Digital Playhouse Foundation co-founder and Accountants On-Chain project lead Electra Frost spoke on the Xero looks ahead: Blockchain panel at Xerocon Sydney.
Xerocon is an education-focused 2-day event run by the accounting technology platform Xero. Known as "Coachella for accountants", the event brings cloud accounting leaders from across the world to elevate accountants’ and bookkeepers’ skills, knowledge, industry awareness and connectedness.
Led by Xero’s EGM, Architecture & Integration James Bergin, this panel aimed to demystify emerging technologies like blockchains and cryptocurrencies and explore the possible impact they might have for accountants and their clients.Also on the panel was CryptoTaxCalculator founder Shane Brunette, and Adam Parore from CoinHQ and SBA NZ.
Xero recognised the potential of blockchain at Xerocon Brisbane 2018 and so much has developed since then. With Australia having the highest rate of crypto adoption in the world and 55% of merchants and consumers wanting to transact in crypto, lots of small business accountants and bookkeepers are now trying to post crypto in the books for the first time.
The crypto-curious digital accountants attending this fully-booked session were on the front foot, ready to learn what blockchain is and how they can proactively guide their clients doing business in this space. James provided an easy-to-follow introduction to the concepts and key terms of blockchain, explaining the benefits that blockchain brings to other technologies auch security, traceability, transparency, speed, reduced costs and automation, which was all brought together into an example of ‘triple-entry accounting’.
Examples of blockchain technology applications were given such as:
decentralised identity,
DeFi,
crypto payments,
smart contracts and NFTs
.... with illustrations of smart contracts used in a supply chain with IoT, concepts of NFT non-fungibility and programmed scarcity, and the tax considerations of a cafe accepting bitcoin as payments.
Fun fact: in 2018 Electra Frost’s home of Agnes Water was named Australia’s First Cryptocurrency Town with over 30 tourism and hospitality merchants equipped with Bitcoin and crypto point of sales, which attracted tourists and supported the innovation of local businesses in the tourism sector.
Electra talked about the mission of Agnes Water based education charity, Digital Playhouse Foundation, and its projects to bring digital financial literacy and inclusion for Australians at risk of falling behind in the new decentralised digital economy.
Our mission-aligned Accountants On-Chain project accelerates knowledge sharing and experiential learning amongst accountants and bookkeepers to provide guidance and support to businesses using crypto and entering the Web 3.0 space.
As a public accountant - Electra Frost Advisory - working with creative and technology businesses for more than 20 years, Electra has always been experimental and innovative within her own practice. Her first exposure to crypto was an animation company client in 2014 paying overseas contractors in Bitcoin, when there was no guidance available for the account keeping side. So her curiosity about crypto technologies began with business utility rather than personal investments.
She said: “Ten years ago we were fully into the cloud, although I always held my reservations about data proprietorship and control and wished we could do everything in a more borderless way. Then I started learning about how blockchain is trustless and permissionless… you don’t have to trust anyone… blockchain is coded so you can secure, own and control your data while interacting with other platforms to do your business… and as a creative industries accountant the creative ownership economy is so exciting for me”.
Fast forward to crypto accounting practice in 2022....
...the 2014 tax guidance from the Australian Tax Office is becoming somewhat dated and the accounting standards still hard to apply with the treatment of crypto assets not recognised as cash equivalents. But innovation is not waiting for regulators to catch up! Accountants and bookkeepers are now aware that their crypto clients are not just investors, and are seeing new challenges for clients that want to use digital assets in their business. They are faced with a steep technical learning curve and the responsibility of reporting their clients' affairs to keep them compliant and financially well managed. Theirs is not an enviable position to be in, but they've been here before. Businesses should start with a digital asset adoption strategy and seek their accountants' advice before buying their first crypto. Otherwise they could be setting themselves up for a difficult (and costly) clean up job with their accounting. Web3 startups, like any new business startups, need guidance with setting up accounting software, budgets, cashflow, tax planning and financial management. They may not be aware that professional help is available because our industry is not communicating that it is at the forefront of crypto and blockchain technologies.
