Enjoy our webinar video, transcript and slides with Cryptio.com demonstrating how to set up an accounting and reporting back-office for enterprises, institutions and DAOs
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Hello everyone. My name is Electra Frost and we're at Digital Playhouse and this is an Accountants on-Chain presentation with Cryptio. Cryptio are all about bringing certainty to counting your crypto.
So we have accountants here today joining us who are used to dealing with their clients on Xero and in business and they're starting to see some crypto on the balance sheet and wondering how to deal with it. So Hemant is here today from Cryptio to take us through an option using crypto software and we're going to be learning how to set up an accounting and reporting back office for enterprises, institutions and decentralized autonomous organizations - in other words, crypto native organizations, those that use crypto, have crypto and it's part of doing their business.
So just as an introduction - you'll be getting these slides afterwards - I'm Electra Frost, co-founder at Digital Playhouse. We're a charity in Queensland, we're about creating job and career pathways for people in regional areas and we have coding for kids classes and hold various sessions to help people adopt digital assets safely and securely. I put these sessions on as fundraisers for Digital Playhouse and also just to share my own learning journey.
Because it's all about knowledge sharing these days not knowledge hoarding… and I'd like to encourage that amongst us because this new digital economy transformation is happening very very quickly and I think the more we share with each other and learn together the faster we can get there as accountants to give our clients the right guidance.
Hemant tell us a bit about yourself what do you do at Cryptio.
Sure - so I've been in crypto uh for the last four and a half years. II joined Cryptio about a year ago and I head up the revenue department so um that's the whole go to market function of marketing and sales. Hopefully today I can I can share some useful information about the industry about the challenges with crypto accounting about reporting at an enterprise grade, generating the sort of reports that are useful for businesses, creating a sub Ledger, keeping a sub-ledger, and then how to get all of this crypto stack working with your current accounting system whether it's Xero or something else. I recommend that you follow Herman on LinkedIn. Do you share a bit on LinkedIn? I'm pretty active on LinkedIn so feel free to add me on LinkedIn and for those who are new to crypto, crypto sort of lives on Twitter. So if anyone wants to follow us on Twitter as well as Cryptio on Twitter, you'll be able to find out that it's a bit more active on Twitter. Okay here's the disclaimer - this isn't financial advice - if I said it I didn't say it - I think we know the drill. OK, look at this - I just wanted to show this infographic because this is the first thing that caught my attention when I discovered Cryptio. I can't remember where I saw this but I went wow that's the whole map of concepts we need to get our heads around to be able to deal with clients that are using crypto in their business. Just by just starting to understand just the kinds different kinds of wallets they can have in business like we're used to dealing with individuals many of us who've used crypto and you know when we're using our software to gather the information for their tax reports where we're seeing things that we're generally a bit familiar with now.
But with businesses there are more kinds of wallets and decentralized apps and activity coming from that, that we need to learn more about to know what to be on the lookout for. So what are we looking at here, Hemant? Just starting from this, this is all the information the on-chain and of chain information that we need to get into Cryptio, push it to our accounting system and also business ops.
Yeah, that's pretty much it. I'd happily sort of walk through that in a bit more detail in the presentation but essentially yeah it's taking all the on-chain activity and then also the crypto activity that's happening in private databases, so in third-party exchanges through custodians in e-commerce platforms where basically someone else is custodying the crypto for your client, and then taking all of that transaction history and processing it in a way that's useful for accounting and reporting. Then push that to the accounting system that you use for the clients overall accounting, and sort of merge it with their Fiat books that already exist. Yeah I mean US Dollars, Australian dollars, whatever currency they're using I think.
Okay so these slides will be shared but I suggest spending a bit of time on this and looking up these companies, if you're not familiar with them, to see what they do and what they're offering in this ecosystem. Okay just in a nutshell this is what I think we'll be covering today but I'm going to hand it over to Hemant to run through his slides.
I asked Hemant to tell us also a bit about what problems Cryptio is solving for the accounting industry and for businesses, and how they're solving them, and also why crypto businesses need a back office. What is a back office? How do you set one up? What are the steps we need to go through to build that complete picture? We just looked at all the crypto activity and need to get it into a sub Ledger system. That is a ledger containing all the detailed subsets of transactions. We're probably familiar with that but understanding it in this context is new.
Reconciling all that data into the general ledger you know into the accounting system we're used to working with Xero or Quickbooks. And best practice reporting for business and investors. Maybe not just financial reporting but other management reporting that you need to be presenting to stakeholders and interested parties. And how to get started with Cryptio. So I'll hand the screen sharing over to you now Hemant.
