CPA Practice Advisor

SEP 2018

Today's Technology for Tomorrow's Firm.

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4 SEPTEMBER 2018 ■ FROM THE TRENCHES RANDY JOHNSTON EVP & Partner K2 Enterprises & CEO of Network Management Group, Inc. @RPJohnston WHY AND HOW: CRYPTOCURRENCY Cryptocurrency has made a lot of millionaires and multi-millionaires in the last three years. That said, remember cryptocurrencies are highly speculative, and you may want to think of this as a form of gambling. While I know many CPAs who love Las Vegas and New Jersey casinos, others would never lay a chip on a table or put a coin in a slot. Likewise, some believe that long-term wealth is built through the stock market and others believe it is simply a wealthy person’s legalized gambling playground. While I would never tell you what to do or not to do, understanding that cryptocurrencies have risk and that cryptocurrencies can make you a lot of money are both important facts. The greatest risk to most of the cryptocurrencies is that they are not backed by any government. According to Blockgeeks: “A cryptocurrency is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. Bitcoin is the best known example.” Further, a cryptocurrency 1) has no intrinsic value in that it is not redeemable for another commodity such as gold, 2) has no physical form and exists only in the network, and 3) its supply is not determined by a central bank and the network is completely decentralized. Like all of the emerging technologies we have covered in these emerging technology columns, cryptocurrency has pros and cons. On the positive side: ■ Provides seamless, distributed, secure transactions ■ 100’s of options, a few leading choices ■ Eliminates the involvement of banks On the down side: ■ Not a fiat currency, or legal tender backed by a government, such as U.S. Treasury with a few exceptions ■ Theft has little recourse ■ Only a few are integrated with standard processing And there are clearly some risks: ■ Money Laundering. As transactions are anonymous and unregulated it can be used to launder funds around the world. ■ Tax Evasion. It is virtually impossible for taxing authorities to enforce local tax regulations. ■ Black Market. It is the currency of choice for black market goods. ■ Valuation. The instability of the price makes it difficult to use in real world business transactions. Why? Cryptocurrencies have become very common: ■ There are 1,500+ cryptocurrencies being purchased and sold in over 9,500 exchanges all-day, every day. ■ Many cryptocurrencies have failed. Some reports indicate as many as 900 have failed. If the cryptocurrency had value, this would have smacked of fraud. ■ The market cap of all cryptocurrencies exceeds $281B USD and is growing at over 10% annually. ■ Bitcoin makes up about 45% of the market capitalization of the marketplace. ■ The daily trading volume exceeds $14.5B USD per day. ■ Blockchain and cryptocurrency are cutting edge technology that are in their infancy. (last month’s article: ■ Compare your thoughts about the Internet in 1996 to your thoughts about it today. ■ This is a long-term technology that will take 5+ years MARKET CAPITALIZATION ESTIMATE FOR TOP CRYPTOCURRENCIES AT 7/18/2018 (MM USD) Bitcoin (BTC) $125,120 Ripple (XRP) $18,860 EOS (EOS) $7,670 Ethereum (ETH) $47,740 Bitcoin Cash (BCH) $14,080 Rest of Top 100 $59,650 Last updated July 18, 2018 Source:

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