Hey, it's David from the Cloud Accounting Podcast. Blake and I wanted to share a new podcast that
the team at earmark media has been working on. The Crypto with the Countains Podcast takes a deep
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all from an accounting perspective. Each episode explores the ins and outs of crypto accounting
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to navigate this exciting and ever-evolving space. We hope you enjoy this episode and if you like it,
please go to cryptowithaccountains.com to find more episodes. And now on to the show.
If you'd like to earn CPE credit for listening to this episode, visit earmarkcpe.com, download
the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy.
And now on to the episode. We are hashbases. You're a crypto-native accounting firm, which is our tag
line. I love it. But we're helping companies with their crypto accounting and bookkeeping and also
helping them get set up onto subledgers like BitWave, for example, and also we're doing individual
crypto tax as well, which does also involve a subledger. So we're kind of doing both of those
right now. Just kind of seeing what the market is out there, what's the demand for that. But
I do eventually see a specializing more in business crypto accounting, like more enterprise level.
So I love US GAAP. I think it's awesome. And I really just want to implement subledgers and
help clients get their books in order. Welcome to Crypto with Accountants,
CWA powered by BitWave, where we talk with technologists and crypto enthusiasts as we
discuss current events and economy, politics, technology, and digital assets with thought leaders
from around the world, hosted by Pat White and Raphael Cossis. Today, we have a fantastic guest
and our dear friend, Mackenzie Patel, CPA. Mackenzie is a CPA and the CEO of Hashbasis,
a crypto native accounting firm. Her list of accolades go on and on. It's really,
really interesting background, but she and her business partner Courtney started Hashbasis to share
their crypto accounting and tax expertise with the blockchain industry. She also does accounting for
D org and the first Dow to be incorporated as an LLC in the US. Mackenzie is based in San Francisco
and loves hiking around Angel Island. Definitely want to know more about that. But Mackenzie,
thanks so much for joining us. We're super honored to have you here.
Of course, thanks for having me on. I'm really stoked to be here as you know,
I love talking about crypto accounting. It's like my favorite thing. So thanks for having me on.
Hiking Angel Island is awesome, actually. I didn't realize that that was part of your bio,
but Angel Island is spectacular. It's such a underappreciated little part of the bay here.
Well, Mackenzie, thank you so much for joining us today. I'm so excited to chat. So why don't we
start out just tell us a little about your background? I mean, what got you into accounting and then
we'll parlay that into what got you into crypto accounting. Sure. Yes, I don't really have a super
exciting story about how I got into accounting. I mean, you don't grow up and you're like, oh,
I want to be like an accountant when I'm older. I would say that I wanted to be an architect.
No, I want to be a paleontologist. So see how well that went.
Well, I've used some parallels there. But yeah, I definitely did not expect to land
in accounting at all. I'm actually starting University of Florida. This is actually back in
2015. And I started doing electrical engineering. Now, when I say I started as an engineer. Yeah,
but I started summer B. So it wasn't even like I switched right after summer B into accounting.
So I'm really going to take any engineering classes. I think technically, and technically,
and then. Oh, it's funny. It's funny because I actually say that accounting and engineering have
a lot of things in common. The things that always stand out to me, we said this on one of the earlier
podcasts, but like both engineers and good accountants have a very highly tuned sense of
what to be OCD about and what not to be OCD about. There's this really interesting thing there of
like engineers themselves have this level of materiality with which we approach problems. Like
at some point, getting to sub millisecond timing on something is the phrase, you know,
the the juice isn't worth the squeeze. And that's the same thing with accounting. Like at some point,
you are you're a hundred dollars off and like, you know, you could spend a week trying to figure
that out or you could literally, you know, call it a material move on your life. And I always,
I always find like that that relationship. But then on the big stuff, you have to be incredibly
OCD, incredibly process driven, incredibly like resilient about everything you're working on. So
I always, I always find a lot of overlap between those two. Yeah, I completely do this while I think
you use the same parts of your brain for both accounting and engineering. And so my whole thing
was that I didn't want to program at all for I did, it's called FLVS, Florida Virtual School in
high school. And I did AP programming. And I hated it because of all online, I learned nothing. And
so when I went to college, I was like, if anything, I don't want to program. Not fast forward two years
later. And like, I was like programming on code academy. It's all like, I could have been a
developer. But anyway, so I switched to accounting because my sister's boyfriend at the time now
husband was doing accounting also at university Florida. So I was like, we get along. If he likes
accounting, maybe all like accounting. And so when I just switched and then fresh and near, I am
from there, I just did it, um, the rest of college. I actually, I don't often talk to people about
this and this is like, did you immediately love accounting? Like, or so let me sort of put this
in context. Like the, the 101 level classes for computer science are washout classes. Like it is,
when I took it, it was C, which I mean, it's not that it's like the world's hardest language, but
like it is a very difficult language to program in if you've never programmed before. So like the 101
level for computer science at SC was incredibly washout. I mean, it was like 40% people would
wash out by 102 was a little bit better. And then the rest of classes were, were just normal classes.
