When it comes to understanding practical opportunities for up and coming decentralised technologies like blockchain, cryptocurrencies and smart contracts – there’s a lot to take in. Add in the potential challenges that businesses might have incorporating these offerings in the future, it’s no surprise that there are more questions than answers among our community.
At Xerocon Sydney, I was lucky to be joined by a panel of local blockchain and cryptocurrency experts to explore some of these areas. Our aim was to demystify the tech, highlight what’s available and being used by customers right now, and help frame a future where problems can be solved in novel ways in the decade to come. I really enjoyed our conversation, and thought I would share some takeaways from that discussion.
1. There are clear opportunities for those who embrace it
Enhanced security and more automation of processes along the value chain are just some of the benefits that blockchain technology can bring to modern business. Records can be encrypted and distributed across multiple computers, removing the ‘single point of weakness’ risk, and making them immutable and resistant to fraud.
Transactions that take place on a public blockchain are time-stamped and transparent, which creates a clear audit trail for all to see. Time delays caused by trust intermediaries and process inefficiencies (i.e. paperwork, reconciliation and human errors) can all be greatly reduced which, in turn, reduces the costs incurred by small business customers.
How? Well, take the example of a smart contract: this is where contractual provisions codified on the blockchain are automated so that they are executed as soon as a condition is met. Take for instance, a shipment that’s arrived on-shore – payment would be automatically released from escrow. Or, for customers that transact overseas, transacting in cryptocurrency allows for the removal of intermediaries that ‘clip the ticket’ along the way. Or, as discerning consumers increasingly want to know more about the provenance of the goods they’re buying, blockchain technology can be used to trace the coffee they’re drinking – right back to the beans that were ground to make it.
According to panellist Shane Brunette, CEO of CryptoTaxCalculator, blockchain technology also creates the opportunity for consistency, which is a good thing. “A public blockchain is like a universal accounting ledger where all parties transacting in the ecosystem have agreed to use the same transparent reporting standards across all entities. So, naturally, this opens up huge opportunities for real-time automation and analysis.
In the future, accountants might be able to directly access transaction histories from the network itself, rather than having to request this information from the bank, or third-party entities. Accountants would be able to see transactions in real time and verify records via a trusted audit trail.”
2. Adopting these technologies will take initiative, and pay off
With hype and speculation so rife in this space, it can be very confusing for small businesses and their advisors to figure out where the real innovation lies, versus that which won’t go the distance.
Imagine that a small cafe decides to allow customers to pay for their coffees with bitcoin – maybe they even offer it as a promotion to drive up new business. They get some new customers, and collect some bitcoin, and then think nothing further about it. A few months later, the cafe owner decides to trade that bitcoin for ‘fiat’ (i.e. traditional) currency so that they can pay other bills. There’s a good chance that the bitcoin received by the cafe will have changed in value, meaning the business may have made a capital gain, and now owes tax on it.
Even shifting bitcoin to another cryptocurrency would trigger this event, meaning small businesses could inadvertently get themselves into a tax predicament that they weren’t anticipating.
This example highlights a talking point that was consistent across all our panellists: advisors who become proficient in the tax implications of cryptocurrency will definitely be in hot demand.
Electra Frost, the co-founder of the Digital Playhouse Foundation agrees that there will be high interest for advisors who see leveraging these technologies as a means to bring inherent value to their and their clients’ operations. “We’re not going to be using blockchain practice platforms just for the sake of using blockchain. We’ll use them if they bring a layer of trust to our clients’ transactions, streamline our accounting processes, earn us passive income from our business know-how, and position us as a digital accountant at the forefront of technology.”
According to Shane Brunette, those who made the effort to understand different transaction categories – and their respective tax impacts – would do particularly well in a market that’s seeking people to pave the path in this type of specialised accounting.
3. There are challenges in adopting these technologies (but they’re not insurmountable)
There’s no denying: adaptability to change is crucial. So, Electra Frost, a seasoned accountant of many years urged delegates to see it as a challenge that is not insurmountable. “Accountants are challenged by web3, but remember – this isn’t our first rodeo. We’ve onboarded businesses to cloud computing over the last decade, and we can lead the way again.
Knowledge-sharing collective Accountants On-Chain is onboarding accountants into these technologies with regular online events. This is not just the domain of tax advisers. Bookkeepers and accountants play a crucial role in developing internal finance processes and best-practices for businesses entering this space.”
It was a sentiment echoed by Adam Parore, CEO of CoinHQ, who added that change is inevitable. “Digital assets are coming quickly, and we as a profession must be ready with the tools to support our customers, especially around cryptocurrency tax. Some great podcasts that will get you up to speed, and keep you across the latest movements in this area are What Bitcoin Did, Coin Stories, Crypto Banter and the Weekly Open.”
Distributed ledger technology is quickly evolving, and will likely continue to shift and change as more businesses and governments look at implementing various aspects of it. In my role at Xero, my team and I are charged with keeping a close eye on where technologies like these are heading, how they are being adopted, and what opportunities they present for our customers.
We’re excited to make sure that the beautiful Xero experience you’re used to adapts and evolves, always leveraging the most relevant and powerful technology available. If there are other areas of emerging technology that Xero could help demystify, I’d love to hear what topics we should cover to help you and your clients grow your knowledge, understanding, and ability to embrace the future.