All right okay so maybe just before I get started - because I know there's uh there's sort of a variety of degrees of people familiar with crypto. So crypto you know has exploded and it's this sort of new economy that people sort of like to connect to on the internet. Well, we have this new technology that's giving birth to a sort of a whole array of businesses. So the central tenet of these businesses is this idea of decentralization, which is to say that we can recreate our current financial system and many other sorts of use cases in a way that doesn't centralize all the power and the control of the assets. And underneath all of this, is this idea of a shared public ledger. This is what I think - this is why I really like the accounting side of it - because on a very base level a blockchain is a ledger and it's a record of every single wallet that exists and the balances of all the assets in those wallets, and it's also contains a history of every single transaction ever that happened through those wallets. And that in its entirety is a blockchain. And just maybe some terms to clarify - there are many blockchains and I'll refer to them as a Layer One blockchain.
So Bitcoin has a layer one blockchain, ethereum has a layer one blockchain, and on top of these layer ones you can then have applications being built on them. So you might have a client who comes to you saying “oh I've got all these different tokens”, but these tokens may all live on the ethereum blockchain. So a really good question to ask is “how many layer 1 blockchains are you using?”, which is to see how many of these base layer blockchains are used, and then on top you can have many different tokens as well. I'll go into that into a bit more deeper detail, but that's usually a good way to start with a client if a client comes to you saying “I've got crypto activities” - “where is your crypto and which blockchains are you using?” It's a good place to start. But before we get into that just do a quick intro to crypto and what we're trying to do.
So we're trying to build the accounting and compliance back office infrastructure for corporates and institutions and we've been around for four and a half years. Our Focus has been on the B2B side so we are not meant for retail traders. We're more sort of on the accounting side, the reporting side for institutions, but also smaller crypto businesses. Also DAO’s which are these Decentralized Autonomous Organizations that are crypto native organizations. So that's where our expertise lies.
We've got 250 customers and for those of you familiar with crypto these are some of the most successful crypto companies out there. We have a wide range of crypto companies from the largest Enterprises like Consensus who are the makers of this wallet called Metamask, and then we've got a bunch of NFT companies out there like SuperRare, which is an NFT marketplace where people can buy and sell NFTs. We do the back office for Marketplace and then we've got just a bunch of smaller corporations who just happen to take payments in crypto as well and have a few transactions every month and just need to keep their books for that as well, and they're also able to use crypto.
We're backed by VC’s in Europe and the USA but we have a global presence and even in Australia we have a few accounting partners, a few companies as well. One thing we do is that our focus is on making sure that we're able to deliver the best experience for businesses using crypto and a big part of that is working closely with the accounting market. So we have and we're about to actually refresh the accounting partner program, and what that means is it's going to be sort of a Xero type program where we'll have accounting partners and they can unlock benefits as they onboard clients to crypto.
But so far it's been the reverse where we have so many inbound clients and we sort of direct them to our accounting partners in different territories. And that continues to be the case, and it's sort of that relationship that we want to develop with accounting partners, and also make sure that we're developing the product that accounting partners are comfortable in using. And give them the training to make sure that they can use it and feel like they can grow their practice with crypto and continue to onboard more clients or start onboarding crypto clients. So that’s a bit of background.
As you know where corporate crypto is at, or where business and crypto is at, so there are a few key problems that businesses need to solve when they enter crypto. The first is custody, which is to say where they are holding the crypto assets. Now one idea is to have self-custody, which is to say that the business itself is managing the security of the assets that they hold. And they'll use something called a wallet to do this.
The most popular wallet is metamask, which also has an Institutional version. If they're using this business version of it, or they might choose to use a custodian which is a third-party company, often pitching their services and their ability to secure digital assets. They'll also usually have some insurance against those assets being stolen. So businesses may feel comfortable about custody with them, and they'll charge the business a small charge for it. You have companies like Fireblocks, who are providing the infrastructure from that, and there's lots of other custodians out there like Bitco, and Anchorage as well, that are securing assets for businesses. Now, there's a lot of talk about where this custody world will go. There's a lot of talk about whether traditional banks will start helping people to custody crypto assets, and maybe that's on the horizon. But there's a lot of innovation already that allows businesses to custody assets in crypto.
The second side that's had a lot of activity has been on the transaction side which is allowing businesses, but also individuals obviously, to transact with crypto - whether it's buying and selling crypto for Fiat (which is traditional currencies like dollars pounds etc) through an exchange, or whether it's transferring crypto to other wallets in a way that's useful for businesses. So there's like payroll options where companies can choose to pay their employees in crypto. There’s invoicing in crypto, e-commerce in crypto, and there's lots of innovation there.
And then there's this other thing called DeFi which is a whole new universe; but an element of it is around how do we help businesses make the most of their crypto assets and give them financial tools and financial applications for their crypto assets. So it's basically kind of recreating a lot of the things that exist in traditional Finance, but for crypto in this sort of decentralized way. So things like borrowing and lending - you can sort of use your crypto as collateral and borrow against it, or if you want to supply liquidity to a pool and earn interest on it these are certain products that exist in defi.
