As nearly everyone who has been involved in the digital assets revolution knows, the world of crypto is replete with fakers who misconstrue critical facts and exaggerate their relationship to accountability. Joey Ryan is the opposite of that. Joey rose through the ranks of some of the biggest and most traditional accounting firms — RSM, EY, LaPorte — only to find that the world of accounting was about to encounter a whole new world where digital assets would thrive in a completely decentralized environment. To some, decentralization meant the end of rules, but as a CPA, Joey saw that there was a new and vibrant opportunity to reinvent accounting for the age of digital assets. Here's a condensed conversation with Joey in which he outlines just why the era of digital assets will mean a renaissance for accounting and accountants.
You came from the accounting industry, worked for some of the biggest agencies, and left that safety for the high-risk world of crypto. Why?
I got into crypto in 2017 during the run up when lots of online accounting news journals were reporting that blockchain and crypto were going to revolutionize accounting and auditing. I started reading just to try to get an understanding but then I went down the rabbit hole and realized the benefits it's going to have. Honestly, it didn't seem risky to me. It seemed like a no-brainer.
No negative connotations from crypto?
People are starting to realize that Bitcoin and cryptocurrency do have an underlying store of value. The potential for adoption, especially through new, user-friendly tools that make it easier for people to make payments with crypto are about to make it as easy as a click of a button. Facebook’s Libra is just the start. When the tools are fully built, the negative connotation of crypto will slowly fade away.
How does crypto contribute to accounting?
Crypto and blockchain are immutable open source ledgers of transactions. With blockchain, accountants now have verifiable data at their fingertips. Instead of having to collect and verify transactions and the data surrounding that transaction, accountants can now use more of their analytical and finance skills in order to analyze and understand that data and help with management business decisions. Accountants and auditors are going to play a much more consultative data analysis role.
What does it mean to manage the data? What data are accountants going to get that are not already contained in the blockchain?
First of all, with transactions instantaneously recorded and verifiable, accountants are going to spend less time managing the transaction and more time analyzing it. Whether it’s determining inventory levels, proper AR balances, revenue by different product lines, etc, that information is going to be at their fingertips. Today accountants have to take their crypto transactions from wallets and exchange accounts, and it’s all done manually, in spreadsheets to calculate cost basis and record journal entries within their existing accounting system. Gilded takes that whole process and automates it. Once you connect all your accounts through our platform, your wallet and exchange accounts are also connected, then we automatically download all the transactions, provide all the necessary data surrounding that transaction, time, spot pricing, etc. Within that, you can categorize the transaction type and we automatically create the proper journal entries that get pushed into your existing accounting system. So by automating that whole process, it gives the bookkeeper a lot more time and ease to know that, hey, my books are being done correctly and they're being done a lot more quickly and efficiently.
Good question. Converting transactions is Gilded’s beachhead product. As crypto and blockchain mature, we’re not only able to simplify payments, we also go into what we call “triple entry accounting” — a third ledger that records the data within a transaction in a way that cannot be tampered with and is 100% accurate. In this third set of "books" housed on the blockchain, both sender and receiver of a transaction have a third source of truth to look towards in order to verify the transaction details within it, and all of it is automatically stored on the blockchain. One consequence of this is the ability to do what we call a "continuous audit" with CPAs or other trusted third parties validating information on the blockchain — think of it as a real time audit. Today, companies are audited once a year and produce financial results once a year for one point in time. The theory of continuous audit says that companies can release their financial information continuously, so that at any moment in time, a stakeholder can have up-to-date, real time, verified and audited information about a company's financial health, right at their fingertips.
Are there particular industries where continuous audits make sense where blockchain is particularly useful? Agriculture? Banking? Streaming music companies?
I wouldn't necessarily peg it to a specific industry. It really starts with enterprise businesses. By implementing blockchain and triple entry into their existing ERP and accounting systems, they'll be able to cut accounting and auditing costs considerably and simultaneously see an increase in accuracy of their financial statements. It's night and day. So enterprises that can successfully implement this will see the greatest benefit initially, but then as it trickles down to medium size and small businesses, they'll see a large effect too.
If blockchain provides so much more accountability and validation than current accounting, why has the government been so slow to adapt it? What's the relationship between companies like Gilded and the SEC?
It’s multi-layered. Governments are a little slow in implementing specific regulations around this because, for one thing, they don’t want to cut the head off of the potential beast. They don't want to stifle the implementation, the adoption, and the building of the technology. They're a little more careful about releasing specific rules and regulations because of that. Number two, they’re still educating themselves about blockchain and crypto. Some smart people in government understand it, but many of them are still playing catch-up on this technology.
So if I'm a CPA, how should I prepare for this future given the fact there's so much regulatory fog?
Well the obvious answer is to go first to Gilded’s website, because we have so many resources for accountants about crypto and blockchain. While you’re there, you should sign up for my newsletter Blockchain for Accountants. The AICPA and other accounting governing bodies also do a great job of putting out pieces about blockchain and crypto, so that accountants can start understanding the impact that it's going to have, not just on their jobs but on their clients as well.
Are there any special skill or perspectives you need to be able to function within the blockchain and crypto world?
Accountants are going to have to learn more software development skills. Whether that's being able to read code or understand how the software development process works, I think that's going to be a necessary skill. The other part is learning to understand and implement the internal controls surrounding crypto transactions, specifically wallet controls. Who has access to a company’s Bitcoin wallets, the company's Coinbase exchange account? Who can make transactions, who has access or authority to make or send transactions within a wallet or exchange account? And then how are these accounts valued at your end? Who has custody of the wallet? True custody and authorization controls are big in this space.
Should crypto accountants hold their own crypto?
I do own some Bitcoin. I keep it offline in a cold storage wallet— basically a USB drive that pulls your crypto off an exchange. No hacker, no outsider can access those funds, and that's the safest way to hold any cryptocurrency. And if you're starting out, you can utilize Gilded to understand where all your transactions are going and calculate cost basis, because when you submit taxes at year’s end, you’ll have to determine cost basis and gain/loss on your crypto transactions since the IRS has determined that cryptocurrency is property not legal tender. So remember that when you buy a cup of coffee at Starbucks with Bitcoin — that’s a taxable event and the IRS will want you to calculate your gains or losses within the year and report that. Eventually the IRS will come around to ease those restrictions as crypto becomes more widely adopted.
So where’s this going in a year, 5 years, 10 years...
As you may be aware, Walmart is now requiring its food suppliers to get on their blockchain. That’s the kind of strategic move that could have network effects for all businesses to start implementing blockchain technology, and as a result, I think the idea of crypto or token payments will become more widespread as we become more and more comfortable with it and more educated about what crypto can do, whether it's being used for payments, as a store of value, as supply chain technology, etcetera.
Three years, five years from now, triple entry accounting will come into play. People are going to say, "Hey, if we can implement triple entry accounting and continuous audit, we can really cut down on our time, auditing, and accounting costs." That’s when we’ll see businesses really nail down the accuracy of the transactions on their financial statements.