How to Become a Crypto Accountant

[00:00:00] Umar: Welcome to The Accountant Quits, brought to you by the Web3CFO Club, a community of web3 CFOs, sharing best practices on web3 operations and Cryptoworth, a crypto accounting solution to help you automate your crypto bookkeeping.

[00:00:16] Umar: On this podcast, we discuss how blockchain will impact the accounting profession and how accountants should prepare themselves for the future of work.

[00:00:26] Umar: My name is Umar, your host, and even if some might refer to me as the accountant gone rogue, my job is to provide you with the blockchain knowledge you need that will be relevant for the accounting industry as a whole.

[00:00:39] Umar: Welcome to Episode 44. If you’ve never listened to this podcast, this will be a good intro on the impact of blockchain in accounting.

[00:00:48] Umar: After recording 43 episodes, I thought it’s highly time that I revisit some of the content and share the best bits on what’s this podcast all about, helping you become a Web3 accountant?

[00:01:01] Umar: I consider myself very fortunate to be interacting with the leading minds in the field of web3 accounting and being able to share that with you.

[00:01:09] Umar: You know, even if the name of this show is called The Accountant Quits, it’s not about me quitting my accounting job, but rather it’s a bigger movement of accountants witnessing how technology is making them redundant. In the near future, I’m convinced that you can slowly use the accounting knowledge that you have to learn blockchain, and then the sky really is the limit. You can specialize to become a crypto accountant and who knows even turn entrepreneur, like a lot of my guests did.

[00:01:39] Umar: With the web3CFO club, I meet a lot of CFOs who used to work at Big4, consulting and asset management firms who have taken the red pill and learning on the job as they go along. I mean, no one teaches you really how to be a crypto accountant.

[00:01:55] Umar: Oh sorry maybe this podcast does.

[00:01:58] Umar: So this episode today will contain short clips from my conversations with Monica Singer from Consensys where she shares why CEOs won’t be accountants anymore. With Juan Ignacio Ibanez, to give you an overview of what triple entry accounting means. With Shenaaz Suleman, a technical partner from BDO explaining how to currently account for crypto assets. With Christophe Lassuyt, the CEO of Request Finance, who shares the emerging career opportunities for traditional accountants and transitioning from web2 to web3. With Antoine Scalia, the CEO of Cryptio, explaining why spreadsheets are inefficient for crypto accounting and why you need an automated crypto accounting solution. And finally, Geeth Jay the CEO of Cryptoworth, where I ask him about how can accountants start to specialize themselves on the different blockchains instead of having to learn everything.

[00:02:59] Umar: This episode today is an experimental format that I’m super excited to share, and please do let me know whether you enjoy this. Let’s get going, shall we?

[00:03:10] Umar: On my first episode, I spoke with Monica Singer, a strategic advisor at Consensys. Monica is also a Chartered Accountant and was previously the CEO of Strate for 20 years, the Central Securities Depository of South Africa.

[00:03:26] Umar: When Monica read the Bitcoin whitepaper, she knew instantly that she had to reinvent herself and evolve with blockchain. I’ll start with this quote from Gavin Wood, the co-founder and former CTO of Ethereum, and the founder of Polkadot who says, we all know that the pen is mightier than the sword, but pretty soon the keyboard will be mightier than the pen.

[00:03:50] Umar: I really think accountants have to wake up very soon in order not to see technology completely take over their job. So in this short clip, Monica shares why she thinks CEOs won’t be accountants anymore.

[00:04:04] Monica: So Umar, that’s where the confusion comes. You know, I’ve been presenting to CEOs for the last four years and because they had this like preconceived idea that blockchain is Bitcoin and therefore Bitcoin is used for nefarious activities, they don’t wanna hear.

[00:04:20] Monica: Imagine not wanting to learn about blockchain. It’s like me coming to you 25 years ago and saying, here’s the internet. I’m gonna teach you to send an email. You know, I’m old enough to remember when that happened. You know how many accountants said, I will never send an email, I promise. They said, I will never touch a computer.