There's been a lot of news around how certain funds that were over-leveraged and had invested in certain defi projects have gone out of business. And that's another world which is CeFi - which is centralized companies taking custody of crypto assets for individuals and businesses, and then they’re creating leverage, and then going into the right that's sort of separate from going directly into people if that's on the horizon as well. Just thought I'd mention that.
All right moving on… but a big thing that's missing… so we've got the custody side kind of figured out… lots of activity on the transaction side… and the big thing is Accounting and Reporting. What often happens is they'll have these businesses with sophisticated activity and they'll go to their accounting firm that they've been recommended to and the accountant's like “Well it's great, but you know, we're not set up for this. Can you send me a list of all your transactions and then I can manually book them for you?”. And the person running the crypto business says “What do you mean, a list of transactions? I don't know how to pull that for all my complex DeFi. It's not as if I can go to a bank and ask for a statement!”.
So that's the issue here. It turns out that this is a unique problem for crypto because - as at the start I mentioned - the blockchain has these public ledgers, and the idea is that if there is a a record of every single transaction that happened here, and of every single wallet, then it should be fairly easy to be able to pull a full transaction history. This is where the paradox is. That it is a public ledger but currently the infrastructure to be able to pull transaction histories in a way that's useful for accounting and reporting infrastructure isn't widely available. That's where Cryptio comes in.
This is where we're coming in to build this infrastructure for the crypto economy which helps especially businesses given they have the most pertinent need and and they have higher sort of compliance standards. That we’re helping them pull this transaction history and then prepare it for accounting and reporting. So far it has been a case of the businesses approaching Cryptio for the solution and then introducing it to their accountants to say “Hey you can help me with this?”. Or of the accountants seeking us out.
So we've been around for four and a half years and it started out with these crypto native businesses and the actual deFi projects themselves. The blockchain itself is the foundation that's sort of creating the blockchain, so these companies whose whole business is to create crypto products - they're in a position where you know they're obviously got an entity in a certain jurisdiction and they need to do their accounting for it and they have no way of actually pulling these transaction history. So they've been our first clients and usually it's the layer one blockchains on top of which all these applications are being built that come to us being like “hey guys you seem like you know how to index this, which is a part of creating a system that can pull transaction histories… Can you do this for us?”
So over the last four years we've created these sort of indexes that read the blockchains and allow businesses or anyone to pull transaction histories and prepare. And on top of that we've sort of built an accounting suite to actually build a framework where you can do reporting rather than just beyond just doing tax reports. That's what's integral here for businesses precisely, but also tax reporting has to start with some sort of completeness of transactions, right. So how do you compute a realized gain or loss if you don't know the list of transactions in our accounting system and our accounting reports are reliable before we do the tax reconciliation.
So with business - just a note in Australia with blockchain - at Digital Playhouse we're members of Blockchain Australia, industry body for blockchain enterprise in Australia. I've seen the members growing quite a lot there. So there is a scope here for Australian accountants to to help more businesses that are using crypto - absolutely.
We have a few accounting Partners in Australia and we're seeing more and more crypto businesses and crypto nativebusinesses coming on board as well, but also traditional businesses may be taking on some crypto assets or making payments in crypto - whether they've got a small section where it might be you have an existing client who has suddenly has some crypto on their portfolio on their balance sheet and they need to deal with it well that's suddenly pay by a business which is using crypto it's just starting to permeate through the financial system and the view is that in the next five to ten years the folks who have a crypto centric view is that crypto will be part of every corporate treasury as it will be one of the primary modes of taking payment. But then on top of this treasury there'll be a bunch of products that these companies will use to generate yield on their treasury. This is the idea that I think a lot of people have and we’ll see where the corporations are going. So it's still to be seen what sort of adoption there is there, but as of today even after this huge crash that we've experienced in crypto - I think Bitcoins at about a 400 billion market cap and eight percent of that Bitcoin is held by corporations - so that's a that's a pretty significant number and growing um. That's just Bitcoin. Obviously there's so many other crypto assets okay.
So yeah we're on this back-office side and we're trying to create this sort of Integrated Service that helps with accounting and compliance, and coming back to this (tech stack) image that you saw earlier - this hopefully makes a bit more sense now where we've got these layer one blockchains and on top of these layer one blockchains you'll have 10,000 crypto assets that we support, and we're able to read the native blockchain and pull the transaction history. And then the second resources which are these sort of third-party custody sources - the exchanges, the custodians, where you're relying on the exchange to give you a transaction history because this activity, these transactions, are technically happening off-chain. So you're not reading them directly from the blockchain. You're relying on the company to provide you a transaction industry. So we also connect to these exchanges so that you can pull transaction histories.