Some business operators might think: “Oh it’s on a ledger on the blockchain, so you can see it when you need to…. “ But no... this data cannot be simply fed from the blockchain into the accounting system for retroactive reporting and tax returns. It requires specialist tooling and keeping on top of an extremely high number of transactions that do not show any of the descriptive details that bank transactions do. If you don’t approach things the right way from day one with a plan, it’s going to get messy, and very time consuming and expensive to sort out, very quickly.
Some fundamental issues businesses need to consider before buying their first crypto: Wallet hygiene - such as keeping separate business, private and investment wallets to make it easier to do the books and keep different taxable activities distinct. Crypto custody and treasury management for digital asset businesses - e.g. establishing MPC and multisig wallets. Internal controls/policies: around processes, security controls, subledger accounting classifications, crypto invoicing and payment tools, Point of Sales (PoS) and paying wages. Accounting software choices. Enquire about the crypto add-ons in the Xero marketplace that their bookkeepers and accountants are familiar with.
Adam warned us that we are facing the “shoebox of receipts problem” all over again. It’s important for advisors to assess what can be automated and educate clients about the level of complexity they can create. Accountants and bookkeepers need to set the benchmark and reduce complexity, and be watching the software developers that are trying to build elegant solutions for us. Training of our clients is critical, and this leads into selecting the right tooling.
All panellists agreed that, despite the crypto market seeing a sharp pullback this year, now is the time to be bullish on blockchain and crypto technologies in the long-run. Everyone is thinking about price action - but price can be a red herring and should not be viewed as the dominant factor of value - finance professionals are now thinking about concepts of value differently. Shane is particularly bullish on disruption to the finance industry and long term impact to the accounting industry, with blockchain providing an immutable accounting ledger where all parties agree to the common format of a distributed ledger. Adam explained a future of token economy ownership and participation, with the adoption of blockchain tech for payments being driven by new utility of blockchain payment rails and platforms. Electra mentioned that with central banks around the world including Australia’s RBA now researching and issuing digital currencies (CBDC’s), it’s important for us to understand their different characteristics to decentralised cryptocurrencies, in order for us to better understand our clients who remain bullish on the technology and are building applications despite all the noise about “markets crashing”. At a practice level, blockchain presents many opportunities... so accountants and bookkeepers need to be aware of how to work effectively with their clients. Electra recommended to ask your clients why they are buying crypto, why they are moving it around the way they do. Don’t assume they’re all investors looking for a quick buck. Get them talking about what they want to achieve, what they’re trying to do with their business model or future career here… because how the crypto is used and these intentions will frame how we book it and tax it. Bookkeepers and accounting technicians play an important role in developing the best practices for businesses entering the space, or those already in it, and could offer new service lines for best-practice business crypto adoption to keep ahead of their competition.
Electra learned-by-doing as a practice owner and is convinced that it’s the best way to get started - that means actually buying small amounts of crypto and moving it around in ways that your clients do - to see the opportunities and be pioneers in our industry.
Remember - we have been here before. Accountants and bookkeepers used online banking and Xero before most of their clients did. We can do Web 3.0 By training ourselves on it first-hand we can develop our own experience with digital assets to lead clients with. We will create new best practice processes and workflows for our practice as we go along.
How to learn more? Different people have different learning styles and goals. Some accountants and bookkeepers, including Electra, are pursuing new career pathways with the Advanced Diploma of Applied Blockchain while others are doing shorter accredited and non-accredited courses, following respected thought leaders on social media and listening to podcasts to learn about what’s relevant to their interests.
Before going down the rabbit-hole, Electra and Shane recommend the best place for all to start is by reading the Bitcoin Whitepaper.
That document was the genesis of the token economy, with the first database developed on a blockchain. The Bitcoin principles are at the very foundation of the Web 3.0 movement we are now learning about and provide real insight into how the foundations of money and how we do business are changing.
So jump in, be curious, learn everything you possibly can this year and practice speaking the language with your colleagues and clients!
Accountants on-Chain social connections:
Follow on Twitter @accts_onchain
Learn more about our head organisation, Digital Playhouse Foundation
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Read more from Xero:
Three key takeaways from our Xerocon Sydney blockchain session