[00:04:37] Monica: I will never send an email. I’m sorry, but that’s true. It’s what happened. And then as the world evolved, these accountants were forced to learn how to use a computer, and then all these tools were developed. You know, from Excel to many accounting tools that slowly but surely the accountants had to learn. But at the beginning they didn’t want to, and this is what we facing today.

[00:05:00] Monica: I feel so many times very inadequate because even though I work for the best, incredible, most advanced company in the world in terms of blockchain which is Consensys, the team, it’s like inventing so many incredible new technologies and I’m an accountant, and therefore, even though Chartered Accountants always have been seen as, you know, the. best qualified people for running businesses, I can, I promise you, Umar, I feel inadequate all the time because the team talks techie stuff, which is not anymore journal entries and bookkeeping and accounting and finance, as we know, it’s all about the smart contracts, which is a technology platform. You need to understand technology and therefore I really think that in future the CEOs will be technology people, not Chartered Accountants anymore. Yeah. Unless we learn how to program or if we don’t learn how to program, at least learn how to read the program.

[00:05:58] Umar: The first time I read triple entry accounting, I had a watershed moment, and it’s the actual reason that led me to create a podcast on the impact of blockchain in accounting.

[00:06:08] Umar: I knew double entry accounting, so triple entry sounded cool. I wasn’t sure I was reading right, and so I started digging into the available literature. As a previous accountant and auditor, I knew very well the pain points with double entry accounting, but never thought that a new framework could overcome the trust concern we have with double entry.

[00:06:30] Umar: And the fact that we, accountants and auditors always have to spend time reconciling transactions. It was at that moment that I realized that maybe I need to stop worrying about whether the price of Bitcoin will go up or down and understand how blockchain technology will change the future of accounting.

[00:06:49] Umar: So on episode four, I spoke to Juan Ignacio Ibanez, a thought leader and researcher on triple entry accounting. And where Juan explains what is triple entry accounting. I really think this is a great time for us accountants to be alive and to witness the double entry accounting, which has been present for more than 600 years about to be disrupted.

[00:07:13] Juan Ignacio: Yes. So here it gets good. So triple entry accounting is a concept putting forward the idea of a shared record, shared transaction record. But it’s not just that, as I said before, shared records exist and they’re not necessarily triple entry. So triple entry accounting is a specific design for how you build that shared record and how you make sure that this is reliable.

[00:07:34] Juan Ignacio: So how do you do that? Well, you do that with what in computer science is are called signed messages. Signed messages, result in signed receipts. Those are the basis of the record. So I’ll try not to get too technical here.. But basically these signed receipts or signed messages are cryptographically signed. What being cryptographically signed means is that you can be completely certain about the reliability of the record because if you see something and you have signed it, you can be sure that what you’re still seeing is what you have signed. If both you and a counterparty have signed the same message, you can be certain that both parties are looking at the same thing. This is the implementation of a principle called what you see is what I see. And this is super important because was it possible to have a shared ledger before triple entry accounting?

[00:08:22] Juan Ignacio: Yes, it was. But you needed to trust somebody who was managing the shared ledger. So either a third party or one of the two parties, typically a third one, a trust, even though it’s sometimes it’s sufficient to trust, trust is usually very costly, and with triple entry accounting, you don’t have to trust a third party, a third person.

[00:08:41] Juan Ignacio: You just need to trust the technology. We often don’t call this trust, we call this trust less. So, yep, that’s how it’s, it’s an improvement. Now in the original form of triple entry accounting, there was still a role for a third party. So even with cryptographically signed receipts, you needed a third party with a very minor role, but a role nonetheless, which is timestamping and ordering all their signed receipts.

[00:09:06] Juan Ignacio: So it’s a minimal role, but it’s there and somebody need to do it, and you need to trust for that. Here is where blockchain technology has changed that because blockchain technology has come to decentralize that last mile and make that trustless as well. So when, when we say blockchain based, triple entry accounting, you don’t even need to trust for the timestamping.

