Ask HN: Is there an accounting platform for a crypto first company? | Hacker News Reader

Ask HN: Is there an accounting platform for a crypto first company?

18 pointsarjun_s29 comments

For people who set up a crypto first company e.g. a crypto game, or an exchange that takes fee in crypto - they probably pay salaries and other fees/expenses to defi platforms in crypto. Is there a product that does accounting like recognising sales, expenses, funding etc. in a crypto first format - and offer secondary FIAT reporting statements?

Or rather the question is that is there a need for this? My thought process was - if the functional currency of an entity is primarily crypto - it would be easier to create crypto first statements and then have a second set of derived statements for reporting (if any).

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Doesn’t really make any sense to do this unless that is really your functional currency.

Are you paying your suppliers in crypto? Salaries?

It’s a bit like a farming operation still uses dollars. They don’t record their salaries in number of cows just because they’re in the cow business

For a lot of crypto companies, the suppliers charge crypto e.g. a DeFi based product. Salaries can potentially be in crypto.

I don't think the analogy is right. If in this cow business everyone instead of transacting in dollars and milk supply contracts start using a whole new language called "ether" then your accounting platforms/accountant/electronic receipts are not made for it.

>accounting platforms/accountant/electronic receipts are not made for it.

Even mainstream accounting stuff is quite flexible in terms of how you define functional currency.

Its really not something where crypto somehow magically requires different accounting calculations.

>whole new language called "ether"

Quite. Existing accounting captures custom written contracts all the time though. Defi while revolutionary in many way doesn't really change the dynamics on this in a way that affects accounting.

If you're still unconvinced look at Coinbase IPO. Did they tell the exhange no we can't file the usually accounting info? Nope...they filed classic USD financials.

> They don’t record their salaries in number of cows just because they’re in the cow business

:) You owe me a building, not just a keyboard!

What problem are you trying to solve?

Most (all?) accounting software can handle multiple currencies. Set up your preferred cryptocoin as a foreign currency and enjoy.

A lot of accounting has to be done to meet national legislation, especially for payroll and tax. So that has to be done in your local fiat currency anyway.

The problem to solve is a crypto first replacement for a SAP/XERO platform that aggregates receipts/proof of sales/bank integrations/expenses+fees for a crypto first company like a crypto game dev company or a crypto exchange etc that will have revenue, most expenses, funding, debt etc in crypto rather than fiat.

How is it different from changing the currency symbol and name, at the end of the day crypto money is still numbers right?

If I understand correctly, OP wants the advanced integration features, like: “if I make a transaction in coinbase from A to B, I want this to appear automatically in my ledger, to be classified as necessary”. At the moment you can do that with traditional currencies in most services (they pull bank statements etc); OP wants something like that but focused on the cryptocurrency world, I guess.

Yes that is correct, thank you.

e.g. I get equity funding in my company. Now: accountant needs a contract like a share note to create a line of equity on the right hand of the balance sheet.

But in the future, the system is linked to a token sale and the shareholders are automatically updated.

Or, I am making sales of lets say NFTs on my platform, then the revenue on each transaction is automatically linked via the same NFT contracts to the revenue line. The ETH fee is directly attributed to the costs line etc.

The whole thing creates an auditable statement that can be used for data/regulatory audits/dashboards/getting crypto financing etc...

Don’t you have to settle in fiat even if it’s crypto first? Even if you pay your employees in crypto, it counts as income which will need to be represented in fiat.

I see two sides to this:

1- the internal accounting system. This is not really different from the traditional world, it can be done with most accounting services already. The company I work for (OneStream) focuses on consolidation/planning rather than low-level general ledgers, but handling crypto would just require to use a custom currency (I think we allow up to 7 or so). Managing exchange rates can be done in actual code, so you’d just set up some api calls to decide how you want to calculate those rates and be on your way. I honestly don’t see anything crypto-specific here. The only annoyance would be seeing loads of “0.00000...” in a naively-setup system, but that can also be dealt with trivially in most services.

2- external integrations. This is really where the hole in the market is, I guess, and probably what motivated you to explore the space. Services that will automatically pull your transactions from cryptocurrency exchanges and similar hangouts, might be thin on the ground today; I honestly don’t know. But consider that, for the likes of Xero, because of point 1 above this is basically just a bunch of plugins that are fairly trivial to write, should they decide to steer. If they solved “legacy” banks, they can solve online banks pretty quickly.