You might be familiar with some sort of personal tax tools like Koinly or Crypto Tax Calculator. They're often built with connections to the exchanges, or even sometimes they'll have a wallet input as well, and they'll pull transactions from connections. But what has really sort of separated Cryptio from these tax tools, that are usually for individuals, has been our own proprietary infrastructure. I'm not going to dive too deep into this, but we are not scraping third-party block explorers to generate this transaction history.
Right, so there are a lot of third-party data providers who are trying to scrape these blockchains to provide to generate transaction histories. These block explorers aren't meant for accounting and reporting. They're usually there so that people can see their confirmed transactions. They're not useful especially for any sort of historical reporting and also they miss transactions that are related to smart contracts. So if you ever heard of this term ‘smart contract’, which means that usually anyone dealing with DeFi, which is decentralized finance, these transactions are very hard to pull. What you'll end up with is you'll end up with sort of a transaction history and balances, but it won't be reliable and it certainly won't be auditable if you're using these personal tax solutions.
Our focus has been on “how can we make this auditable?”. How can we make sure that when someone asks you “how do I know this transaction list that you've generated from your crypto transactions is complete?” you should be able to say “here's how!”. And the way we've done that is that the core of it is us bringing out this infrastructure in-house where we've written this index so that pulls a transaction history and then we generate these sanity checks which is a report for your auditor.
So I can show you one… it's not this one…. anyway I'll pull one up in just a second… but basically it's a report that takes the live balance at any point in time. It shows the list of transactions in the past and then shows whether that balance is reconciled or not, which gives your auditors a confirmation. Anyway, that's where Cryptio focuses and that is what gives us the ability to do business-grade reporting.
So if you've got - or if you want to take on - business clients in crypto and if they're concerned… often the client is often concerned about going through an audit, or wants to make sure that they have books that are auditable…. they need something that is not relying on third-party data. They need something like a sanity check. They need something that they can talk to the auditor about, and that's what we help generate on top of this sort of data layer of being able to pull in these transaction histories we give you an accounting layer. This is the Cryptio Subledger, and this accounting layer does the valuation of your crypto assets in your native currency - Australian dollars, US Dollars, whatever - it allows you to add addresses, name contacts… It allows you to generate reports for your realized gains and losses… it allows you to sync transactions to Xero or other accounting software… It allows you to generate portfolio balance histories at certain months and periods. Basically everything that a business will need to keep books and do keep these sorts of accounts in order. Maybe this is the point at which I will so this in some more a more detailed example of that um but let me dive into the product itself. So this is cryptio.
This is the script here… as an accountant you'll have all your different clients here - you can switch between clients… about this client, this client… and the first point is getting all your clients’ activity in. So the idea is you'll go to your client and be like “Okay give me a list of all your crypto wallets and all your crypto exchange connections.” Or you can also share this space with them and they can do it themselves. So you start with the Imports - you have this import section where you can see the three different categories: exchanges, chains, custody. Now on the Chain side these are the layer one chains I talked about. You've got all these chains and all you need to do is put in the address, the wallet address that you want to pull in all the transactions from, and you can choose to do this for a certain period as well if they've already booked transactions for another period.
So if you want to start on say, 1st of April or whatever it is, you can do that…. and this imports some opening balances in the background… Once you've done all your imports from all the different chains and exchanges you'll have something that looks like this. At this point you'll have every single source here… I've got an ethereum treasury wallet, and the number of transactions that have been imported from this source… 19 in this case you've got… and then you'll have basically all your sources here that you can check. At this point you'll then jump to the transactions there - this is where you're building your sub Ledger. This is where you're enriching the information, the transaction history with contacts labels that then allow you to generate reports and sync to Xero.
So here what you'll have is the date of the transaction time to and from so where the movement is to and from incoming outgoing in the native crypto asset and underneath that you have the dollar value or basically whatever currency you've chosen. It'll generate the value for that, the fee in crypto…. You also have this thing called gas fees… every transaction on-chain you end up paying a little bit of gas to just get the transaction through… and it's integrated into the transaction, but obviously it's a fee and you want to be able to separate it. So we automatically do that, and will generate the cost basis, you can choose your methodology whether it's FIFO, LIFO, weighted average, cost, by wallet … whatever it is you can choose your methodology, and we'll compute that for you. We'll compute the gains and losses for every transaction. So we'll use that cost basis, and at the time of the sale we'll then compute the difference, and generate a gain or loss for every single transaction, every single asset…. and then you have this label section which is basically saying what kind of transaction is this.
