of us need to be thinking a lot more about value, and a lot less about tasks, [which] are often much more transactional,” said Cieslak. “Blockchain is really going to accelerate that. How can we leverage the technology to bring that greater value?”
It was a question asked frequently throughout the two days of the Accounting and Finance Show, with speakers attempting to provide guidance on a bold, and still mysterious, new frontier. But the technology’s novelty and unrealized potential only energized both panelists and attendees.
The conference’s thought leaders were most enthusiastic about blockchain as it related to new ways of conducting business, such as its use in smart contracts.
Smart contracts take “key terms in a legal agreement, and embed [them] in software, creating link dependencies in the agreements,” Massey explained in his keynote session. He offered the example of a farmer buying crop insurance, which will pay him if it doesn’t rain for 100 days.
Smart contracts utilize blockchain to connect to outside, trusted “sources of truth” to facilitate, enforce and verify terms of an agreement, thus removing the need for third parties or middlemen. In Massey’s farmer example, one of those sources of truth would be regional weather data.
“Blockchain is very effective connective tissue,” Massey explained. “We see, in all industries, the use of smart contracts enabling better relationships.”
Smart contracts “are happening organically anyway,” he continued. “It’s not just the systems, but the organizations that are decentralized. It’s likely now that transactions are validated somewhere other than where management is sitting.”
“There’s a real variety of use cases, and those are what are super exciting,” said Cieslak during the panel discussion. “Some of what is going to be done with blockchain, has never been done before.”
The implications are especially exciting for certain industries, like the recording industry, an example many speakers cited when describing how intellectual property, like songwriting credits, can be coded into blockchain-enabled smart contracts. Speakers and panelists urged attendees to educate themselves on the technology and assess how it can apply to their clients and industry verticals.
“Every company innovation in this space is putting forth solutions,” said Massey. “In L.A., in entertainment, in media, [you can] lock down intangibles like the rights of a song or movie. What if you lock that down in a blockchain solution, before you had to pay for it? It’s a significant evolution in song and movie rights. It’s hitting every industry. It’s relevant to every single one of them. Think about your clients, and what’s relevant to them.”