IFRS (#) Accounting for crypto-assets Contents
1. Introduction 1
2. What are crypto-assets? 2
2.1. Cryptocurrencies 3
2.2. Tokens (crypto-assets other than cryptocurrencies) 5
3. Accounting for crypto-assets 10
3.1. Selected activities of standard setters 10
3.2. Special situations 13
3.3. Conclusion 15
4. Supporting details 16
5. Contacts 21 1
Introduction
Crypto-assets experienced a breakout year in 2017. Cryptocurrencies, such as bitcoin and ether, have seen their prices surge as the public’s YoYj]f]kk`Ykaf[j]Yk]\$Yf\ÕfYf[aYdeYjc]lhYjla[ahYflk`Yn]l`mk af[j]Ykaf_dqlmjf]\l`]ajYll]flagflgl`]h`]fge]fgf&KaemdlYf]gmkdq$ a wave of new crypto-asset issuance has been sweeping the start-up fundraising world, sparking the interest of regulators in the process. 9[[gmflYflk`Yn]l`mk^YjZ]]ffglYZd]Zql`]ajj]dYlan]YZk]f[]^jge l`YlfYjjYlan]&H]j`Yhk$egklfglYZd]akl`]^Y[ll`Yll`]9mkljYdaYf 9[[gmflaf_KlYf\Yj\k:gYj\ 99K:!`YkkmZeall]\Y\ak[mkkagfhYh]j gfÉ\a_alYd[mjj]f[a]kÊlgl`]Afl]jfYlagfYd9[[gmflaf_KlYf\Yj\k :gYj\ A9K:!$Yf\l`]9[[gmflaf_KlYf\Yj\k:gYj\g^BYhYf 9K:B! `Ykakkm]\Yf]phgkmj]\jY^l^gjhmZda[[gee]flgfY[[gmflaf_^gj “virtual currencies”.1AfY\\alagf$l`]A9K:\ak[mkk]\[]jlYaf^]Ylmj]kg^ ljYfkY[lagfkafngdnaf_\a_alYd[mjj]f[a]k\mjaf_alke]]laf_afBYfmYjq *()0$Yf\oadd\ak[mkkaf^mlmj]o`]l`]jlg[gee]f[]Yj]k]Yj[`hjgb][l in this area.1 L`akYdkg`a_`da_`lkl`]dY[cg^YklYf\Yj\ar]\[jqhlg%Ykk]llYpgfgeq$ o`a[`eYc]kal\a^Õ[mdllg\]l]jeaf]l`]Yhhda[YZadalqg^klYf\Yj\k]ll]jkÌ hmZdak`]\h]jkh][lan]k&>mjl`]jegj]$\m]lgl`]\an]jkalqYf\hY[]g^ affgnYlagfYkkg[aYl]\oal`[jqhlg%Ykk]lk$l`]^Y[lkYf\[aj[meklYf[]k g^]Y[`af\ana\mYd[Yk]oadd\a^^]j$eYcaf_al\a^Õ[mdllg\jYo_]f]jYd [gf[dmkagfkgfl`]Y[[gmflaf_lj]Yle]fl& <]khal]l`]eYjc]lÌkaf[j]Ykaf_dqmj_]flf]]\^gjY[[gmflaf__ma\Yf[]$ l`]j]`Yn]Z]]ffg^gjeYdhjgfgmf[]e]flkgfl`aklgha[lg\Yl]& Afl`akj]hgjl$o]YaelgÕjklZja]Öqafljg\m[][jqhlg[mjj]f[a]kYf\ gl`]jlqh]kg^[jqhlg%Ykk]lk&L`]f$o]\ak[mkkkge]g^l`]j][]fl activities by accounting standard setters in relation to crypto-assets. This structure highlights the fact that dealing with crypto-assets requires a detailed understanding of the technical intricacies of distributed ledger l][`fgdg_q g^l]fj]^]jj]\lgYkZdg[c[`Yaf!gfgf]`Yf\$Yf\j]d]nYfl accounting concepts on the other. @go]n]j$o]\gfglYaelgkh][aÕ[YddqY\\j]kkl`]e]jalkYf\hgl]flaYd of the underlying blockchain technology here. For that, we would j][gee]f\[gfkmdlaf_l`]j][]fl=Q%khgfkgj]\Global blockchain benchmarking study.
IFRS (#) Accounting for crypto-assets 1 2
What are crypto-assets?
Crypto-assets are digital assets recorded on a distributed ledger. They derive their name from the cryptographic security mechanisms used within public, permission-less distributed ledgers. In many cases, they pose a challenge to established beliefs about money, economic relationships and investing, thereby also raising questions YZgmll`]ajYhhjghjaYl]ÕfYf[aYdj]hgjlaf_& Cryptocurrencies, such as bitcoin and ether, constitute the earliest and best-known examples of crypto-assets, but the space continues to grow and evolve, producing new types of assets that are commonly called tokens. Afkm[`Y^Ykl%egnaf_]fnajgfe]fl$alak\a^Õ[mdl to create any lasting taxonomy of crypto-assets. For the purposes of our analysis, we deliberately have shown below a distinction between cryptocurrencies and non-cryptocurrency tokens. We do so in full acknowledgment of the fact that all crypto-assets may commonly be referred to as “tokens” and a hard boundary Z]lo]]fgmjlog[Yl]_gja]keYqYllae]kZ]\a^Õ[mdllg \jYo&O]]dYZgjYl]^mjl`]jgfl`]k]\]Õfalagfkafl`] relevant sections below.
2 IFRS (#) Accounting for crypto-assets Crypto-assets
Cryptocurrencies Tokens (crypto-assets other than cryptocurrencies)
Other Initial Coin Offering (ICO)
Future Colored MAG Hybrid Security innovations? coins
2.1. Cryptocurrencies
L`]ogj\É[jqhlg[mjj]f[a]kÊakg^l]fmk]\YkYZdYfc]ll]je gj[]fljYdYml`gjalq ]&_&$YZYfc!lg]f^gj[]jmd]kYf\eYaflYaf ^gjYdd[jqhlg%Ykk]lk&@go]n]j$o]mk]alkh][aÕ[Yddqlge]Yf l`]É_gd\]fkgmj[]Êg^ljYfkY[lagfk&=Y[`[gehml]jeYaflYafk$ l`gk][jqhlg%Ykk]lkl`YlYj]e]Yfllg[gfklalml]Yh]]j%lg%h]]j or has access to, a full record of every transaction since the Ydl]jfYlan]lg_gn]jfe]fl%akkm]\ÕYl[mjj]f[q3Y_]f]jYd%hmjhgk] Zdg[c[`YafÌkaf[]hlagf&O`]f]n]jYljYfk^]jg^Zal[gafkakeY\]$ e]\ameg^]p[`Yf_]af\]h]f\]flg^Yfq[]fljYdZYfc&L`]k]o]j] this public record is used to verify availability of funds and the l`]Õjkllqh]kg^[jqhlg%Ykk]lklg]e]j_]$jakaf_lghjgeaf]f[] new transaction is encoded into the consensus ledger through the oal`l`]dYmf[`g^:al[gafaf*((1& eafaf_hjg[]kk\]k[jaZ]\YZgn]&L`]j]^gj]$l`]d]\_]jaknajlmYddq aeemlYZd]&L`]j]akYdegklfgjakcg^^jYm\gjeYfahmdYlagfaf 2.1.1. Bitcoin participant-to-participant transactions on the blockchain itself l`gm_`l`]j]eYqZ]o`]fljY\af_l`]Ykk]l$Yf\l`]j]ak :al[gafoYkgf]g^l`]Õjkl[jqhlg[mjj]f[a]k$^gkl]j]\Yll`] Ydkghgl]flaYd^gjeYjc]leYfahmdYlagfgjl`]^lg^hjanYl]c]qk$ `]a_`lg^l`]_dgZYdÕfYf[aYd[jakakZqYdaZ]jlYjaYf[geemfalq ^gj]pYehd]!& \]]hdq\akljmkl^mdg^_gn]jfe]flkYf\[]fljYdYml`gjala]k&Al`Yk khYof]\eYfqaealYlgjk$Zmlj]eYafkl`]d]Y\af_[jqhlg[mjj]f[q :al[gafakkh][aÕ[Yddq\]ka_f]\YkY[mjj]f[qYf\hYqe]flkqkl]e$ ZqeYjc]l[YhalYdarYlagf& Zmlalakogjl`hgaflaf_gmll`YlafYhmZda[$h]jeakkagf%d]kk \akljaZml]\d]\_]j$alak[mklgeYjqlgg^^]jY^gjeg^gf%[`YafnYdm] Afl`]:al[gafZdg[c[`Yaf$Yfqgf][Yfna]ol`]d]\_]jo`a[` to incentivize transaction validation. records ownership of bitcoins and transact upon it. Privacy akl`mkY[`a]n]\gfdql`jgm_`hk]m\gfqealq$a&]&$YdY[cg^ Afl`]:al[gafZdg[c[`Yaf$l`akaf[]flan][mjj]fldqlYc]kl`]^gje [gff][lagfZ]lo]]fl`]:al[gafY\\j]kkYf\Yfa\]flaÕYZd]d]_Yd g^fglgfdqljYfkY[lagf^]]k$ZmlYdkgf]odq%eaf]\Zal[gafk& or natural person.2 O`]f]n]jqZdg[cakeaf]\$l`]eaf]jj][]an]kYhj]\]l]jeaf]\ Yegmflg^Zal[gaf$Zmll`]kmhhdqg^Zal[gafkakY[lmYddqÕfal] ;jm[aYddq$Yfqgf]oal`km^Õ[a]fl[gehmlaf_hgo]j[YfhYjla[ahYl] Zq\]ka_f&Gf[]l`]dYklZal[gafakeaf]\$l`]kqkl]eoaddkoal[` afl`]nYda\Ylagfg^ljYfkY[lagfkZqmkaf_gf]Ìk[gehml]jlgkgdn] lgYf]p[dmkan]dqljYfkY[lagf^]]%ZYk]\af[]flan]&L`ak^gjek [gehd]p[jqhlg_jYh`a[]imYlagfk&L`]]imYlagfkgdmlagfk]fYZd] hYjlg^l`]Yddmj]g^:al[gaflgl`]daZ]jlYjaYf[jqhlg[geemfalq& “blocks” of transactions to be added to the “chain” in return AlkÕfal]$\]ÖYlagfYjqegf]qkmhhdq[YfZ]dac]f]\lgY\a_alYd ^gjf]odqÉeaf]\ÊZal[gafk&L`]j]akfgf]]\^gjemlmYdljmkl gold standard.