Now often you'll have clients who have hundreds, if not thousands, of transactions and you need a way to do this that isn't manual. You can't go around tagging each transaction. So what you need to do is build rules on top of these sorts of transactions to be able to automatically label them. Now in Cryptio, we automatically label a bunch of things… firstly internal transfers, so if someone's moving crypto assets between their own wallets we'll be able to automatically label that. Everything else you have to generate rules for.
What that means is in this business section first you look at the unidentified addresses. These are basically the transactions that you have…. the company has interacted with the addresses… this company has interacted with… you can jump to the transaction and then ask them “Hey what was at this state when you sent x amount of Bitcoin to this? It came from this address. Who was this?” …. and then they'll go and find out who that is, and then you can say “okay this was so and so”. Then this sort of helps make that process less painful of identifying all these counterparties that you know the client may not know or is hard to investigate, especially when you don't know the context of the transaction.
Right, that's going to be really hard to do 12 months later… which just brings me back to a statement earlier in the piece about why it's important to set up your back office early. Because this looks like it would be very hard to do down the track.
Yeah most people don't do this, you'll end up with a lot of counterparties… but what you can end up doing is what I showed in this section of unidentified addresses. You've got all the unidentified addresses here - usually what you do just generate a report and send it to your client. And they'll come back, and then you can just import that as one CSV and it'll apply all those contacts.
Wow okay so you could you send it to the client and they send it back to you and you import the CSV to clarify the piece
That's right… So these are all the counterparties, right, but better than that often you can just share sort of workspace access to your client okay and they can go in and investigate and just start naming these themselves.So that's that's the sort of work here.
Cool, once you've done the contact naming then it's about labeling, right. So these are the labels here and the idea of labeling here is that these labels will then help map your crypto transactions to your general ledger child of accounts so you need to be thinking about these labels in the way that you set up your general ledger chart of accounts now.
If you're thinking about how does one set up their general ledger and chart of accounts for crypto, the best practice so far has been to create one asset account for every single cryptocurrency. So you'll have a Bitcoin asset account, an Ethereum asset account and if the client has multiple wallets and has Ethereum in multiple wallets, or Bitcoin in multiple wallets, you'll create an asset account for each wallet. So you'll see Bitcoin asset account ‘wallet one’... Ethereum asset account ‘wallet one’ …. Ethereum asset account ‘wallet two’ Etc… and then these labels, and obviously the Cryptio integration, will help you automatically push transactions to the relevant account in Xero. So I'll walk you through that piece as well.
That's good… now we want to know where we're going to end up.
Yeah exactly, so here with the labels you want to be thinking about - your expense and revenue accounts… so if anything's Revenue you want to mark it Revenue… if anything's an expense you want to mark it an expense, the relevant kind of expense, so that later on you can map that to your chart of accounts.
So, here in labels, in order to automate this then you can sort of generate rules… which were to say that if anything goes from this contact to any wallet, it's always going to be… or suppose there's a certain wallet that's set up for revenue for like payments incoming Revenue you can just name it Revenue Product X. So that anything that comes into that wallet is always going to be automatically labeled Revenue Product X.So then you've sort of generated these rules for all the different kinds of movements that you may have.
Suppose you've got employees and they're paying out to contractors or whoever it is you can just put the address for each employee once you generate a rule that says any transaction going to this employee is always going to be Payroll. And that way you've automatically labeled those transactions. You can also… I'm showing you the simplest workflow… There are workflows here that can be done for bulk transactions. We've got workspaces with 50 million transactions, we've got workspaces with 200 transactions… so Cryptio has a workflow that works for all of these…I'm just showing you sort of the principles of it.
Okay so once you've done your labeling you'll end up with a Sub Ledger that looks something like this… has also more complex stuff and maybe after the Q&A, I can go into this if someone's interested about DeFi and how DeFi transactions are tracked. Especially say the circulating supply or collateralized lending and borrowing because those are tricky ones. But anyway, once you've done that then you'll go to the accounting layer and here you've got some familiar Integrations and familiar logos.
With Xero you just connect your account here… it's very simple… it'll go into your Xero account and it'll ask you to log in basically. And once you've connected your account it will automatically pull in the chart of accounts you have from Xero. So that's what we're doing here, that's what the integration does. It's pulling in the chart of accounts. So the idea is with your Xero you create the chart of accounts for every single asset… and obviously you have your expenses around your account, and then once you hit ‘connect’... it will pull in that automatically. And once you've done that then you just have to map your Cryptio accounts to your Xero accounts, or your Cryptio wallets and labels to your Xero Chart of Accounts.
I've got one that is ready here. So here you can see a Chart of Accounts that's been pulled in, and then you have to create mappings. So here this is what the mapping layer looks like. And you only have to do this once. You go to wallet mapping, you say “I'm going to start with this wallet, and inside this wallet let's start with Ethereum, which is a crypto asset, and I want to map this Ethereum asset in this wallet to” …and now this is the Chart of Accounts that we've pulled in from Xero so as you can see… 556 I'll go….. Bitcoin asset account I've got an ethereum asset account here 222 ethereum asset …it just pulls it in from Xero.