[00:09:26] Juan Ignacio: So in summary, this is the, the core technology, the bookkeeping bit. A reliable shared record based on signed messages. When you have a reliable digital record of every transaction you can do, use that to do much, much more than just record keeping. You can build like an accounting suite that draws information from the triple entry books.

[00:09:48] Juan Ignacio: This is why I like to draw distinction between triple entry accounting and triple entry bookkeeping. We can talk about that, but it’s basically the world of possibilities that is opened up on the basis of a triple entry book that’s triple entry accounting.

[00:10:02] Umar: Before we continue, we’ll take a quick commercial break from our sponsor.

[00:10:06] Umar: Whenever you use cryptocurrencies in your business, the framework for your bookkeeping is a combination of traditional and crypto native accounting softwares. Like any traditional business, you will need a traditional accounting solution like QuickBooks, Xero, Oracle, NetSuite, SAP being used as your main ledger.

[00:10:26] Umar: And a specialized crypto accounting software to be used as a sub-ledger, which would extract process and feed in transactions from the blockchain into your main ledger. Cryptoworth is an accounting software built for crypto and integrates with a 100 plus blockchains, 50 plus exchanges, and over 700 Defi protocols.

[00:10:48] Umar: It allows you to convert the blockchain transactions from wallets, exchanges, and custodians into your accounting software to facilitate your reporting, audits and tax filings. Moreover, it provides you with a dedicated Defi and NFT tracking dashboard. Cryptoworth works with web3 industry leaders such as Aave, Axie Infinity ,Celo, Moonbeam, Request Finance amongst others.

[00:11:15] Umar: If you’re looking to scale your business using crypto, you need to start automating your crypto bookkeeping and stop using spreadsheets. Right now, Cryptoworth is offering you access to their platform for free for 30 days. Visit theaccountantquits.com/sponsorships to claim this special offer today.

[00:11:36] Umar: As an accountant, our bread and butter is ensuring our assets and liabilities are correctly accounted for in our financials.

[00:11:44] Umar: Cryptocurrencies, as of now do not have a standalone accounting standard and therefore being accounted under intangible assets, the standard that governs assets like software licenses, trademarks, and so on. And if you are using the IFRS framework, you can also account them under inventory under specific conditions.

[00:12:04] Umar: On episode 12, I spoke to Shenaaz Suleman, a partner at BDO South Africa, specializing in IFRS Technical. Here I ask her to explain how are cryptocurrencies currently being recognized in financial statements, and what was the reasoning for arriving there? Meaning, can they be recognized as cash, financial assets, or intangibles?

[00:12:27] Umar: This is what Shenaaz said.

[00:12:29] Shenaaz: My favorite part, the accounting for it. From an accounting perspective, the International Accounting Standards Board sets the standards. Those standards form the basis of this framework, but the framework is very much based on principles. And currently crypto assets, as we just talked about, they fall into the category of assets, but it’s something that you cannot see, touch, or feel, which means it’s an intangible asset as opposed to tangible.

[00:12:54] Shenaaz: And so the first standard that it usually falls in is under IAS38, which is the standard that governs intangible assets. And the reason for this, a lot of people say, oh, well, you know, why? Why is it not a financial asset? And the simple reasoning for that is based on two, kind of a two-pronged answer.

[00:13:13] Shenaaz: Cryptocurrencies fail the definition of cash and cash is defined as being a commonly or widely accepted medium of exchange. And if you look at that definition, that alone, if you look at what is commonly accepted as a medium of exchange, you generally link that to legal tender. So if you look, for example, in the United States, you’ve got the USD and entities that operate in that jurisdiction would present their financial statements in that currency.

[00:13:41] Shenaaz: Currently entities are not being able to present financials in cryptocurrency. It is not commonly or widely accepted as a medium of exchange around the world. There are specific jurisdictions, for example, El Salvador that has now adopted Bitcoin as legal tender, but that is one jurisdiction. Broadly, that is not meant to be able to be classified as either cash or a cash equivalent.

[00:14:09] Shenaaz: So that takes care of the legal tender side of what, of this two-pronged kind of hurdle that needs to be crossed for a cryptocurrency to be, or crypto asset to be accounted for as cash. So it’s the legal tender. And then the second part is the volatility. So for an item to be holding value as a cash or cash equivalent, it needs to maintain some sort of stable value for at least a minimum of three months or more.

