Home » Data collection: The Pain for crypto CPAs financial teams.

Data collection: The Pain for crypto CPAs financial teams.

Bookkeeping should be simple for CPAs and accounting firms, but it's not. Dive into the real challenges of web3 data accounting that every CPA must tackle.

In the blockchain space, accountants must be daring treasure hunters to locate data, assess its value, and single-handedly reconcile vast transactions. Dive in below to grasp these challenges.

Dive into the real challenges of blockchain accounting that every CPA and controller must tackle for financial excellence.

TL;DR

Web3 faces data challenges in crypto accounting, when projects start scaling. CPAs flock to find the best back-office set up and fail. Accurate blockchain data matters for when data is scattered. Data issues impact block production, smart contracts, and DeFi, making history complex. Traditional accounting Vs web3 accounting aren’t compatible, and constant price fluctuations complicate accurate financial recording.

Read below to get insights on a solution to these problems. ↴

Skip ahead to learn how Cryptoworth is treating these issues on the app layer.

Web3 Data Connectivity Challenges In a Nutshell

Challenges arise in connecting blockchain data, especially for daily crypto accounting. Data discrepancies from node behavior, smart contracts operations, and DeFi can affect accounting. These problems where data arrives at different times to different mediums make creating auditable transaction histories tough.

Traditional vs. web3 accounting clash due to design differences; tools like spreadsheets complicates it as the organization starts to scale. While SMB companies rarely encounter high transaction volumes, web3 startups confront this scenario daily.

💥 Hello Chaos. Month-end closing stretches out significantly when automation isn't in play, disrupting CPAs day-to-day workflows in the worst possible way.

Determining fair value on exchanges is hard.

Price fluctuation across various automated market makers and centralized exchanges hinder pinpointing accurate cost. Price recording for accounting becomes a puzzle due to these issues.

The outcome? It is nearly impossible to identify the correct price that should be recorded for accounting purposes.

Sync all the crypto data to any ledger in a heartbit

Issue 1: Getting all web3 data from too many places.

The first problem CPAs, financial controllers and other accounting team members find when gathering accurate data is that most live in different sources, in different currencies. It’s a data labyrinth.

There are many chains inside the Ethereum Virtual Machine, L1 and L2 using different tech rollups. This gets even more complex when trying to also collect data from things Bitcoin, or Solana and Cosmos, each with its own token standards, liquidity pools and smart contracts.

The ecosystem’s ever-changing nature makes it tough to get the right info from various networks and protocols. It makes it a real challenge to manage all these different corners to collect the accurate transactions. It’s a bit like different languages or rules for each one, and this makes it really challenging to keep track of all these details when trying to record transactions.

The ecosystem’s ever-changing nature makes it tough to get the right info from various networks and protocols
The task of pinpointing the precise amount you paid becomes akin to solving a complex 1500 cryptographic piece puzzle.

Some companies still use big centralized trading platforms to move and off-ramping their digital money around, even though the risks are widely known, as seen in the past year. But here’s the tricky part: these platforms have their own ways of sharing data, and it’s not easy to keep up with them all, especially for people who manage finances like CPAs and financial controllers.

Issue on treasury data management

Bigger companies often put their digital money in safekeeping with special companies focused on treasury custody called custodians. These custodians help keep everything secure and smooth. However, getting the data from these custodians, like Fireblocks and BitGo, and making it work with daily operations is truly complicated.

Also, there’s regular bank information that doesn’t work the same way as data on the blockchain. So, imagine having to manage all these different types of data and movements of digital money, especially as businesses grow and have more transactions going in and out. This becomes a really tough challenge for CPAs and CFOs who are responsible for handling finances.

Issue 2: Getting Fair Market Values for All Transactions.

Another puzzle in the world of web3 is getting the right prices for digital assets. It’s like trying to assess the true worth of unique items in a dynamic marketplace. However, the challenge here is that prices can swing wildly, making it a real pain for those in charge of accounting.

👉Consider this scenario: your client holds multiple digital currency tokens, and you’re aiming to pin down its actual value. These tokens are used in various ways, such as:

  • Lending,
  • Borrowing via collateral,
  • or staking it to earn a yield.

The complexity doubles down because its price fluctuates every minute during 24 hours across different platforms.

Token standards behave differently.

Imagine buying tokens and then realizing their value has significantly shifted on various websites. The task of pinpointing the precise amount you paid becomes akin to solving a complex 1500 piece puzzle, especially when the token’s value is in constant flux.

This challenge intensifies when the token is not as liquid as FIAT and it actually represents a semi-fungible asset or a voting power to influence the operation of an automated market maker protocol.

And don’t forget about NFTs—those special digital collectibles. Their prices can change suddenly, and it’s like trying to catch a trend out of nowhere. These changes mess up the value of what your company holds, especially when you look at different places where these NFTs are sold.

The tax classification is a topic for another time, but it doesn’t make it any easier. It’s not just about finding fair market value; it’s about dealing with different rules in different places. The money exchange rates between different countries and what’s considered taxable or not can be a mess.

Plus, accountants have to decide which cost basis tracking method, like WAC, FiFo, and LiFo works best for the company’s strategies. And this is another thing that keeps CPAs busy, making sure everything adds up right.

So, getting fair prices for digital assets is a big challenge, especially when you’re dealing with lots of different rules, which change on a regular basis. So accountants do need to keep up with these variations and try new ways of doing things.

Conclusion: The ideal solution is far, but there’s light in the tunnel.

As the world of web3 finance keeps changing, these data and valuation challenges will stick around. But here’s the good news: there’s a solution that can help you breeze through your month-end tasks. There is a solution that can help you meet months-end without a sweat.

Cryptoworth is the ultimate solution for streamlined crypto accounting for web3 CPA and Controllers, transforming financial management. Through automated tracking and integration of a vast +1000 data sources. Certified for SOC 2 Type II and SOC 2 Type I. It simplifies tasks, automate rules of classification and feeds seamlessly to your current ERP and accounting systems. Small finance teams gain insights for mastering their digital finance skills.

🌐 Learn more at https://cryptoworth.com

By using the right tools and methods, CPAs and financial controllers can handle these tricky things and keep everything accurate and smooth.

Author

Post navigation

Leave a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *