Discover how accounting for digital assets works differently because of a public ledger
Updated: Sep 20, 2022
The process of accounting is by no means an invention of modern civilization. In fact, it is as old as the human race. The first records of traded goods, written down with their respective prices, date back approximately 7000 years to Mesopotamia. Humans had to keep track of their holdings and transactions by writing them on stones. For most of the time, people needed to trust intermediaries not to alter the content of their records. This was done by setting the right incentives or by making the records public, so any manipulation would be obvious.
The blockchain technology disrupts accounting before our eyes
This principle of having a public ledger was taken to the next level with the introduction of the blockchain technology. The Blockchain technology provides an immutable public ledger and disrupts the way we keep track of the possession of our assets. For the first time, we can transact and have a record of our assets without needing to trust a third party. The likelihood of a manipulation is very low, since there is no single point of attack and even in the case that someone tampers the data in the blockchain, every participant holds a copy of the database up until this point, so it can be easily restored.
The shortcomings of the blockchain
One could think, that this public, immutable ledger would solve the issue of accounting once and for all. But there are some issues, that this new technology can not solve. Storing data on the blockchain is expensive, and therefore the precious space on the chain is usually used to store hash values. The hash of a transaction is a unique proof, that the ledger entry is valid, but it does not contain any additional data, other than the addresses of the sender and receiver(s) and the amount that was transacted. This is not sufficient for proper accounting in the context of a company’s balance sheet.
Is it time to rethink accounting?
Regular bank transactions of companies are often linked to an invoice or a receipt, that proves the validity of the transaction. When an entity is sending money via the blockchain, it is impractical to link all these documents to the matching transactions on the ledger directly. The best practice is rather to use a tool, that tracks all the transactions on a company’s wallet and then stores the receipts and invoices separately. Since the ledger can be trusted, a report of all the cashflow of a company can be created on demand by anyone. This makes the process of accounting more flexible, but also different compared to a regular bank account.
Here is what you need to know
With some basic functions, you can already cover all the most important accounting needs:
Aggregation of multiple wallets
PDF Report of transactions (to match with list of receipts)
PDF Report of holdings (crypto + NFTs)
Invoicing for token payments
With these basic functions, that are provided for free by basenode.io, you can get started and use crypto payments in your company. Of course, you should still talk to a tax advisory, that knows the specifics of your countries crypto regulation.
At basenode.io, our mission is to eliminate the gap between traditional accounting and blockchain-based accounting. basenode.io is the easy-to-use accounting solution for digital assets that offers seamless crypto invoicing and portfolio tracking. We provide a self-explanatory user interface with a clean and modern look, that naturally supports your workflow. We support the most popular networks like Bitcoin, Bitcoin Lightning, Ethereum, Binance Smart Chain, Polygon, Ronin Chain, and more.
About the author
Oliver Schantin has been deeply involved in the blockchain and entrepreneurial space for several years. He founded his first blockchain startup in 2019 and is a frequent speaker and guest in various crypto-related podcasts, conferences, and summits. You can contact him via LinkedIn or Email.