And you do this mapping once and now Cryptio knows that in this wallet every single Ethereum related transaction needs to be mapped to this account in Xero. So you do this sort of Chart of Accounts mapping once on the wallet level, you do the same on the exchange level, so for all your exchanges inside the exchange you choose the asset you map it to the relevant asset inside Xero and then you do that finally for the labels and these are to your P & L (Profit and Loss) account.
So here you'll have some sort of payment… and I want to map this to an expense account. You'd find the expense. In this case I'll just say advertising, marketing… and then you'll create a mapping there… so you do this once and then you've essentially got a logic to how Cryptio will talk to Xero. And once you've done this mapping then you go to your transactions, you select all your transactions or if there's certain ones you want to skip which you may want to given that a lot of crypto um businesses will have spam tokens sent to them and they don't want to include that in their books because it's non-material we can deselect those and then you can see here synchronized 71 transactions with xero you click sync and it will click and it will automatically create the manual journal entries in xero.
I can send over some documentation later as to what that looks like. But these manual journal entries that you can review in Xero…. you can select all and post altogether… So it sort of simplifies this whole Cryptio-Xero integration. Tthose materials we would love to send to everyone after this event. Also, I encourage everyone to if you'd like a verified CPD certificate email to um write CPD in the chat so I'm just letting you know now so that you can um show that you attended and we're here. Fantastic. What else are you going to show us before we get to ask you questions? There's some reports… we'd love to see the reports that you can do.
Okay great - so here in this reports layer, you can see that there are various different categories: reports, accounting and tax, realized gains and losses… this will basically generate a CSV… You choose the format and you can choose what date range you want and it will create a realized gain and loss CSV.
You can do the same for your portfolio balances on a wallet level so if I want portfolio balances…. and this is the key thing historically…. so I want portfolio balances for the last six months… you can just say last six months or full year we'll do month-end portfolio balances and you can choose the time and date .... Obviously when you set up your account, and then generate this and generate a CSV for every single asset that’s in the portfolio.
So that's pretty much it on the report side. I'm gonna give some time for questions so that I can cover those rather than showing some boring CSV’s
If people know what questions to ask? …. Let’s see a little bit more on the reports while people start thinking about questions to write and everyone start writing your questions … and if we can glance at those reports again that looks really interesting because we're not just doing tax reports for our clients what if we're giving them some a monthly view of balances and activity and results.
Let's just dive in here - so I've generated a report here. Okay if everyone can see this can everyone see that I can … just left to right… Let me talk you through what's happening here” We've got the month end of August here… oh sorry month end of July … month end of June… month end of May and so forth for the last six, seven month. And you've got the asset and you've got the inventory of that asset, the daily price of that asset at that month and time, the asset market value and the unrealized gain or loss…. and so in this case you can look at the Bitcoin in this person's account - this is a demo account - but essentially you can see the Bitcoin you can see the balance the inventory the average daily price the unrealized gain or loss so here… you can see that the unrealized gain at last was 558 433 839 so forth so this basically helps you do historical reporting on balances. This is one of the reports. Let's go back into more reports
So here another one that you might want to pull…. and again with Cryptio here, you can filter for transactions, so if you want to just generate a payroll report now that you've done the labeling you can just say I want to add a filter with the label and I don't have one called… oh there you go… I've got one called payroll. It's going to apply this label and it's going to filter all my payroll transactions and now I can export these transactions as a report, do a sum,and you suddenly got a report on that.
You can do the same for Revenue. Suppose you've got a company that's taking payment in crypto. You can just filter for the revenue label export, you've got a report of all the revenue, and then just do a sum…. you've got revenue reporting… there's on the report side.. it's other stuff here I can show maybe I can pull a realized gain and loss one… I can do today's balance as one as well…. as if I just want to do a today's balance snapshot generate one of those two realized gain and loss….create one of those right…As you can see - it just within seconds generates these CSVs. Right - so this is today's balance. So it will show you all the assets, a current balance, a daily price in the market value, so it's pretty much ….
Okay we have a question here… Dede is asking how do you handle NFT tokens on books versus currency?
That's a great question. So a bit of history into the sort of technicalities of what NFTs are. So nfts are non-fungible tokens and essentially they live on blockchains as well and the thing about NFTs is that they are technically a different kind of token standard. There's this thing called ERC 721 or ERC 1155… these are terms you may hear and these are referring to the way in which this token is registered on the blockchain. These are different from currencies which are or tokens, crypto tokens, fungible crypto tokens which have a standard called ERC20.
