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`]<akljaZml]\ emklY[`a]n][gfk]fkmkYegf_fg\]k^gjY[`Yf_]lgZ]Y\ghl]\& 9mlgfgegmkGj_YfarYlagf l`]<9G!&, L`]:al[gaf[geemfalq`Yk[gflafmgmkdqY\ng[Yl]\^gjegj] The case of the DAO has been useful in furthering the broader oa\]khj]Y\Y\ghlagf$Yf\`Yk]n]feY\][`Yf_]klgl`]:al[gaf hmZda[\]ZYl]gfA;Gk \ak[mkk]\oal`afl`]ÉLgc]fkÊk][lagf blockchain to that end. Over the course of 2017, this created gfl`]f]plhY_]!$Ykalhjgehl]\Yfafn]kla_YlagfZql`]M&K& h`adgkgh`a[Yd\anakagfkafl`][geemfalqgn]jl`]^mlmj]\aj][lagf K][mjala]kYf\=p[`Yf_];geeakkagf K=;!aflgo`]l`]jA;G of the technology, pitting adherence to founding principles against lgc]fk km[`Ykl`gk]`]d\Zqafn]klgjkafl`]<9G![gfklalml] af[j]Yk]\Y[[]hlYf[]Zql`]eYafklj]Ye& k][mjala]k&L`]K=;j]d]Yk]\alkJ]hgjlg^Afn]kla_YlagfafBmdq One such division led to the August 2017 “hard fork” 2017 stating that the DAO tokens were securities and should thus a&]&$ZY[coYj\%af[gehYlaZd]kqkl]emh_jY\]!l`Yl[j]Yl]\log `Yn]Z]]fkmZb][llgk][mjala]kdYokYf\j]_mdYlagfk&. [geh]laf_n]jkagfkg^l`]:al[gafZdg[c[`Yaf2gf]Y\ghl]\Zq l`]eYbgjalqg^mk]jk$o`a[`akZal[gaf :L;!$Yf\Yf]og^^k`ggl dYZ]d]\:al[gaf;Yk` :;@!&L`ak`a_`da_`lkl`]\][]fljYdar]\$ Proof of work3 consensus-driven nature of the technology. AfYhjgg^%g^%ogjckqkl]e$f]logjchYjla[ahYflk[geh]l]lg be the fastest to solve the cryptographic puzzles required to 2.1.2. Ether add a new block to the blockchain. When the puzzle is solved, =l`]j]meo]fldan]afBmdq*()-$`Ynaf_Z]]f^mf\]\ZqY[jgo\ l`]eY[`af]afngdn]\hjgn]kl`Ylal[gehd]l]\l`]ogjc$Yf\ak kYd]fgl\akkaeadYjlgkge]g^lg\YqÌkafalaYd[gafg^^]jaf_k A;Gk!& j]oYj\]\afYfq_an]fkqkl]eoal`Ylgc]fg^nYdm]& AlakY\][]fljYdar]\hdYl^gjekaeadYjlgYfgh]jYlaf_kqkl]edac] l`gk]^gmf\afkeYjlh`gf]k3Yfqgf][YfZmad\Yhhda[Ylagfkgf Proof of stake3 lghg^l`]hdYl^gjelgh]j^gjenYjagmklYkck&L`ak\aklaf_mak`]k AfYhjgg^%g^%klYc]kqkl]e$YnYda\Ylgjemklhjgn]gof]jk`ah =l`]j]me^jge:al[gaf&:al[gafoYk\]ka_f]\kh][aÕ[Yddqlg g^Y[]jlYafYegmflg^[gafkafgj\]jlghYjla[ahYl]af Z]daeal]\lgkaehd]dg_a[ÈYkYh]]j%lg%h]]j]d][ljgfa[[Yk` transaction validation. The validator’s probability of validating kqkl]e&=l`]j]mekmhhgjlkhjg_jYeeaf_[g\]^gjYfqlqh]g^ the next block is equal to its share of all coins in existence. \][]fljYdar]\Yhhda[Ylagf3alk[YhYZadalqakoa\]j&L`]hdYl^gjejmfk Transaction fees earned by the validator are paid by the keYjl[gfljY[lkÈ[gehml]jhjglg[gdkl`Yl]f^gj[]gjf]_glaYl] transacting parties.