So, would a product focused on 2 be successful, in a market already crowded that can probably self-extend to crypto fairly easily? I’m skeptical, personally, but I might be wrong. I’m also skeptical that significant numbers of businesses will go “cryptocurrency-first” and look for such a service. Cryptocurrencies are more like commodities than actual currencies, and I bet no company is “gold-first” in 2021.

I think thats a good summary.

On number 2 - I wouldn't call it "cryptocurrency" first but rather (and forgive my lack of articulation here) crypto/defi/blockchain first.

Think of crypto like the new internet protocol - rather than equating it to gold. But unlike the internet protocol, this extends much beyond e.g. crypto is wealth, an application, a service, a medium.

This means a whole new set of services and revenue streams / protocols on revenue (from selling products) and expenses (guessing these get built on a host of defi applications). All these integrations - will XERO focus today? Nope. Is the potential market for this massive - yes, well if you are bullish crypto.

Early examples of companies that would use this - https://upland.me/, https://nbatopshot.com/

If you're in the US, the problem you would have operating on the assumption that "crypto is a currency" is that it's very far from established that this is true, legally speaking.

Crypto-assets are variously regulated more as property, commodities or securities; and from an accounting perspective I don't think that's a distinction that can be willed away.

For example, there are just certainly tax implications that won't be accurately recorded if you assume that income of 1 BTC offsets expenses of 1 BTC. My understanding is that the IRS wants you to calculate the USD fair market value of each of those transfers at the time they occur in order to determine the tax implications.

ref. https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21

The regulatory framework is an issue, sure, but in a good system you can set up translation in a bunch of different ways so that the USD values are saved per-transaction. In OneStream you'd set the main currency in, say, USD, then force entries in BTC and translate either with average rate, periodic rate, or spot rate as you prefer. You can then report as necessary.

Yes, saw this.

Q–1: How is virtual currency treated for federal tax purposes?

A–1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q–2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?

A–2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

ACCA on currency [1]: "An entity’s functional currency is the currency of the primary economic environment in which the entity operates, normally the one in which it primarily generates and expends cash." So it seems it could be allowable for a US-firm to follow GAAP while accounting in crypto. Wasn't expecting that.

Perhaps I'm naive but since primary currency is no more than a convention in your bookkeeping software: find a firm willing to put BTC (or whichever) where usually there is USD?

One of the things to be mindful of is that tax accounting is not GAAP financial accounting. Say you close your book year in a period with high volatility in your cryptos price. This might materially impact your fiat numbers (if you have enough fiat costs). Your tax auditor might want to look twice at the reported fiat numbers.

[1] https://www.accaglobal.com/us/en/technical-activities/techni...

Yes, functional currency would be crypto for a crypto first company.

If we take example of a SAP or XERO like software, a conventional company uses integrations/receipts from banks, sales platforms, physical receipts etc. In a crypto first company e.g. a crypto game dev company - the sales are in crypto, the funding via tokens is via crypto, the platform fees (defi apps) is in crypto - so a SAP/XERO like software is not build for purpose - hence my question that is a crypto first accounting/expense/reporting software needed.

Volatility will still remain if you use current mechanisms depending on how you book these assets on your balance sheet. Which more depends on how the taxman classifies them going forward.

The market for this is SUPER limited unless you get at least adoption outside Cryto firms, and if a large enough market supported by existing players using their existing infrastructure modified. my 2cents

Yeah thats what I am trying to test - if there is enough market for this. Unlikely a SAP/XERO/others will be fast enough to pivot (lol). I am assuming an ideal company is one that funds itself in crypto, makes revenue in crypto, has most expenses in crypto, debt in crypto might find it useful - at least thats my conjecture.

If I’m understanding your question, https://gilded.finance/ would seemingly fit the bill.

Bingo - thats a pretty good product (from the website) for the things I mentioned :)

There is also https://request.network but gilded looks more complete on fiat currencies.

This roadmap looks pretty complete - https://request.network/en/invoicing/#roadmap

I did not see that, just skimmed through both sites. There are a lot of features done.

Yep, I meant in terms of a feature summary / validation of some demand.

fyi, are you interested in this?

We've built a tool for this and much more, feel free to connect on telegram - @michael. Cheers!

Tried looking you up on Telegram but didn't find you. Is that the right username?

Think SAP/XERO but crypto first.

Interesting!

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