[00:14:32] Shenaaz: And crypto assets are governed and driven by different market factors around the world, and so they don’t generally hold value for that time period. Because of that, it falls out of the definition of cash and it’s not a financial instrument, which means it’s usually scoped out of the financial instrument standard, which is IFRS 9.

[00:14:51] Shenaaz: So the first point of call is stopping at IAS 38 and saying, cool, you know what? It’s probably gonna be an intangible asset. Having said that, there are a number of exchanges and traders and brokers around the world popping up as they are getting the license to be able to run crypto asset exchange. And from that perspective, if, for example, an exchange is buying and selling crypto assets in the ordinary course of business, so then an exchange buys it in their course, in their individual capacity, and then on sells it and and trades in this crypto assets.

[00:15:22] Shenaaz: There is a pathway to then say, okay, well in terms of IFRS, this could fall under IAS2 for exchanges, traders, brokers, in which case there’s different accounting principles that would apply. Depending on the nature of how the crypto asset or the crypto asset related product is structured it could fall under a financial instrument.

[00:15:41] Shenaaz: An example that you’ve mentioned before is the stablecoin, where if you took away the volatility, you could say this product may fall into IFRS9, but it depends on the specific terms and conditions related to that product. So there are some crypto assets or crypto related products that could fall into IFRS9, but the devil is gonna align the detail of how those legal agreements are structured underneath the rights and obligations that’s created.

[00:16:07] Shenaaz: And you could fall under IFRS9. If you fail to fall within the IAS 38 Intangible asset or an IAS 2, uh, which is the inventory standard or IFRS9. There is one other standard, which is the IAS 8 standard, which allows you to develop your own accounting policy if there is no other accounting policy that appropriately addressses your product.

[00:16:27] Shenaaz: So those are the four kind of quadrants that governs the accounting for crypto assets and crypto asset related product.

[00:16:34] Umar: If you ask me what I’m passionate about, I will tell you it’s to educate accountants about the impact of blockchain in accounting. Yes, there are loads of other technologies disrupting our profession and basically slowly making the accountant redundant, like AI, Big Data.

[00:16:50] Umar: But I could not dedicate my working hours to understand everything. And so I choose blockchain, and with this podcast and the other projects coming soon on The Accountant Quits, I want to help accountants transition from their traditional accounting job to something more exciting, less repetitive, and what makes them feel they’re not disconnected with the reality that we are living in.

[00:17:14] Umar: So this makes me naturally very interested on the subject of the future of work. And the emerging career opportunities for accountants to become freelancers and contribute to this new form of organization called a decentralized autonomous organization or a DAO. On Episode 23, I spoke with Christophe Lassuyt, the founder, and CEO of Request Finance, which as some of you know, it’s an application which allows you to manage crypto invoices, payroll, and expenses.

[00:17:45] Umar: Now Chris was a former CFO in Switzerland. He quit his job as he wanted to be an entrepreneur. He got back by the Y Combinator, founded Moneytis, an application enabling money transfers with crypto. Eventually, he wrote the Request Network whitepaper. He got back by 11,000 individual investors and subsequently founded Request Finance.

[00:18:09] Umar: Now Chris is not the most talkative person in the room, but when Chris speaks, everyone listens and I’m fortunate to be working with him on a daily basis. In this short clip, Chris shares the emerging career opportunities for accountants to use their existing skills and knowledge.

[00:18:26] Christophe: How I see, first you need to know who you are.

[00:18:32] Christophe: So let’s say if you are an accountant or auditor or a CFO or management controller financial controller, and you get angry and frustrated every time there’s something manual. Every time there’s something that does not make sense to you, then go to the next step. Second step. You basically can understand that there is a technology out there that is gonna solve all your problems, and it’s not solving them yet, which means there’s huge opportunities.