IFRS (#) Accounting for crypto-assets 3 Afkhal]g^l`Ylhjaf[ahd]$alakaehgjlYfllgfgl]l`Yl:al[gafak The last fork received widespread news coverage, as it caused \qfYea[jYl`]jl`YfklYla[&L`]j]^]j]f[]aehd]e]flYlagf[g\] Y\]]h\ana\]afl`]=l`]j]me[geemfalqgn]jl`]\][akagflg akgh]fkgmj[]$a&]&$alakeYfY_]\Yf\mh\Yl]\Zqngdmfl]]jko`g j]lmjfMK -(eafklgd]f=l`]jlgafn]klgjkafL`]
4 IFRS (#) Accounting for crypto-assets 2.2. Tokens (crypto-assets other than cryptocurrencies)
O]mk]Élgc]fkÊYkYfmeZj]ddYl]je^gjYoa\]nYja]lqg^ crypto-assets. In contrast to cryptocurrency, which is designed YkY_]f]jYd%hmjhgk]e]\ameg^]p[`Yf_]Y[jgkkYhhda[Ylagfk$ lgc]fkl]f\lgZ]\]ka_f]\lgkmhhgjlYegj]fYjjgodq%\]Õf]\$ kh][aÕ[mk][Yk]g^\akljaZml]\d]\_]jl][`fgdg_q&9dl`gm_` [jqhlg[mjj]f[a]keYqYdkg[geegfdqZ]j]^]jj]\lgYkÉlgc]fkÊ$ o]\]daZ]jYl]dq\jYol`]YZgn]\aklaf[lagf`]j]$\]Õfaf_l`] l]jelgc]fk`]j]aflge]Yffgf%[jqhlg[mjj]f[qlgc]fkhjgna\af_ kge]l`af_gl`]jl`Yfhmj]dq_]f]jYd%hmjhgk]nYdm]ljYfk^]j& L`]eYjc]lÌk^g[mk`Ykj][]fldqZ]]fgflgc]fkakkm]\afA;Gk$ but one should note that other types of tokens exist. An ICO is the hjg[]kkZqo`a[`kge]g^l`]eYj]Zjgm_`llgeYjc]l$Zmllgc]fk Yj]fglf][]kkYjadqkaehdqY[YhalYd%jYakaf_lggd&O]\ak[mkkkge] ]pYehd]kZ]dgoo`ad]Y[cfgod]\_af_l`Ylf]olqh]kg^lgc]fk eYqq]lZ]\]n]dgh]\&
2.2.1. Ether Afl`]É;jqhlg[mjj]f[a]kÊk][lagfYZgn]$o]fgl]\l`Yl=l`]j]meÌk native cryptocurrency, ether, is necessary to incentivize transaction validation in the network and thereby acts as a e]\ameg^]p[`Yf_]kaeadYjlgZal[gaf&Q]l$]l`]jYdkg^mdÕddkl`] jgd]g^É[jqhlg%^m]dÊlgjmfkeYjl[gfljY[lk$a&]&$alakYf]fYZd]jg^ \][]fljYdar]\Yhhda[YlagfkZmadlgf=l`]j]me& L`akea_`lafnal]l`]Yj_me]fll`Yl]l`]j`YkYkh][aÕ[ application and should thus fall under “tokens” as opposed to É[jqhlg[mjj]f[a]kÊoal`afgmjlYpgfgeq&@go]n]j$o]ogmd\ ]eh`Ykar]l`]_]f]jYd%hmjhgk]fYlmj]g^l`]=l`]j]mehdYl^gje$ Yf\Zq]pl]fkagf]l`]j$o`a[`[gfljYklkoal`l`]egj]fYjjgodq \]Õf]\mk][Yk]kk]]fYegf_gl`]jlgc]fk&L`akakmf\]jk[gj]\ Zql`]^Y[ll`Yl]l`]jakoa\]dqmk]\YkYe]Yfkg^hYqe]fl^gj A;Glgc]fk&Alakkljgf_dq[`YjY[l]jar]\Zqalkjgd]YkYe]\ameg^ exchange. Therefore, although we acknowledge the technological distinction Z]lo]]fZal[gafYf\]l`]j$o]\]]ealegj]YhhjghjaYl]lg[dYkka^q ether as a cryptocurrency for the purposes of an accounting discussion.
2.2.2. Initial Coin Offerings (ICOs) L`]l]jeÉA;GÊ]ngc]kl`][gf[]hlg^YfAHG$a&]&$YfafalaYdhmZda[ g^^]jaf_g^Y[gehYfqÌkk`Yj]kgfYklg[c]p[`Yf_]& An ICO involves the issuance of new coins recorded on a \akljaZml]\d]\_]j najlmYddqYdoYqk=l`]j]me!&- The public decides o`]l`]jlghmj[`Yk]l`]egfl`]ZYkakg^af^gjeYlagfk]lgml afYÉo`al]hYh]jÊhmZdak`]\Zql`]akkmaf_\]n]dgh]j$Yegf_
IFRS (#) Accounting for crypto-assets 5 other considerations. The white paper typically sets out the lgc]fk$Ykakl`][Yk]]n]f^gjljY\alagfYdgj\afYjqk`Yj]k KfYh$ technical details of the tokens’ functionality and explains the value Af[&Z]af_Yj][]fl]pYehd]g^YfAHGg^k`Yj]kdY[caf_nglaf_ hjghgkalagfg^l`]kqkl]el`]qmf\]jhaf& ja_`lk!&L`]afn]klgjmdlaeYl]dq`Ykl`][`ga[]g^]al`]j`gd\af_l`] @go]n]j$l`]lgc]fkakkm]\afYfA;GeYqgjeYqfglZ]k][mjala]k$ lgc]flg[gdd][ll`][Yk`Ögok^jgel`]akkm]jgjk]ddaf_alafl`] \]h]f\af_gfl`]mf\]jdqaf_][gfgea[j]dYlagfk`ahkafngdn]\&Alak k][gf\YjqeYjc]l& [jm[aYdlgmf\]jklYf\l`YleYfqA;Glgc]fk\gfglÕll`]klYf\Yj\ In such a scenario, the ICO is in substance an IPO of shares or afn]klaf_hYjY\a_eYlYdd$o`a[`j]imaj]khj]hYj]jkg^ÕfYf[aYd \]Zl$a&]&$k][mjala]k$YkoYkj][]fldq`a_`da_`l]\Zql`]K=;Ìk af^gjeYlagflgeYc]mfaim]Yf\[gehd]pbm\_e]flkafj]dYlagflg ruling in relation to the DAO..L`]affgnYlagfakl`mkÉe]j]dqÊ their appropriate reporting. l][`fgdg_a[Yd$[gfkaklaf_g^l`]aee]\aYl]k]lld]e]flYf\ A;GkÌYeZa_malqYf\fgn]dlqYdkg[gehda[Yl]l`]\]l]jeafYlagf reconciliation-free record-keeping of transactions facilitated by the g^`golgYhhjgY[`l`]e^jgeYj]_mdYlgjqh]jkh][lan]$YkeYfq \akljaZml]\d]\_]j&L`]j]akdac]dqlgZ]dalld]af[j]e]flYdYeZa_malq bmjak\a[lagfkdY[c[g\aÕ]\d]_akdYlagfgjd]_Ydhj][]\]flmhgfo`a[` afj]dYlagflgl`]YhhjghjaYl]Y[[gmflaf_lj]Yle]fl$^gjZgl`l`] to base consistent rulings. akkm]jYf\l`]afn]klgj$Ykafl`][Yk]g^Yegj][gfn]flagfYd afn]kle]fl&Af]kk]f[]$l`][gf[]hlakkaeadYjlg[jgo\^mf\af_$ l`gm_`h]j`Yhkgf] l`mk^Yj!lYj_]laf_Yegj]l][`fgdg_a[Yddq 2.2.2.1. Securities on a blockchain literate audience. H]j`Yhk$l`]egklkljYa_`l^gjoYj\^gjeg^A;Gakgf]o`]j] 9fA;Gj]hj]k]flkYfYlljY[lan]kgmj[]g^ÕfYf[af_^gjYklYjl%mh l`]lgc]fkakkm]\j]hj]k]fl][gfgea[afl]j]klkafl`]akkmaf_ Zmkaf]kk$Ykal]k[`]okl`][gkl$lae]Yf\h]j[]an]\\ak[ge^gjl business, such as ordinary shares. That is, the white paper will set afngdn]\afgZlYafaf_ÕfYf[]l`jgm_`ljY\alagfYde]Yfkkm[`Yk gmll`]lgc]f`gd\]jÌkja_`llgj][]an]\akljaZmlagfkg^hjgÕl^jge ZYfck$n]flmj][YhalYdaklkgjl`]klg[ceYjc]l&L`akYdkgZ]f]Õlk l`]Y[lanalq[Yjja]\gmlZql`]akkmaf_gj_YfarYlagf k]]>a_mj])!& afn]klgjko`g[Yfmk]A;Gafn]kle]flklg_Yaf]phgkmj]lg Km[`\akljaZmlagfkea_`lZ]\ak[j]lagfYjqgjkmZb][llgY^gjemdYa[ ]Yjdq%klY_]afn]kle]flkoal`gmlhYqaf_`a_`eYfY_]e]flYf\ [Yd[mdYlagf&Nglaf_ja_`lkeYqgjeYqfglZ]YllY[`]\lgl`] h]j^gjeYf[]^]]klgN;^mf\k&
Figure 1: Securities on a blockchain
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6 IFRS (#) Accounting for crypto-assets MdlaeYl]dq$`go]n]j$l`akc]q\akafl]je]\aYlagfY\nYflY_] 2.2.2.2. “Miniature autocratic government” [gfklalml]kYhal^Ydd&Afegkl[gmflja]k$l`]j]Yj]klja[lj]_mdYlagfk (MAG) tokens gffglgfdql`]eYjc]laf_Yf\akkmYf[]ZmlYdkgl`]kmZk]im]fl ljY\af_g^k][mjala]k$Yf\A;GkeYq^Yddoal`afl`]k[gh]g^l`]k] EYfqA;GkZj]Ycl`]egd\g^ÕfYf[aYdeYjc]lk]flaj]dqZqg^^]jaf_ regulations. o`Yl`Yk[ge]lgZ]cfgofYkYÉmladalqlgc]fÊ& AfY\\alagflgl`][geegfjakckj]dYlaf_lgafn]kle]flafYfq L`akA;Geg\]dafngdn]kl`]\]n]dghe]flg^Y\akljaZml]\ ]Yjdq%klY_][gehYfq$jakck^gjafn]klgjkaf[dm\]l`]hgl]flaYd gj_YfarYlagf\]ka_f]\lgk`Yj]kge]j]kgmj[]afYh]]j%lg%h]]j ^Yadmj]g^l`]^gjeYlagfg^Yk][gf\YjqeYjc]lYf\Ydkgl`] ^Yk`agf ]&_&$`Yj\\jan]klgjY_]khY[]$KlgjbZ]af_Yf]pYehd]g^ hj]nYd]f[]g^k[YeA;GklYcaf_Y\nYflY_]g^l`]`qh]kmjjgmf\af_ km[`Ykqkl]e!&@]j]$Y\]n]dgh]j\]ka_fkYeafaYlmj]][gfgeqg^ crypto-assets and distributed ledger technology. To this end, kgjlk$afo`a[`l`]lgc]flgZ]akkm]\aklg[gfklalml]l`]e]\ame emdlahd]_gn]jfe]flkYjgmf\l`]ogjd\`Yn]akkm]\afn]klgj g^]p[`Yf_] ]&_&$l`]e]Yfkg^hYqe]fl^gjl`]`Yj\\jan] warnings around ICOs during the second half of 2017, including klgjY_]khY[]!& the >afYf[aYd;gf\m[l9ml`gjalq MC!$ :mf\]kYfklYdl^j Finanzdienstleistungsaufsicht ?]jeYfq!Yf\l`]K=; MK!&
Figure 2: Miniature autocratic government ICO
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Tokens Users Users Fiat or cryptocurrency
Secondary market
IFRS (#) Accounting for crypto-assets 7 L`]\]n]dgh]j [gehYfq!k]ddklgc]fkaf]p[`Yf_]^gjÕYl currency or cryptocurrency, thus earning a return on the j]kgmj[]k]ph]f\]\lgk]ll`]kqkl]emh&L`]\]n]dgh]jeYq Ydkg]Yjf[geeakkagfkgfljYfkY[lagfkafngdnaf_l`]lgc]fk$Yf\ l`]hjg[]]\keYqZ]^mjl`]jj]afn]kl]\afl`]eYjc]laf_g^l`] kqkl]e$l`]j]ZqYlljY[laf_\]eYf\^gjalYf\alklgc]fk&>gjYf addmkljYlagfg^l`akkqkl]e$hd]Yk]j]^]jlgl`]E9?lgc]fk\aY_jYe& O]\]jan]gmjfYe]^gjl`akA;Geg\]d^jgel`]^Y[ll`Yloal`afal$ l`]\]n]dgh]jY[lkem[`dac]$a^Yfql`af_$YeafaYlmj]Ymlg[jYla[ _gn]jfe]fl&AkkmYf[]_Yafk[YfZ]dac]f]\lgl`]k]a_fagjY_] _Yafk_gn]jfe]flk]Yjfo`]fl`]qk]ddZYfcfgl]kYlYhj]eame gn]jl`][gklg^[gllgf$hYh]jYf\afc&LjYfkY[lagf[geeakkagfk$ o`a[`[YfZ]k]lmfadYl]jYddqZql`]\]n]dgh]j$^mf[lagfem[` dac]lYp]k&J]afn]kle]flg^[geeakkagfkafl`]kqkl]eYf\alk eYjc]laf_akYcaflgl`]jgd]khdYq]\ZqhmZda[af^jYkljm[lmj] afn]kle]flYf\^gj]a_f\aj][lafn]kle]flhjgeglagfY_]f[a]k& L`]Ymlg[jY[qYkk]jlagfkl]ek^jgel`]^Y[ll`Yll`]j]Yj]fg voting rights and, legally, the developer owes nothing to token holders. At the point of issuance, the developer gains the right to l`]A;Ghjg[]]\kYf\[Yf\goal`l`]eYkaloak`]k&Lgc]f`gd\]jk have no recourse and no right to receive interest or dividends. EYaflYafaf_YeafaYlmj]Ymlg[jY[qg^l`akcaf\`af_]kgfl`] YlljY[lagfYf\j]l]flagfg^mk]j\]eYf\&L`ak$aflmjf$\]h]f\k gfl`]^mf\Ye]flYdnaYZadalqg^l`]nYdm]hjghgkalagfYf\l`] gf_gaf_eYafl]fYf[]g^mk]jkYlak^Y[lagf&L`]afn]kle]fl [Yk]^gjE9?lgc]fA;Gk$l`mk$Zmad\kmhgfYfYkk]kke]flg^ Yfla[ahYl]\h]j^gjeYf[]Y_Yafkll`]k][jal]jaY$oal`l`]lgc]f hja[]^Yddaf_Yll`]afl]jk][lagfg^YnYjaYZd]\]eYf\Yf\Õfal] kmhhdq&Hja[]\ak[gn]jqg[[mjkl`jgm_`l`]k][gf\YjqeYjc]l$ a&]&$l`jgm_`[jqhlg%]p[`Yf_]k$afl`]kYe]oYqYk^gjgl`]jlqh]k of crypto-assets.
