Will Your Clients or Customers Pay in Bitcoin?
Alternative Currency Could Change Financial Landscape
In celebration of the AICPA’s 125 anniversary last year, we produced a powerful retrospective called Evolution of a Profession. The six-minute video traced the accounting profession’s changes from its origins 8,000 years ago through the present day.
Within that evolution were the notions of currency and exchange. Over time, society has changed the various ways goods and services are purchased. Hard as it may be to believe, at one point the primary currency was clams. The same is true of livestock, land and spices. All eventually gave way to something else as our forms of money have been “refined” over and over again.
Four years ago, a new alternative currency emerged and the accounting profession needs to watch how it develops going forward. It’s a virtual currency known as Bitcoin. Dozens of virtual currencies exist but Bitcoin has garnered the most attention. The news media has been covering the currency in earnest since the spring, including its growing acceptance among businesses and even a foreign university.
What does that mean for our profession? First, if Bitcoin were to become a mainstream currency option, firms would have to consider clients using Bitcoin as a form of payment for services, and a business might want to accept Bitcoins for purchases of its products.
More broadly, how might financial statement preparation and assurance on those statements need to adapt? Bitcoin is not only a currency, it is also a commodity – one with a finite supply (currently 12 million units and continually increasing to a maximum of 21 million units). Therefore, depending on the demand for it at any given time, its value could fluctuate wildly – even within the same day. In 2013 alone, a single Bitcoin unit was valued at less than $20 and hit a high of more than $1,000 in late November. So, how would a CPA value that money, and is it even an asset? And since Bitcoin largely operates through online exchanges, it functions outside of the traditional banking system, where balances and transactions can easily be confirmed. In terms of taxes, the Internal Revenue Service has said Bitcoin transactions could fall under several categories: property, financial instrument, foreign currency or barter.
- On Nov. 18, Congress held its first-ever hearing on virtual currencies. A number of federal officials told a Senate hearing that financial networks such as Bitcoin offer real benefits for the financial system.
- The IRS is actively working on its own rules for Bitcoin.
- The Federal Election Commission is considering whether to allow political contributions in Bitcoin.
- In New York, the state’s Department of Financial Services will hold a hearing to consider the creation of a BitLicense to provide more oversight for transactions.
Critics say Bitcoin's infrastructure is insecure and hackable. It already found itself in trouble after the government recently seized the accounts of Bitcoin's largest exchange for misrepresenting the full extent of its financial operations. Shortly thereafter, the same exchange registered as a money services business with the Treasury Department’s Financial Crimes Enforcement Network – a step toward compliance with U.S. anti-money laundering rules.
Proponents tout Bitcoin's instantaneous transactions, nominal fees and encryption safety aspects and say that it's here to stay – especially after it recently announced a partnership with the gift card app, Gyft. Those gift cards can be used at Brookstone, Lowe’s, Gap, Sephora, GameStop, Nike, Marriott, Burger King and many more.
Ultimately, consumers will decide whether Bitcoin gets accepted in the marketplace. However, the government’s interest, coupled with growing momentum among businesses and investors, does pose a question to the accounting profession. Is Bitcoin a new, acceptable form of money? More importantly, are we ready if it is?
Barry Melancon, CPA, CGMA, President and CEO, American Institute of CPAs.