[00:18:58] Christophe: You can join a company, you can create a company, you can try to create an app. You can just be a community member wherever you, you may see fit. And you can also just like be a contractor for DAOs. And if you think a little bit about the future of work, you. You’re gonna be able in few already now, but in a few years gonna be much more accessible.

[00:19:20] Christophe: You will just work for a DAO. So there’s gonna be a community. They need a skill. The skill is, for example, a data analyst building dashboards, data studio reports, treasury, like just treasury advice or building, analytics. And all the things are skills that most of the people working in finance have.

[00:19:39] Christophe: They would like to use them more rather than doing manual stuff and listening to music at the same time because that’s so boring. So there’s already a few opportunities like this. I know a few people who are data analyst or data scientist for DAOs, and it’s only the beginning. Like, I mean, 2022, you can expect to have many job openings.

[00:19:59] Christophe: That are from DAOs and that fits skills of those, you know, frustrated people working the web2 industry with some skills in data analysis for example.

[00:20:10] Umar: Before we continue, we’ll take a quick commercial break from our sponsor. Working in web3 can transform your career, be financially rewarding and surround you with a vibrant community.

[00:20:21] Umar: But as you’re very much aware, this space requires rethinking a lot of the old models of how we work. For example, as the leader in a web3 organization, it’s up to you to figure out the most cost effective way to off-ramp the company’s crypto. Or what’s the most efficient setup to mass pay your contractors in crypto.

[00:20:41] Umar: Getting your organization to run on crypto is daunting if you are alone. That’s why Request Finance, the industry leader in crypto invoicing, payroll, and expenses has curated a community of web3 CFOs to share best practices around web3 financial operations.

[00:20:58] Umar: With CFOs from leading projects like Aave, the Sandbox, Binance, Consensys, and many more, joining this community will allow you to network and fast track getting your organization compliant in crypto. And you know what? I’m also responsible for accepting new members and growing the web3 CFO club. So if you’re web3 business founder, CEO, CFO, or in charge of financial operations, you can join this exclusive community today by filling up an application form at theaccountantquits.com/web3CFO.

[00:21:34] Umar: Subject to a screening check, you will then start interacting with high profile web3 CFOs, get access to members only benefits, like webinars, resources, and invitations to physical meetups. Join the club today and let’s win web3 financial operations together.

[00:21:52] Umar: Now, when you’re dealing with crypto transactions and have all these on the blockchain, you have to be able to import those into your accounting software, and that’s not very straightforward if you do it manually. When preparing financials that contain crypto in your assets and liabilities, the framework for your bookkeeping is a combination of traditional and crypto native accounting softwares. Like any traditional business, you will need a traditional ERP solution like QuickBooks, Xero, Oracle NetSuite, SAP being used as your Main Ledger, and a specialized crypto accounting software to be used as a sub-ledger, which would extract, process and feed in transactions from the blockchain into your main ledger.

[00:22:37] Umar: Now if you are looking to scale your business using crypto, you need to start automating your crypto bookkeeping. So on episode 26, I spoke to Antoine Scalia, the founder of Cryptio. Cryptio is a crypto accounting software solution that allows you to convert the blockchain transactions from wallets, exchanges, custodians into your accounting software to facilitate your reporting, audits and tax filings.

[00:23:05] Umar: I also spoke to other founders from crypto accounting solutions since then, like Bitwave, Consola Finance and Cryptoworth. So in this short clip, Antoine explains why you need to use a crypto accounting solution when dealing with crypto. Just a quick note that this episode was recorded in February, 2022, and since then Cryptio has integrated way more L1s and L2s, exchanges and custodians.

[00:23:32] Antoine: Sure. So we have, you really need to see our product as like two layers. Today work hundred percent together. So the first layer is on the data collection. So we let our clients track and automate data collections from 8 protocols, 8 L1s protocols, something like 12, 13 exchanges and 3 custodians.

[00:23:51] Antoine: On the on chain side as you have understood and as you’ve said in the introduction is our main focus. We tend to build ourselves all the data infrastructure, which means basically running the node ourselves, indexing the data ourselves, and do this entire partnership with the foundation building these protocols. Cause most of them are our clients.