What we've done is as of now we do not support NFT tokens as in the ERC 720s and ERC 1155s. Cryptio does not support that, so Cryptio will not show your NFT token. It will not be able to price it as well. What we can do is show the counterparty transaction. So what happens is often if you have a crypto business which has NFTs, which is minting NFTs, and selling NFTs ….they need to report on the revenue.
So what you will be able to see is all the incoming ETH from every sale, and all the incoming royalties from every secondary sale, and you'll be able to label that appropriately and then generate a realized gain or loss report on that. But the NFTs themselves won’t show in crypto, so Cryptio doesn't have support for that.
We are working on it. We are building it in terms of how they look in your books. Well, NFTs are I think like most other cryptos…. and again I'm not an accountant, I'm crypto-first, so please do your own research on this one… but essentially they're intangible assets. And they need to be treated the same way. The issue here becomes Fair valuation of NFTs which is very tricky. In nfts you have this idea called a floor price. Often people use that to have the unrealized value but obviously if it's realized it's sold for whatever it's sold for, and you use that to Value the NFT. Does that answer your question?
That's a fantastic explanation, much appreciated and look, there's still so much uncertainty from accounting standards and regulators. Really we all do need to do our own research and keep up with developments and document our accounting policies for our clients. Or make sure your clients do give you an accounting policy, so that you're following their approach and documenting in notes in the accounts is generally what I do if we've taken a certain position or we're presenting it a certain way. So there might be notes to be accountable… It's a continuing discussion amongst us. Is there anything else you're going to show us today, Hemant? You've given us a lot so far…
Nothing really ahhh follow us on Twitter please do that we really appreciate that … and also LinkedIn, of course, as Electra mentioned.
Oh wait we've got another question - can you elaborate on how you don't use third-party scrapers like Koinly does?
Yes absolutely… um I’ll share my screen for this okay:
Okay so with blockchains, basically you have these nodes, and these nodes are basically validating the transactions happening on the chain at any moment in time. And each blockchain Works differently but primarily the node carries a complete transaction history of every single transaction that's ever happened on that blockchain. So if you want to actually plug into the blockchain, you have to run a node, and we run nodes… that's the big difference. So we run our own Bitcoin node, we run our own Ethereum node and then we've written an indexer which is taking the transaction history on this node, which isn't written in a great format, it's it's in this sort of crypto native format that isn't useful for accounting…. and we write this on and index that's able to basically take all these messages on the Node and put them into the right categories. That creates a database, and this database is what you're querying when you're generating this transaction history in Cryptio. Actually, let me try and pull that balance discrepancies report up that I wanted to mention….
And this is basically what separates us from not just crypto but even accounting solutions, not just Koinly, even other accounting solutions that are working on in Cryptio is that we're able to generate a report that does this. So what what we're looking at here is the number of tracked wallets, the number of tokens tracked within those wallets, so in this case I've got 36 wallets, 4 335 tokens inside those wallets, of those 4 335 tokens 4186 tokens have reconciled balances at this point in time. But at any point in time we take a live snapshot and we do this because we have this infrastructure on the Node. So we take a query - what is the live balance in this wallet at this moment in time - and then we compare that to all the transactions that we've pulled in from our node and our proprietary indexer, including all the smart contract stuff, and then do a sum of that. If that balance matches then you know that you've got a complete history of crypto transactions related to that wallet. if that balance does not match you know you're missing transactions and to be able to do this to be able to first of all this is basically makes crypto stops making crypto a black box you now know exactly the number of tokens that you have reconciled and if you're missing transactions you can then go and investigate why am I missing this is so this is so useful and then you also have like the estimated value of the discrepancy um and that's useful because there are literally certain tokens or certain chains that you can't reconcile um but if you're able to show that it's non-material… or there are certain transactions that aren't unreconcilabl.
You auditor will understand… and you can then have a conversation with them: “See it look this is the status of this, this is how we're doing this” and they're going to prefer something like this much more than “hey I've got this list of transactions I don't really have any way to prove to you that it is complete”.
So this is possible because we run our own load, we write our own indexer, we pass our own data and this indexer which is reading these blockchains and preparing it for reporting and accounting has been refined and it's an iterative process. And over the last four and a bit years we've worked with, you know, the likes of Metamask and so on. Ethereum, Metamask processes over 50 million transactions a year and all sorts of thousands of tokens, and all sorts of weird kinds of transactions…. and for us to be able to do that we've had to refine this.
And it's been a process, so every time there's a new activity happening on the blockchain there's a new standard of transaction. And we need to now learn how to index for it so that we can pull the transaction history, so it's an ongoing process. So whoever's committed to indexing these blockchains is going to be able to deliver a robust transaction history.