2.2.2.3. Hybrids Alak[jm[aYdlgfgl]l`Ylk][mjalqlgc]fkYf\E9?lgc]fkj]hj]k]fl log]f\kg^Y[gflafmme$jYl`]jl`YfYZafYjq[`ga[]&Gf_gaf_ innovation in the crypto-asset space continues to produce hybrid lgc]fkl`YlYj]hYjlE9?lgc]f$hYjlk][mjalq&Ngdme]k[gmd\Z] written on the variety of technologies observed and approaches lYc]f$Zmlo]]f[gmjY_][gehYfa]klgk]]clYadgj]\hjg^]kkagfYd advice if they wish to incorporate crypto-assets into their Zmkaf]kkeg\]dk&
2.2.3. Colored coins (e.g., Ripple issuances) 9\akljaZml]\d]\_]j[YfZ]mk]\YkYhdYl^gje^gjeYaflYafaf_ Y\akljaZml]\j][gj\g^Yfqcaf\g^\YlY&H`qka[YdgjÕfYf[aYd assets, such as gold or stocks, can be “tokenized”, i.e., recorded Yklgc]fkgfY\akljaZml]\d]\_]j&L`]Yaeg^l`aklgc]farYlagfaklg klj]Yedaf]ljY\af_l`jgm_`aee]\aYl]k]lld]e]flg^ljYfkY[lagfk Yf\l`]]daeafYlagfg^j][gf[adaYlagfhjg[]kk]k&
8 IFRS (#) Accounting for crypto-assets Details of existing assets can be inscribed into a distributed ledger through the “coloring” of the ledger’s tokens. This is technically hgkkaZd]]n]foal`afl`]:al[gafZdg[c[`Yaf$ZmlYkqkl]e]paklk l`Yl`YkZ]]fkh][aÕ[Yddqk]lmhlg^Y[adalYl]al2Jahhd]& Jahhd]akY\akljaZml]\d]\_]jl][`fgdg_a[YddqkaeadYjlg:al[gafgj =l`]j]me$Zml[gf[]hlmYddqem[`d]kkjY\a[Yd&Al]^^][lan]dqk]jn]k YkYkqkl]eg^[j]\aldaealkYf\YhYqe]flhjglg[gd& É?Yl]oYqkÊgfl`]f]logjcgh]jYl]em[`dac]ZYfck&L`]q[Yf akkm]lgc]fk [gdgj]\[gafk![Ydd]\ÉakkmYf[]kÊ&L`]k]akkmYf[]k Yj]\aklaf_mak`]\^jgeJahhd]ÌkfYlan][jqhlg[mjj]f[qPJHafl`Yl they constitute digital IOUs representing any off-ledger asset hj]^]jYZdqYfgf%h]jak`YZd]$^mf_aZd]gf]!&AkkmYf[]kYj]YdoYqk la]\lgYkh][aÕ[akkm]j$e]Yfaf_l`YlYdd[mjj]f[a]k$km[`Yk]mjgk gjMK\gddYjkj][gj\]\gfl`]Jahhd]d]\_]j$lYc]l`]^gjeg^ akkmYf[]kla]\lgYkh][aÕ[Éakkmaf__Yl]oYqÊ& =Y[`mk]jk]lkmhÉljmkldaf]kÊlgkh][aÕ[hYjla]k^gjkh][aÕ[ Yegmflkafkh][aÕ[afkljme]flkÈ]^^][lan]dqY^gjeg^ [gmfl]jhYjlqjakceYfY_]e]fl&=n]fa^logmk]jk\gfglljmkl each other, they can transact as long as a trust path can be found Z]lo]]fl`]e$fgeYll]j`goeYfq_Yl]oYqkYj]afngdn]\&L`akak l`][gf[]hlg^Éjahhdaf_ÊhYqe]flk$]kk]flaYddqY\a_alYdn]jkagfg^ l`]`YoYdYf]logjc$o`a[``YkZ]]fmk]\YkYhYqe]fle]\ameaf the Arab world for centuries. If there is no trust line between two parties, the native [jqhlg[mjj]f[q$PJH$k]jn]kYkYljmkld]kk^YddZY[ce]\ame&L`akak hgkkaZd]Z][Ymk]Jahhd]j]imaj]k]n]jq_Yl]oYqlgimgl]PJH prices for any issuance it deals in. Colored coins are relevant to our discussion of crypto-assets in l`Yll`]qZ]f]Õl^jge\akljaZml]\d]\_]jl][`fgdg_qYf\eYq$ l`]j]^gj]$hdYqYhYjlafl`]affgnYlagfg^eYjc]laf^jYkljm[lmj] Yf\hjg[]kk]k&@go]n]j$l`]^mf\Ye]flYdfgn]dlqda]kfglafl`] kmZklYf[]g^l`]k]Ykk]lk$Zmlafl`]kqkl]ekmk]\lgj][gj\ Yf\ljYfkY[ll`]e&L`]q[YfZ]l`gm_`lg^YkÉ_Yj\]fnYja]lqÊ crypto-assets.
2.2.4. Future innovations? 9kYÕfYdfgl]$o]k`gmd\j]al]jYl]l`Ylo]`Yn]\ak[mkk]\ nYjagmk]pYehd]kg^lgc]fkYZgn]$fYe]dqA;Glgc]fkYf\[gdgj]\ coins. While the latter category is rather broad and could thus Z]]ph][l]\lg[Yhlmj]eYfqf]olgc]fk$o]Y[cfgod]\_]l`Yl gf_gaf_affgnYlagfafl`][jqhlg%Ykk]lkhY[]eYqhjg\m[]kladd other types of tokens in the future. We would therefore highlight that these two broad groups of tokens are not intended to be collectively exhaustive.
IFRS (#) Accounting for crypto-assets 9 3
Accounting for crypto-assets
3.1. Selected activities of standard setters
3.1.1. Overview Crypto-assets constitute an evolving, fast-growing, but still j]dYlan]dqf]o$Ykk]l[dYkk&9kYj]kmdl$l`]j]Yj]fgkh][aÕ[ hjgfgmf[]e]flk^jgeY[[gmflaf_Zg\a]kl`Yl\]Ydoal`l`] Y[[gmflaf_g^km[`Ykk]lk^jgel`]`gd\]jÌkh]jkh][lan]& L`]hmjhgk]g^l`akk][lagfaklghjgna\]YkmeeYjqg^ selected activities by standard setters. Due to the diversity and pace of innovation associated with crypto-assets, the ^Y[lkYf\[aj[meklYf[]kg^]Y[`af\ana\mYd[Yk]oadd\a^^]j$ eYcaf_al\a^Õ[mdllg\jYo_]f]jYddqYhhda[YZd][gf[dmkagfk gfl`]Y[[gmflaf_lj]Yle]fl&L`]Y[[gmflaf_^gj[jqhlg% assets has to be evaluated on the basis of individual fact patterns. However, the perspectives of the standard setters, Ykk`gofZ]dgo$Yj]_]f]jYdaffYlmj]Yf\eYqfglZ] applicable to all crypto-assets. It is further observed that l`]j]ak[mjj]fldqfgklYf\Yj\ar]\\]Õfalagfg^[jqhlg%Ykk]lk Yf\l`]l]jeafgdg_qYf\$`]f[]$l`]\]Õfalagfkmk]\Zq standard setters vary.
3.1.2. Perspectives from the AASB Af<][]eZ]j*().$l`]99K:j]d]Yk]\l`]hYh]j$Digital currency — A case for standard setting activity.1L`]99K: ]pYeaf]\l`][mjj]flA>JKdal]jYlmj]Yf\]nYdmYl]\o`]l`]j digital currencies should be accounted for as cash or cash ]imanYd]flk$ÕfYf[aYdYkk]lk gl`]jl`Yf[Yk`!$aflYf_aZd] assets, or inventories.