[00:24:09] Antoine: Basically, if you are a business and you want to automate your data export, you will, the first step will be to track all your wallets and track all your crypto products and leverage our data infrastructure to, to pull this data with everything that goes with that. We meaning all the, like the checks and the audit and all the, the, the processes that we implementing, either manually or automatically, which basically gives the team a super high level of assurance that the data that they have in their transaction history is actually accurate and balances match and all that stuff. So that’s the first thing that you’re doing.

[00:24:44] Antoine: And then the second thing is, the second thing and the second layer is basically the data processing and, and kind of reporting layer, which of course includes accounting. And to do this, basically you need to, when you’re looking at transaction on chain, right, you don’t have, you have no clue of what this transaction is. It’s very difficult without any human input or without having more context on a transaction, what a transaction is in terms of accounting nature. If, for instance, I’m one of your employee and you pay me in crypto every month, it’s difficult to say that my address, which is like 0x whatever, belongs to me.

[00:25:20] Antoine: And it’s impossible on chain to know that this transaction is like a payroll expense, for instance. And so you need to have that input from the user and that’s what the UI would be used for. The companies will use our product to interact with the software, to basically teach the software, you know, how to identify these transactions, like to try to teach the software, how to classify transactions using, there’s a few tools available in the software so that basically you can on top of this transactional history that you have, and are you super confident that the, it’s like, um, it capture all the tiny movements on top of that, you can have metadata that will have context and transactions and then make these transactions like bookable in a way, right? I mean, so you are using all these tools. All of it is also done fully done automatically by our software.

[00:26:05] Antoine: Using our integration with DeFi protocols. And that would be the sort of the second step, like handling metadata on a transaction and try to do it in a, in an automated way. And the third step, which also is, is included in this like reporting layer, is basically onboard the sort of the specialist, like the accountant and the tax advisors like the auditor so that they can leverage all the different modules.

[00:26:29] Antoine: Build on top of this transaction history to meet their requirements. So you will have, the accountants will be able to steps in, connect a Xero account, QuickBooks account, whatever, or connect any ERP system for software. And basically map the chart of account with what you see in the transaction history with the classification that has been done with the assets, and start basically automating ledger entries, export to your accounting system.

[00:26:55] Umar: Now the last clip of today is for accountants to know which blockchains to specialize on. So if you’ve never worked in crypto accounting, how do you start educating yourselves? From what I’ve learned thus far, it starts with understanding how block explorers work. So on my last episode with Geeth Jay, the founder of Cryptoworth, also a crypto accounting solution.

[00:27:17] Umar: I ask him whether he advises accountants to specialize on some blockchains given the sheer number of L1s and L2s available out there. The more exotic blockchains can be more challenging, as some of them would not be supported by crypto accounting solutions yet. So instead of learning everything, Geeth tells you, which blockchains you absolutely need to have an understanding on.

[00:27:41] Umar: This is a very short clip, but I thought it was very insightful.

[00:27:45] Geeth: Yeah, I agree with you a hundred percent. I think it’s very important to understand Bitcoin, and if you understand Bitcoin, you understand the UTXO model easy, right? Then there’s EVM and even the clones are almost a carbon copy, right? You take Ethereum, Polygon, you take Avalanche.

[00:27:59] Geeth: They’re, they’re very similar. And if you understand Ethereum, then you’re likely to understand the chains. Then other changes like Solana. So, I think Bitcoin followed Ethereum followed by Solana would be the most useful. But that being said, there’s, there’s more chains coming up like Near, Cosmos, but understanding the most common ones will probably help you understand the other ones that will come later.

[00:28:23] Umar: Alright, that’s all for this best of episode where I shared different insights on how to become a crypto accountant. How did you find it? Was it helpful? Let me know as I’m currently working on new forms of content on The Accountant Quits. If you find this show helpful, I would really appreciate you following the show on Twitter.

[00:28:42] Umar: My handle is @accountantquits and leaving a review on Apple Podcasts and Spotify. See you next time where my guest is building a crypto native consulting firm. Bye for now.