Accounting
We strongly advise you to contact your accountant and set up appropriate reporting of operations involving cryptocurrencies. As rules are different for each country, we provide some general principles that you should review for your specific case.
How should your business keep track of cryptocurrency and other digital assets in its records?
Even though accounting for cryptocurrency transactions can sometime be tricky, they are still considered assets, and basic accounting rules apply.
When your business buys cryptocurrency, you need to include it as an asset on your balance sheet, at its current market value on the purchase date. Assuming your business bought the virtual currency using regular money (fiat currency), you should credit your cash account for the same amount.
When your business sells the asset later on, you do the opposite. Credit the asset to remove it from your balance sheet at its recorded value, and debit your cash account for the amount you received from the sale.
For transactions across two cryptocurrencies, you shall account for two separate operations, each one against your reporting currency.
Since the sale proceeds could be significantly different than the asset's initial recorded value—due to factors like increased value or impairment—you may also want to record a credit entry in a capital gain account to show the difference between the initial value and the proceeds received.
How should your business keep track of payments done in cryptocurrencies ?
When you make or receive a payment using cryptocurrency, you need to record the transaction as if you were selling or buying the cryptocurrency separately.
Doing so, you would eventually recognize a capital gain based on the difference between the expense and the recorded value of the digital asset.
Example of vendor payments:
Let's say you have 1 BTC on your balance sheet, and its value is €25,000. Since you acquired the coin, its fair value has increased to €35,000.
Your business pays the supplier €350 using the cryptocurrency as payment instead of cash.
To record this transaction, you would make a debit entry of €350 in your expense account, credit your Bitcoin asset account for €250, and credit the remaining €100 to a capital gain account.
Note that if the fair value of the asset decreased to €15,000 at some point while it was on your balance sheet, before recovering its current value of €350, there would likely not be a capital loss upon disposal because you already recorded an impairment when the value reduction occurred.
In that situation, you would actually credit a more significant capital gain of €200 to account for the difference between the €150 book value of the asset and the €350 expense and current fair value.
Comparison with Visa and Mastercard
Visa and Mastercard are the two largest payment processing networks in the world. They do not issue cards directly to the public, but rather through member financial institutions. When a customer pays with a debit or credit card, the bank that issued the card gets a cut of the transaction. This is called the interchange fee. These fees are set by the credit card networks and can vary depending on several factors, including the type of card, the merchant's business type, transaction volume, and the terms negotiated with the acquiring bank or payment processor. On average credit card processing fees for the two major credit card networks are
- Visa: 1.4% - 2.5%
- Mastercard: 1.5% - 2.6%
When paying with eCredits, the costs of the transaction for a Merchant is only 0.5% of the amount.
Why are we even using blockchain? Advantages of blockchain VS banking
Blockchain technology offers several advantages over traditional banking systems.
Here are some key advantages of blockchain:
- Decentralization: One of the fundamental features of blockchain is decentralization. Unlike traditional banking systems that rely on a central authority (such as a bank or government), blockchain operates on a distributed network of computers. This decentralized nature eliminates the need for intermediaries, reduces the risk of single points of failure, and increases the security and reliability of transactions. Moreover, users remain in possession of their money all the time, there are no intermediaries to have a say in what they can do with it.
- Security: Blockchain uses advanced cryptographic techniques to secure transactions and data. Each transaction is recorded in a block, which is linked to the previous block using cryptographic hashes, creating an immutable chain. This makes it extremely difficult for malicious actors to tamper with the data or manipulate transactions. Additionally, blockchain's consensus mechanisms (such as proof of work or proof of stake) further enhance security by ensuring that transactions are verified and validated by multiple participants.
- Transparency and Audibility: Blockchain provides a transparent and auditable record of transactions. All transactions are recorded on a public ledger, which can be accessed and verified by anyone. This transparency increases trust among participants and reduces the risk of fraud or manipulation. Additionally, the immutability of blockchain records ensures that once a transaction is recorded, it cannot be altered or deleted, providing a reliable audit trail.
- Efficiency and Speed: Traditional banking systems often involve multiple intermediaries, manual processes, and delays due to regulatory requirements. In contrast, blockchain enables peer-to-peer transactions without the need for intermediaries, resulting in faster and more efficient processes. Smart contracts, which are self-executing contracts stored on the blockchain, automate and streamline complex transactions, reducing the time and cost involved.
- Financial Inclusion: Blockchain has the potential to enhance financial inclusion by providing access to financial services for the unbanked and underbanked populations. With blockchain, individuals can have direct control over their financial assets and participate in the global economy without relying on traditional banking infrastructure. This can be particularly beneficial in developing countries or regions with limited access to banking services.
- Cost Reduction: Blockchain has the potential to reduce costs associated with financial transactions. By eliminating intermediaries and streamlining processes, blockchain can lower transaction fees, operational costs, and the need for manual reconciliation. Additionally, the automation provided by smart contracts can reduce administrative overhead and increase efficiency, resulting in cost savings.
What does it cost at the end of the day if I activate Instant Trade?
As a Merchant you pay 0.5% of the transaction amount in eCredits. If you have enabled Instant Trade on your profile, the ECS received will be instantly exchanged into EUR via Blocktrade. The fees applied to exchange the ECS for EUR is around 0.3%. The EUR withdrawal fee on Blocktrade is 2 EUR for up to 1,000 EUR withdrawn.
Let’s say that the ECS price is 0.025 EUR and a customer has paid 100 EUR worth of eCredits (4,000 ECS) to a Merchant.
The transaction fee is 0.5%, 20 ECS in this case. If Instant Trade is enabled and funds (3,980 ECS) are instantly exchanged at 0.3%, Merchant will receive 99.20 EUR on his Blocktrade account.
If Merchant leaves the funds on Blocktrade and withdraws them only once the 1,000 EUR balance is reached, then the withdrawal cost for 100 EUR worth transaction will be 20 EUR cents, making a total cost of 100 EUR worth of ECS transaction - 1 EUR, or 1%.
* Subject to Blocktrade’s Terms and Conditions.