10 IFRS (#) Accounting for crypto-assets The paper concluded that, at present, digital currencies should not be considered as cash or cash equivalents under A9K/Statement of Cash Flows.7Kh][aÕ[Yddq$aloYk[gee]fl]\ l`YlY\a_alYd[mjj]f[qdY[ckZjgY\Y[[]hlYf[]YkYe]Yfkg^ exchange8 Ylhj]k]fl!Yf\alakfglakkm]\ZqY[]fljYdZYfc&1 AfY\\alagf$Y\a_alYd[mjj]f[qakfglYÕfYf[aYdafkljme]fl$Yk \]Õf]\afA9K+*Financial Instruments: Presentation, due to the dY[cg^[gfljY[lmYdj]dYlagfk`ahl`Ylj]kmdlkafYÕfYf[aYdYkk]l^gj gf]hYjlqYf\YÕfYf[aYddaYZadalq^gjYfgl`]j&10 L`]hYh]j^mjl`]j^gmf\l`YlY\a_alYd[mjj]f[qe]]lkl`] \]Õfalagfg^aflYf_aZd]Ykk]lk$Yk\]Õf]\afIAS 38 Intangible Assets$Z][Ymk]Y\a_alYd[mjj]f[qakYfa\]flaÕYZd]fgfegf]lYjq Ykk]loal`gmlh`qka[YdkmZklYf[]&HYjY_jYh`+g^A9K+0af[dm\]k a scope exception for intangible assets held for sale in the gj\afYjq[gmjk]g^Zmkaf]kk&Km[`aflYf_aZd]kYj]kmZb][llgIAS 2 Inventories and, hence, are accounted for at the lower of cost and f]lj]YdarYZd]nYdm] ]p[]hl^gjafn]flgja]k`]d\Zq[geeg\alq Zjgc]j%ljY\]jk$Yk\ak[mkk]\Z]dgo!jYl`]jl`Yfmkaf_l`][gkl gjj]nYdmYlagfeg\]dmf\]jA9K+0&11L`]hYh]j[gee]fl]\$ however, that it is not necessarily clear how “held in the ordinary course of business” should be interpreted in the context of digital [mjj]f[a]kegj]ZjgY\dq&>gj]pYehd]$alakfglf][]kkYjadq[d]Yj a^]flala]kl`YlY[[]hl\a_alYd[mjj]f[a]kYkYe]Yfkg^hYqe]fl k`gmd\Z][gfka\]j]\lg`gd\l`]e^gjkYd]afl`]gj\afYjq[gmjk] of business. >mjl`]jegj]$A9K*\g]kfglYhhdqlgl`]e]Ykmj]e]flg^ afn]flgja]k`]d\Zq[geeg\alqZjgc]j%ljY\]jko`ge]Ykmj]l`]aj inventories at fair value less costs to sell and recognize changes af^YajnYdm]d]kk[gklklgk]ddafhjgÕlgjdgkkafl`]h]jag\g^l`] [`Yf_]&:jgc]j%ljY\]jkYj]l`gk]o`gZmqgjk]dd[geeg\ala]k^gj others or on their own account. However, it is not necessarily clear o`]l`]j\a_alYd[mjj]f[a]kk`gmd\Z][gfka\]j]\Y[geeg\alqaf l`][gfl]plg^A9K*& L`]99K:Ydkgfgl]kl`Yll`]j]ak[mjj]fldqYdY[cg^Y[[gmflaf_ _ma\Yf[]Yjgmf\aflYf_aZd]Ykk]lkYf\[geeg\ala]k`]d\^gj afn]kle]flhmjhgk]k& L`]99K:[gf[dm\]kl`Yll`]j]akYdY[cg^_ma\Yf[]gf\a_alYd [mjj]f[a]kYf\l`Yll`]e]Ykmj]e]fl_ma\Yf[]mf\]jA9K*Yf\ A9K+0\g]kfglhjgna\]j]d]nYflYf\mk]^mdaf^gjeYlagflgmk]jk g^ÕfYf[aYdklYl]e]flk ]p[]hl^gjafklYf[]ko`]j]Yf]flalqak
IFRS (#) Accounting for crypto-assets 11 [gfka\]j]\lgZ]Y[geeg\alqZjgc]j%ljY\]j!&Alhjghgk]kl`Yl 3.1.4.2. Accounting for virtual currencies held by the digital currencies be accounted for at fair value with changes a virtual currency dealer on behalf of its af^YajnYdm]j][g_far]\afhjgÕlgjdgkk&L`mk$klYf\Yj\k]llaf_ activity is needed. customers L`]=phgkmj] 12 IFRS (#) Accounting for crypto-assets 3.2. Special situations 3.2.1. Forked currencies (and short-selling) Certain cryptocurrencies have experienced an event described as a “fork” in the past few years. A fork is a change to the underlying protocol in the relevant blockchain. It requires all nodes connected to the blockchain to update to the new version of protocol software, and adopt that version going forward. There are currently two possible types of forks. A hard fork and a soft fork. A hard fork changes the protocol code to create a new version of the blockchain, alongside the old version. This also potentially creates new coins. A soft fork is also an update to the Zdg[c[`Yafhjglg[gd3`go]n]j$gf]n]jkagf Ykkme]\l`]mh\Yl]\ gjf]on]jkagf!akkmhhgk]\lgZ]Y\ghl]\Zql`]eYbgjalqYf\oadd Z][ge]l`]\geafYflgf]& >gj]pYehd]$l`]:al[gafZdg[c[`Yaf`Yk]ph]ja]f[]\emdlahd] ^gjck&L`]ÉK]_oalÊ^gjcg[[mjj]\af9m_mkl*()/Yf\[`Yf_]\ l`]\YlYklgj]\oal`af]Y[`Zdg[cafgj\]jlgaehjgn]k[YdYZadalq and speed. There were two other forks in 2017 which produced logYdl]jfYlan]:al[gafk2:al[gaf;Yk` :;@!Yf\:al[gaf?gd\ :L?!&Afl`]k][Yk]k$f]oZal[gafko]j][j]Yl]\Yf\$^gj]pYehd]$ YkYj]kmdlg^l`]Õjkl^gjc$l`]`gd\]jg^]Y[`:L;afl`]É[gj]Ê Zdg[c[`Yafj][]an]\gf]:;@^gj]n]jqgja_afYdZal[gaf`]d\& >jgeYÕfYf[aYdj]hgjlaf_h]jkh][lan]$l`]g[[mjj]f[]g^Y hard fork can be likened to a spin-off. When a parent spins off its subsidiary by distributing the subsidiary’s shares pro rata to investors in the parent, the parent investors record a stock \ana\]f\&L`akakj][gj\]\afl`]`gd\]jÌkÕfYf[aYdklYl]e]flkYk Yf]oYkk]l \]Zal!Yf\\ana\]f\af[ge] [j]\al!&KaeadYjdq$a^Y [jqhlg[mjj]f[qakkmZb][l]\lgY`Yj\^gjc$l`]`gd\]jakd]^loal` Yf]paklaf_Ykk]l egkldac]dqfgoogjl`d]kkl`YfZ]^gj]!Yf\Y f]oYkk]l&:][Ymk]l`]j]dYlagfk`ahakfglgf]g^]imalqgof]jk`ah$ gf][Yffglkh]Ycg^\ana\]f\af[ge]&AlakhjgZYZd]l`Yl$Ykaf l`][Yk]g^:al[gafYf\:al[gaf;Yk`$l`]]paklaf_Yf\f]oYkk]lk oaddZ]g^l`]kYe]lqh]Yf\oaddl`]j]^gj]Z][dYkkaÕ]\a\]fla[Yddq gfl`]aj`gd\]jÌkklYl]e]flg^ÕfYf[aYdhgkalagf&@go]n]j$alak possible that future forks of different cryptocurrencies will not adhere to this principle. IFRS (#) Accounting for crypto-assets 13 Another interesting situation arises where an investor holds a short position in a cryptocurrency. There is no way to record short positions in a cryptocurrency directly on the blockchain, Yf\l`]j]^gj]l`]k`gjlhgkalagfoaddlYc]l`]^gjeg^Yk]hYjYl] [gfljY[llgk]ddafl`]^mlmj]&L`Ylogmd\Z]YcaflgYegj] ljY\alagfYdlqh]g^Ykk]lYf\daYZadalqlgZmqgjk]ddYÕfYf[aYd afkljme]fl&L`akogmd\lqha[YddqZ]YfYkk]lgjdaYZadalqYk Yl^YajnYdm]l`jgm_`hjgÕlgjdgkk >NLHD!