Our third-party data providers like Etherscan or Amberdata - they have a place in this economy because when there's a new blockchain it takes time for an indexer to build an index stock. So often we'll have clients who have who say that “you know guys it's great but I really need support for this obscure blockchain”
… and we'll be like “well you know we can't integrate it in a month because it takes about six months to write this indexer…but what we'll do is in the interim is we'll connect to a third-party data provider so you have some data, and then over time we'll look to move that in-house to our own indexer” So we will then have a roadmap and we'll share that with the auditor as well to say “hey look you know this is the resource we're relying on now, this is the third party data provider.”
We'll still be able to generate the Sanity Check Report which is to stand up. These are the transactions we're missing… so we're gonna then we have some work around ways to sort of fill in the gaps in the meantime… and over time we'll build our infrastructure so that these kinds of workarounds are not required.
Brilliant …we have a question here: “Are the servers you use SOC2 compliant as you're not using direct blockchain scans?”
That's right so we have - what did they is SOC2 compliance ? - so it's a security standard, iit basically allows folks in Enterprises, they'll have requirements that we can't use a software that doesn't have a SOC2 certification. So we have a SOC1 and SOC2 certification, we've got the type 1 SOC, type 2 SOC … we're in the process of getting our type 2’s for both of those SOCs as well in the next three to six months we'll have those completed as well and as of now we have both one software type one certifications okay.
Rose has a question: “Is there a way to investigate missing information?”
Yes, so here this this is just a summary page obviously it will be it will allow you to drill down deeper so we'll show you the wallet, the asset, the size of the discrepancy…. so here you can see there's this nonsense asset MMS 17e08 um this is a spam token uh and excuse my language and in crypto we call this a [ __ ] coin um so if you've been airdropped a [ __ ] coin you it's non-material to your business you've not you don't want to worry about it and so even if those were…
yeah, they terrified me seeing those massive airdrops from gambling.io !!
Exactly, and you don't want to have to deal with them and they're non-material to your business. Even if there is a discrepancy, you're not going to stop your accounting over it . So here we'll then sort of show you okay look this is the the asset this is the size of the difference is it a blocker is, it not a blocker…. let's move on… and the things that can cause these discrepancies are number one if you're using your own CSVs to upload transactions nto Cryptio.
So basically if you've got transactions from the source that we don't support and you're pulling in transactions from there, and if that source is unreliable, then you might end up with a discrepancy. But there are still - and this is what I mean about this being an iterative process - there might be issues on the outside. We should say that if one of our new indexes, it hasn't, which is new which hasn't been completely battle tested… if there is a discrepancy, it will show up here. But what we'll do is we'll go back and say “okay we'll fix this” and the reason we can say that is because we own the infrastructure. If we didn't own the infrastructure would we just be able to say that “oh that's just what the data is”.... but now that we do have this commitment to building our infrastructure.
Also, maybe one more thing about Cryptio is that (and I've got some resources here and I'll share all of these) is that we have an Enterprise success program and this holds true for Accounting Partners as well as I mentioned we're coming up with a whole new Accounting Partner Program.
A bit about this - how do we get started with training?
So the best way is to just go on Cryptio.com and book a demo and most likely me or Jimmy will get in touch and we'll talk you through the product and we'll happily give you some training as well or invite you to one of our monthly webinars that we do on training on the product.
A second thing you might want to do is sign up for a free trial if you've got some ethereum accounts of your own or whatever if you've got any sort of crypto accounts that you want to connect and just play around with the product.
All accountants can learn by doing - get some crypto into your own business so you have to sort it out and know what to do, right?
Even if you don't know, just book a demo we'll give you some trial addresses to play around with. You've got a two-week free trial, have a play around, get familiar with the platform. We've also got a guide that I will happily share with you after which is where actually that original image was pulled from… it is this one… so how to set up your crypto back office step-by-step guide … As to how to do this, I'm building you know… how to work with the client to build a complete map and then use Cryptio to do all the rest.
But we have most importantly, we have a Success Program - so if you sign up to Cryptio and especially if you bring on it's tiered so if you have a client who's of a certain size they'll have an a special onboarding with Cryptio where we'll hand hold them through this process of the import, a sanity check with the verification transaction, preparation of chart of accounts, mapping reports, and then you have dedicated customer success team who's helping you with implementation, ongoing support technical account management etc
So we're very much business focused, we're very much accountant focused … so if you've got crypto clients (in business) who need help reach out or if you're just interested in seeing how you can expand your practice to clients with crypto, especially in your geography, we're very very happy to help train you and onboard you to the platform.
Feel free to reach out to me on LinkedIn, just drop me a message, I'll happily respond. The slides will be shared through Electra, you'll have all those resources, but if you have any other questions that I haven't covered feel free to reach out!
Wonderful thank you and thank you everyone for joining us and we appreciate your support. Have a great rest of the week and I look forward to seeing you at more events in future thanks so much bye!