Best intro to accounting for cryptocurrencies
the basics provides guidance on some of the basic issues encountered in accounting for cryptocurrencies, focussing on the accounting for the holder.
The popularity of cryptocurrencies has soared in recent years, yet they do not fit easily within IFRS’ financial reporting structure.
For example, an approach of accounting for holdings of cryptocurrencies at fair value through profit or loss may seem intuitive but is incompatible with the requirements of IFRS in most circumstances. Here the acceptable methods of accounting for holdings in cryptocurrencies are discussed while touching upon other issues that may be encountered.
What is a cryptocurrency?
Cryptocurrency is digital or ‘virtual’ money, which uses cryptography to secure its transactions, to control the creation of additional currency units, and to verify the transfer of assets. Cryptography itself describes the process by which codes are written or generated to allow information to be kept secret.
In contrast to traditional forms of money which are controlled using centralised banking systems, cryptocurrencies use decentralised control. The decentralised control of a cryptocurrency works through a ‘blockchain’, which is a public transaction database, functioning as a distributed ledger.
This has advantages in that two parties can transact with each other directly without the need for an intermediary, saving time and cost.