& When a fork occurs, the cryptocurrency short-seller’s position k`gmd\Z]kaeadYjlgl`Ylg^Yk`gjl%k]dd]jg^Yf]imalqafkljme]fl$ which pays a dividend while the short position is outstanding. K][mjala]kd]f\af_Y_j]]e]flklqha[Yddqkh][a^ql`Yll`]k`gjl% seller shall be liable to not only surrender the share to its owner ZmlYdkgj]aeZmjk]l`]Yegmflg^l`]\ana\]f\&@go]n]j$fg best practice appears to have been established in this area for cryptocurrency as yet. It is therefore uncertain whether the short- seller has any additional liability in the case of a hard fork. 3.2.2. Token presale (vs. ICO) A distinction can be drawn between those tokens issued in an ICO Yll`]kYe]lae]YkgjY^l]jl`]f]logjcgjk]jna[]akdYmf[`]\$ Yf\l`gk]akkm]\Z]^gj]l`]dYmf[`afYÉhj]kYd]Ê&L`]Kaehd] 9_j]]e]fl^gj>mlmj]Lgc]fk K9>L!hjgb][lZqHjglg[gdDYZkYf\ ;ggd]qk]lkgmlY^jYe]ogjc^gjl`]mk]g^km[`^mlmj]lgc]fk& L`]lgc]falk]d^ a^YE9?lgc]f!\g]kfgl[gfklalml]Yk][mjalq$Yk discussed elsewhere in this paper. However, a presale involving l`]Y_j]]e]fllghmj[`Yk]^mlmj]lgc]fk_an]kjak]lgYk][mjalq Y[[gj\af_lg;ggd]qYf\Hjglg[gdDYZk&L`]Y_j]]e]fl]kk]flaYddq represents a forward contract on the token that is yet to be created. Therefore the contract itself constitutes a security under MKdYo$Yf\ogmd\Z]kmZb][llgk][mjala]kj]_mdYlagfmf\]jl`] K=; afl`]MK!$Y[[gj\af_lg;ggd]qYf\Hjglg[gdDYZk& Alakogjl`e]flagfaf_l`ak\aklaf[lagfafl`][gfl]plg^ÕfYf[aYd reporting because it shows the wide range of legal and regulatory interpretations of different types and structures of tokens. The ^Y[ll`Yll`]af\mkljqak_jgoaf_jYha\dqe]Yfkl`Ylf]oYf\ [gehd]pkljm[lmj]koaddZ]hgkkaZd]$j]imajaf_[gehYfa]klg consider up front how they operate in the token space along with d]_YdYf\Y[[gmflaf_aehda[Ylagfk& 14 IFRS (#) Accounting for crypto-assets 3.3. Conclusion The nuanced, constantly evolving nature of the crypto-asset h`]fge]fgf$[gmhd]\oal`l`]dY[cg^j]d]nYfl^gjeYdY[[gmflaf_ hjgfgmf[]e]flk$hj]k]flk[gehd]p[`Ydd]f_]k^gjhj]hYj]jk g^ÕfYf[aYdaf^gjeYlagf&Mf\]jdqaf_][gfgea[j]dYlagfk`ahk emklZ]mf\]jklgg\afl`]ajkmZklYf[]$Yf\l`]Z]klÕl^gmf\ under existing accounting standards. Dealing with crypto-asset accounting therefore requires a detailed understanding of both distributed ledger technology and relevant accounting concepts. In the absence of further action by accounting standard setters, `gd\]jkg^[jqhlg%Ykk]lkeYqZ]mfYZd]lgY[`a]n]l`]Y[[gmflaf_ lj]Yle]fll`]q[gfka\]jegklYhhjghjaYl]&O][Ymlagfl`Yl]Y[` individual situation will require a unique approach, tailored with appropriate professional advice. IFRS (#) Accounting for crypto-assets 15 4 Supporting details 1. Perspectives from accounting standards boards É9Zgmll`]=phgkmj] 2. Of pseudonymity and privacy L`]j]akYhj]nYd]fleak[gf[]hlagfl`YlYddljYfkY[lagfkgfY Zdg[c[`YafYj]Yfgfqegmk$Zmll`akakfgll`][Yk]&LjYfkY[lagfk gfhmZda[$h]jeakkagf%d]kkZdg[c[`Yafkkm[`Ykl`]:al[gaf Zdg[c[`YafYj]hk]m\gfqegmk&9fqgf][Yfna]ol`]d]\_]j$ which records ownership of bitcoins and all transactions that have occurred upon it, but there is still a lack of connection between the :al[gafY\\j]kkYf\Yfa\]flaÕYZd]d]_YdgjfYlmjYdh]jkgf& L`]j]^gj]$oal`]fgm_`af^gjeYlagfgj\YlYgn]jna]o$gf][gmd\ track activity to particular addresses, and addresses to individuals or parties involved in the blockchain. 16 IFRS (#) Accounting for crypto-assets 9fmeZ]jg^[jqhlg[mjj]f[a]k`Yn]Z]]f[j]Yl]\kh][aÕ[Yddq Afl`]FPLkqkl]e$Yfqgf][Yfk]lmhYfg\]Yf\ZmqFPL lgkgdn]l`]akkm]g^hjanY[qYf\hk]m\gfqealq&L`]k]af[dm\] [jqhlg[mjj]f[q&9nYda\Ylgjemklhjgn]gof]jk`ahg^Y[]jlYaf R%;Yk`Yf\Egf]jg$o`a[`mk]nYjagmke]l`g\klgeYkcl`] Yegmflg^FPLafgj\]jlghYjla[ahYl]af^gj_af_$a&]&$ljYfkY[lagf a\]flalqg^hYjla[ahYflk&L`]k]e]l`g\kafngdn]Ér]jg%cfgod]\_] validation. The validator’s probability of forging the next block is hjgg^kÊafl`][Yk]g^R%;Yk`Yf\jaf_ka_fYlmj]k$jaf_[gfÕ\]flaYd ]imYdlgalkk`Yj]g^YddFPLaf]pakl]f[]&L`akakY[d]Yj\aklaf[lagf ljYfkY[lagfk Jaf_;L!$Yf\kl]Ydl`Y\\j]kk]k^gjEgf]jg& ^jgehjgg^g^ogjc$afl`YlFPLgof]jk`ahakYhj]j]imakal]lg participation in “forging” and therefore to earning the associated L`]l][`fa[Ydogjcaf_kg^]Y[`e]l`g\Yj]Z]qgf\l`]k[gh]g^ ^]]k&Fgl]l`YlljYfkY[lagf^]]k]Yjf]\Zql`]nYda\YlgjYj]hYa\Zq l`akhYh]j$Zmll`]hjaf[ahd]akl`Yll`]Yegmflkafngdn]\Yko]ddYk l`]ljYfkY[laf_hYjla]k&>gj_af_[j]Yl]kfgf]olgc]fk$YkYddFPL YddhYjla]klgYljYfkY[lagfYj]fgleY\]hmZda[gf]al`]jf]logjc& akhj]%eaf]\& This is despite the fact that both Z-Cash and Monero operate on hmZda[$h]jeakkagf%d]kkZdg[c[`Yafk& ÉLjYfkhYj]fl^gj_af_Ê[gfklalml]kYj][]flaehjgn]e]fllgl`] hjglg[gd$alkYaeZ]af_lgaf[j]Yk]l`]l`j]k`gd\^gjYfYllY[cgf 3. Proof of work vs. proof of stake (vs. other l`]kqkl]e^jge-) lg1( $a&]&$oal`ljYfkhYj]fl^gj_af_$YZY\ Y[lgjogmd\`Yn]lggofgn]j1( g^YddFPLafakkm]afgj\]jlg mechanisms) eYfahmdYl]l`]d]\_]j&Mf\]jl`akkqkl]e$l`]fg\]o`a[`oadd Proof of work nYda\Yl]l`]f]plZdg[cakjYf\gedqk]d][l]\afY\nYf[]$Zmlgfdq the next 10 validators are known. A node that fails to take up its Proof of work is the original blockchain consensus protocol, jgd]akh]fYdar]\Zql]ehgjYjq]p[dmkagf^jge^gj_af_& hagf]]j]\Zq:al[gaf&AfYhjgg^%g^%ogjckqkl]e$f]logjc hYjla[ahYflk[geh]l]lgZ]l`]^Ykl]kllgkgdn]l`][jqhlg_jYh`a[ One node forges each block, which allows data to be sent directly puzzles required to add a new block to the blockchain. The input lgal$kh]]\af_mhl`]^gj_af_hjg[]kk&Mfdac]hjgg^%g^%ogjceafaf_$ lgl`]k]hmrrd]k[gfkaklkg^Yddhj]nagmkdqj][gj\]\af^gjeYlagf ^gj_af_j]imaj]kdalld][gehmlaf_hgo]jYf\]d][lja[alq&=n]fl`] on the blockchain, along with the new set of transactions to be kaehd]kl[gehml]jk$km[`Ykl`]JYkhZ]jjqHa$[Yf^gj_]& Y\\]\afl`]f]plZdg[c&L`]j]^gj]$l`]afhmlZ][ge]kdYj_]j Hjgg^%g^%klYc]kqkl]ekkm[`YkFPLÌk[Yfl`mk\]dan]jljYfkY[lagf Yf\l`][Yd[mdYlagfegj][gehd]pgn]jlae]$f][]kkalYlaf_ kh]]\kYhhjgY[`af_l`gk]g^l`]NakYf]logjc$Yf\eYql`]j]^gj] increased processing power. This causes the high energy intensity prove useful in driving wider adoption of cryptocurrency. In that discussed above. [gfl]pl$alakogjl`fglaf_l`Yll`]Ydj]Y\qhghmdYj=l`]j]me O`]fl`]hmrrd]akkgdn]\$l`]eY[`af]afngdn]\hjgn]kl`Ylal network is expected to adopt proof of stake in 2018. [gehd]l]\l`]ogjc$Yf\akj]oYj\]\afYfq_an]fkqkl]eoal`Y lgc]fg^nYdm]&Afl`]:al[gafZdg[c[`Yaf$l`ak[ge]kafl`]^gjeg^ Other mechanisms Yf]odq%eaf]\Zal[gaf& 9jYf_]g^gl`]je][`Yfakek]pakl$km[`Ykhjgg^g^Y[lanalq$hjgg^ Fgl]l`Ylo`ad]km[[]kk^mdeafaf_akj]oYj\]\oal`f]oZal[gafk$ g^Zmjf$hjgg^g^[YhY[alqgjhjgg^g^]dYhk]\lae]&<]lYadkg^l`]k] one does not have to own any bitcoins as a prerequisite to engage e][`Yfakek^Yddgmlka\]l`]k[gh]g^l`akhYh]j$Ykl`]qogmd\fgl afZal[gafeafaf_& \aj][ldqkmhhgjll`]hjaeYjq\ak[mkkagfg^ÕfYf[aYdj]hgjlaf_& Proof of stake 4. The DAO hack Hjgg^g^klYc]akl`]egkl[geegf[gfk]fkmkhjglg[gdY^l]j >gj^mjl`]jaf^gjeYlagfgfl`]<9G`Y[c$j]^]jlgl`]^gddgoaf_ proof of work. We have chosen to illustrate its functionality on the outline by Coindesk: ]pYehd]g^l`]FPL[jqhlg[mjj]f[q$o`a[`mk]kYhmj]hjgg^%g^% “Understanding The DAO Attack,” Coindesk, https://www. klYc]kqkl]eafljYfkY[lagfnYda\Ylagf& [gaf\]kc&[ge'mf\]jklYf\af_%\Yg%`Y[c%bgmjfYdaklk'$Y[[]kk]\ )-BYfmYjq*()0& IFRS (#) Accounting for crypto-assets 17 5. ERC-20: crypto-fueling the ICO phenomenon =l`]j]meoYk[j]Yl]\YkYhdYl^gjelg]fYZd]l`][j]Ylagfg^ \][]fljYdar]\Yhhda[Ylagfk$Yf\A;Gkkaehdq[gfklalml]gf]km[` application. Their proliferation has been fueled by the availability g^Ylgc]fhjglg[gd[Ydd]\=J;%*($o`a[`oYk\]ka_f]\lg[j]Yl] YklYf\Yj\ar]\daklg^jmd]klgo`a[`Ydd=l`]j]melgc]fkemkl [gf^gje&L`ak[j]Yl]kYo]d[ge]akdYf\g^hj]\a[lYZadalqoal`afl`] ICO wilderness. 6. US SEC report of investigation regarding the DAO M&K&K][mjala]kYf\=p[`Yf_];geeakkagfJ]d]Yk]Fg&0)*(/$ Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO$Mfal]\KlYl]kK][mjala]kYf\ =p[`Yf_];geeakkagf$*()/ 7. “Money has no intrinsic value*”, and yet we consider it an asset "O`ad]l`akklYl]e]flakaflmalan]dqY[cfgod]\_]\ZqeYfq$al Yhh]Yjk]phda[aldqaf$]&_&$FaYdd>]j_mkgfÌkThe Ascent of Money: É:Yfcfgl]kÁYj]ha][]kg^hYh]jo`a[``Yn]f]pllgfgafljafka[ ogjl`Ê&D]Y\af_afn]kle]flnYdmYlagfYml`gjalq$FQMKl]jf Hjg^]kkgj9koYl` 18 IFRS (#) Accounting for crypto-assets ÕYl[mjj]f[a]kYj]ZY[c]\Zql`]_gd\`]d\Zql`]ajakkmaf_ central banks, but this fails to consider the fact that one cannot actually exchange banknotes for gold at the central bank and the fact that the central bank typically has the authority to issue an af\]l]jeafYl]Yegmflg^ZYfcfgl]kÉZY[c]\ÊZqalkÕfal]kmhhdq g^_gd\ YkoYkl`][Yk]afO]aeYj?]jeYfqgj$egj]j][]fldq$af RaeZYZo]!&L`mk$l`]nYdm]g^ÕYl[mjj]f[qakYeYll]jg^alkkg[aYd Y[[]hlYf[]Yf\g^ljmklafl`][]fljYdZYfcÈ`]f[]l`]l]jeÉÕYlÊ& 9f\]n]fa^alo]j]fgl Ykafl`][Yk]g^Y_gd\ gjkYdl$gj[gdgj]\ Z]Y\!klYf\Yj\!$alogmd\Z]YeYll]jg^kg[aYdY[[]hlYf[]g^Yf\ ljmklafl`]nYdm]g^_gd\ gjkYdl$gj[gdgj]\Z]Y\k!& 9kYÕfYdfgl]$[gfka\]jl`]j][]fl\ak[mkkagfj]_Yj\af_l`] YhhjghjaYl]hYl`g^egf]lYjqhgda[qYk\]n]dgh]\][gfgea]k ]e]j_]^jgel`]ÕfYf[aYd[jakak&Gf]hghmdYjhjglY_gfaklg^l`ak \]ZYl]$l`]LYqdgjJmd]$]^^][lan]dq[Yddk^gjYfYmlgeYla[^gjemdY lg\]l]jeaf]l`]d]n]dg^afl]j]kljYl]k$l`]^mf\Ye]flYdd]n]jaf l`]_gn]jfe]flÌk[gfljgdgn]jl`]egf]qkmhhdq&O`Ylak:al[gaf$ then, but a radical Taylor-Rule-driven Fed? Sources: ÉL`]:al[gaf:gge29kk]l$;geeg\alq$;mjj]f[qgj;gdd][laZd]7Ê YouTube — Aswath Damodaran$`llhk2''ooo&qgmlmZ]&[ge' oYl[`7n50aF]P;9EWAc$Y[[]kk]\*,G[lgZ]j*()/& FaYdd>]j_mkgf$The Ascent of Money: A Financial History of the World L`]H]f_mafHj]kk$*((0!& 8. Pseudo-acceptance of cryptocurrency by multinationals Kge]ea_`lhj]k]fll`][gmfl]jYj_me]fll`YlYfmeZ]jg^dYj_]$ emdlafYlagfYd[gjhgjYlagfk`Yn]Yffgmf[]\l`]ajY[[]hlYf[]g^ hYqe]flkaf[jqhlg[mjj]f[q kh][aÕ[Yddq:al[gaf!&@go]n]j$[dgk]j ]pYeafYlagfj]n]Ydkl`Yl^gjl`aklg^mf[lagf$l`]q$af^Y[l$j]imaj] Yfafl]je]\aYjql`Yl[gfn]jlkl`][jqhlg[mjj]f[qlgÕYl[mjj]f[q& L`Ylak$l`]k]Õjek\gfglljmdqY[[]hl[jqhlg[mjj]f[qYf\`gd\al for their own transactional needs. 9. ÈAfka_faÔ[Yfljakcg^[`Yf_]kafnYdm]É counterargument 9fYj_me]fl[YfZ]eY\]l`YlfglYddÕYl[mjj]f[a]kYj]YkklYZd] Ykl`gk]afl`]\]n]dgh]\ogjd\$Yk]na\]f[]\Zq`qh]jafÖYlagfaf ][gfgea]kkm[`YkRaeZYZo]gjN]f]rm]dY&L`ak\g]kfglhj]n]fl l`][dYkkaÕ[Ylagfg^l`]RaeZYZo]Yf\gddYjgjN]f]rm]dYfZgdanYj as “cash”. IFRS (#) Accounting for crypto-assets 19 We note above that cryptocurrency is not cash because of its Source: dY[cg^oa\]khj]Y\Y[[]hlYf[]YkYe]\ameg^]p[`Yf_] Yk ÉF]YjdqYL`aj\g^Eadd]ffaYdkKYqL`]qÌ\JYl`]jGof:al[gaf afklalmlagfYdar]\Zql`]Ydegklmfan]jkYddY[cg^j][g_falagfYkd]_Yd L`YfKlg[ck$ÊBloomberg$`llhk2''ooo&ZdggeZ]j_&[ge'f]ok' l]f\]jZq_gn]jfe]flkYf\[]fljYdZYfck!$Yf\l`]j]^gj]alakk]]f Yjla[d]k'*()/%))%(0'eadd]ffaYdk%j]Y\q%lg%\al[`%klg[ck%lg%c]]h% Yk]paklaf_YkYfgl`]jYkk]lYdgf_ka\]ÕYlegf]q&L`]j]^gj]$l`] Zal[gaf%jYddq%Ydan]$Y[[]kk]\0Fgn]eZ]j*()/& Éafka_faÕ[Yfl[`Yf_]afnYdm]ÊYj_me]flak\aj][l]\Yl[gehYjaf_ cryptocurrency with other cash equivalents and not cash itself. É=Yjdq:al[gafAfn]klgj@YkKge]9\na[]Gf@goEm[`Egf]qlg L`]k]gl`]j[Yk`]imanYd]flkYj][`YjY[l]jar]\Zqafka_faÕ[Yfl @gd\af:al[gaf$ÊBloomberg$`llhk2''ooo&ZdggeZ]j_&[ge'f]ok' Öm[lmYlagfkafnYdm]j]dYlan]lgl`][mjj]f[ql`]qYj]\]fgeafYl]\ Yjla[d]k'*()/%)(%).'oal`%Zal[gaf%hmk`af_%.(((%]Yjdq%afn]klgj% af$o`a[`ogmd\j]eYafljm]^gj$]&_&$Y[]jlaÕ[Yl]g^\]hgkal kYqk%`go%em[`%lg%Zmq$Y[[]kk]\).G[lgZ]j*()/& \]fgeafYl]\afRaeZYZo]Yf\gddYjkgjN]f]rm]dYfZgdanYjk&L`ak ak[gfkakl]floal`l`]Yj_me]flkhj]k]fl]\Zql`]99K:$o`a[` 11. IAS 38 cost and revaluation models _g]kgflg[dYja^ql`Ylkaf[]l`]ka_faÕ[Yf[]g^l`]jakcg^[`Yf_]k Mf\]jl`][gkleg\]d$YfaflYf_aZd]Ykk]lak[Yjja]\Ylalk[gkld]kk in value of a digital currency can only be assessed with “cash” YfqY[[memdYl]\YegjlarYlagfYf\YfqY[[memdYl]\aehYaje]fl ]paklaf_afl`]kYe][mjj]f[q$[jqhlg[mjj]f[q$l`]j]^gj]$Ydkg^Yadk dgkk]k&Mf\]jl`]j]nYdmYlagfeg\]d$YfaflYf_aZd]Ykk]lak[Yjja]\ l`]\]Õfalagfg^Y[Yk`]imanYd]flYkalakfglÉ[Yk`Ê& YlYj]nYdm]\Yegmfl$Z]af_alk^YajnYdm]Yll`]\Yl]g^l`] j]nYdmYlagfd]kkYfqkmZk]im]flY[[memdYl]\YegjlarYlagfYf\ 10. Cryptocurrency as an investment YfqkmZk]im]flY[[memdYl]\aehYaje]fldgkk]k&A9K+0af[dm\]k L`akak\]khal]l`]^Y[ll`Yleadd]ffaYdkafhYjla[mdYj`Yn] kh][aÕ[_ma\Yf[]Yklgo`]fl`]j]nYdmYlagf\a^^]j]f[]k`gmd\Z] `a_`dq^YngjYZd]na]okg^Zal[gaf$]n]f[gehYj]\lgljY\alagfYd j][g_far]\afhjgÕlgjdgkkgjgl`]j[gehj]`]fkan]af[ge]& afn]kle]flkafklg[ckYf\Zgf\k&Kge]ÕfYf[aYdY\nakgjk`Yn] gone so far as to suggest a portfolio allocation to cryptocurrency 12. Payment Services Act (Japan) as a distinct asset class. Af*().$l`]HYqe]flK]jna[]k9[l 9[lFg&-1g^*((1! 9[[gj\af_lg:dggeZ]j_$Ykmjn]qZqn]flmj][YhalYdÕje oYkYe]f\]\lg\]Õf]najlmYd[mjj]f[a]kYf\lgafljg\m[]Y :dg[c[`Yaf;YhalYd^gmf\l`Ylgfdq* g^9e]ja[Yfk`Yn]]n]j j]_akljYlagfkqkl]e^gjnajlmYd[mjj]f[q\]Yd]jk&>jgel`]YffmYd owned cryptocurrency. period following the annual period to which 1 April, 2017 belongs, l`]ÕfYf[aYdklYl]e]flkg^j]_akl]j]\najlmYd[mjj]f[q\]Yd]jk H]j`Yhkegj]afl]j]klaf_dq$`go]n]j$YZgml+( g^h]ghd]Y_]\ oaddZ]kmZb][llgÕfYf[aYdklYl]e]flYm\alZqY[]jlaÕ]\hmZda[ )0lg+,ogmd\jYl`]jgofMK )$(((ogjl`g^Zal[gafkl`Yf accountant or an audit corporation. MK )$(((g^_gn]jfe]flZgf\kgjklg[ck& =n]fkge]afn]kle]fleYfY_]jk`Yn]km__]kl]\Ykh][aÕ[ hgjl^gdagYddg[Ylagflg[jqhlg[mjj]f[q&>gj]pYehd]$Yk]hYjYl] :dggeZ]j_Yjla[d]imgl]\YMfagfKimYj]N]flmj]keYfY_af_ hYjlf]jÌkj][gee]f\]\jYf_]g^( lg)( g^gf]ÌkYkk]lk$gfl`] basis of individual risk appetite. L`]k]gZk]jnYlagfkmf\]jk[gj]l`]Yj_me]fll`Yll`]hmZda[k]]k [jqhlg[mjj]f[qYkYf]^^][lan]klgj]g^nYdm]$Zml`Ykfgl q]l! Y\ghl]\alYkYe]\ameg^]p[`Yf_]& 20 IFRS (#) Accounting for crypto-assets 5. Contacts EY Technical Leadership — IFRS & Blockchain UK FS Assurance FinTech Leadership Paul Brody Hitesh Patel Partner Associate Partner =Q?dgZYd:dg[c[`YafAffgnYlagfD]Y\]j =Q=E=A9>K9kkmjYf[] =jfkl Qgmf_DDH MK9! :Yfcaf_ ;YhalYdEYjc]lk =jfkl Qgmf_DDH MC! L2#),)-1(*+.)+ =2hYmd&Zjg\q8]q&[ge L2#,,*(/1-)/.,+ =2`hYl]d*8mc&]q&[ge Laure Galcéran Michael Heap Partner Senior Manager =Q=E=A9>K9kkmjYf[] =Q=E=A9>K9kkmjYf[] >afYf[aYd9[[gmflaf_9\nakgjqK]jna[]kD]Y\]j :Yfcaf_ ;YhalYdEYjc]lk =jfkl Qgmf_9m\alK9K >jYf[]! =jfkl Qgmf_DDH MC! L2#++),.1+,-*+ L2#,,*(/1-)*).( =2dYmj]&_Yd[]jYf8^j&]q&[ge =2e`]Yh8mc&]q&[ge Shaun Carazzo Francis Malaspina Partner Senior Manager MC>K9kkmjYf[] =Q=E=A9>K9kkmjYf[] >afYf[aYd9[[gmflaf_9\nakgjqK]jna[]kD]Y\]j :Yfcaf_ ;YhalYdEYjc]lk =jfkl Qgmf_DDH MC! =jfkl Qgmf_DDH MC! L2#,,*(/1-)(,,) L2#,,*(/1-)(0)( =2k[YjYrrg8mc&]q&[ge =2^eYdYkhafY8mc&]q&[ge Victor Chan Andrew Probert International Director Director =QA>JKK]jna[]k$?dgZYdHjg^]kkagfYdHjY[la[] =Q=E=A9>K9kkmjYf[] =jfkl Qgmf_?dgZYdDaeal]\ >afYf[aYd9[[gmflaf_9\nakgjqK]jna[]k =jfkl Qgmf_DDH MC! L2#,,*(/10((.// =2na[lgj&[`Yf8mc&]q&[ge L2#,,*(/1-)(*)1 =2YhjgZ]jl8mc&]q&[ge IFRS (#) — Accounting for crypto-assets Authors BaŲ ?]gj_]! IFRS (#) Accounting for crypto-assets 21 EY | Assurance | Tax | Transactions | Advisory About EY =QakY_dgZYdd]Y\]jafYkkmjYf[]$lYp$ljYfkY[lagfYf\Y\nakgjqk]jna[]k& The insights and quality services we deliver help build trust and confidence afl`][YhalYdeYjc]lkYf\af][gfgea]kl`]ogjd\gn]j&O]\]n]dgh gmlklYf\af_d]Y\]jko`gl]Yelg\]dan]jgfgmjhjgeak]klgYddg^ our stakeholders. In so doing, we play a critical role in building a better ogjcaf_ogjd\^gjgmjh]ghd]$^gjgmj[da]flkYf\^gjgmj[geemfala]k& =Qj]^]jklgl`]_dgZYdgj_YfarYlagf$Yf\eYqj]^]jlggf]gjegj]$g^ l`] e]eZ]j ^ajek g^ =jfkl Qgmf_?dgZYd Daeal]\$ ]Y[` g^ o`a[`akY k]hYjYl]d]_Yd]flalq&=jfkl Qgmf_?dgZYdDaeal]\$YMC[gehYfqdaeal]\ Zq_mYjYfl]]$\g]kfglhjgna\]k]jna[]klg[da]flk&>gjegj]af^gjeYlagf YZgmlgmjgj_YfarYlagf$hd]Yk]nakal]q&[ge& ¡*()0=Q?EDaeal]\& All Rights Reserved. =Q?fg&01377-184GbI =Q%((((--*(*&af\\ MC!(+')0& 9jlogjcZq;j]Ylan]K]jna[]k?jgmhDgf\gf& =<Fgf] Afdaf]oal`=QÌk[geeale]fllgeafaear]alkaehY[lgfl`]]fnajgfe]fl$l`ak\g[me]fl has been printed on paper with a high recycled content. L`akeYl]jaYd`YkZ]]fhj]hYj]\^gj_]f]jYdaf^gjeYlagfYdhmjhgk]kgfdqYf\akfglafl]f\]\lg be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com