Is accounting kind of like that? Do they, do they try to wash you out, like make you do, you know,
give you the green visor and these enormous books and make you balance like 10,000 transactions or
like, is it actually a pretty friendly course? No, I wouldn't say it was friendly at all. It's
called the first class was financial accounting and reporting. So far one. And yeah, it was definitely
like you have to call it a weed out class. Like a ton of people just failed it. So actually,
that was my first exposure to accounting. And I loved it. I was like, this is great. Like I get the,
well, I didn't really understand Devas and credits at first. Also, credit cards and the cards,
like that's what I was thinking. And one day I was like, wait, these are arbitrary. This doesn't
mean anything. And then that's the point, which I kind of understood accounting. And everything,
every accountant goes to that point where they realize that Devas and credits are arbitrary.
And then everything in the world starts making more sense. That's basically what happened to me.
Yeah. So I just loved it kind of right from the beginning. And then especially like in later on,
and also in masters when I did that program, it just got really fascinating. I love murders
and acquisitions class. That was great. Like our tax research class. I just really, I love all that
IT auditing. So I kind of found my home. I never thought of, of course, there's an
acquisition class. You got exposed to intangible assets very early on in your accounting career,
which will then deal with your later, your later life getting into crypto.
Yeah. And I think it got really lucky because my IT auditing professor, we had,
it was literally one or two classes and about blockchain, like he introduced.
No, seriously. Yeah. So we have, this was back in like probably like 2018 or 2019. And he
gave us an overview of what blockchain was. And then I actually had a class project. And now that
I think about it, it's actually really like four thinking of him. It was like, what do you think
crypto assets should be classified as? So like, is it intangible? Is it inventory? Is it like some
kind of financial instrument? And so I was doing this back in like 2019, but I didn't really think
about it. I was like, this is cool, but this is never going to apply to me. I didn't want to
be a crypto asset. It's so interesting. It's funny because I in retrospect, it's incredibly obvious,
but at the time, I actually like, yeah, in computer science, there are blockchain courses
everywhere, but I it never actually occurred to me that there'd be blockchain courses in like
accounting. But of course there would be that's, it's the new hotness for accounting. So you obviously
knew what Deloitte had said at that point. What did you come up with in your analysis of, of digital
assets? Oh, that's a great question. I remember a class from five years ago. Right. I think I'm going
to put inventory or something like that, because something about like, level tracking, I made a
whole power point. I should look it back up. But I think I either put inventory or intents,
both. So yeah, that was, that was a fun time. But it wasn't a full course on watching accounting.
It was always like two individual class sessions on it. And that was the only exposure that I got.
Amazing. So okay, so you, you did that, you did the master's program there. So you came out,
you came out of college with a, with your CPA or I guess you still have to do a little bit of work
after that, the CPA, right? Look, it was, I was going to take a lot of courses,
like the actual exams in college, but then COVID happened. So then a few of my exams were canceled.
So then I ended up getting it or like finished the exam. I think in June after I graduated. So
June 2020, but it was pretty much like all around the same time. I hear, I hear the CPA. I know we're
going to this. It's, this is just sort of a funny thing, because I'm actually learning right now.
I hear the CPA tests are pretty hard. Is that, are they, are they pretty hard? They, I think some
are more challenging than others. Like the financial accounting one was, I actually really like that
one. But I think it is like quite challenging. And then the regs class or the regulations,
which is a tax one, that was definitely the hardest one for me. But then there was like the
regional like, is that a, do they do, is it federal regs or it's, it's like you take a CPA course in
Florida. So you have to do Florida, you have to know Florida and federal or it's all federal
regulations. Yeah, it was all federal, which was good. So it's not like the bar where you have to
deal like a state specific. Yeah, you know, the regional and that. Yeah, yeah. No, we don't,
we don't deal with that. Like read it. It was just federal, thankfully. But it is like the bar,
because you take an ethics, ethics test, right? No, I'm from Florida. So we didn't have to do ethics.
There was no component for me to laugh at Florida. Because we like half our sales team is from
Florida's there. They're, they're, we are friends with Florida, but that is, that is pretty funny.
There have been a lot of discussions as of every, every cent with the, with the barrier of entry
for, for CPAs and, and then as well as like the 150 rule, things of that. Like, so there's been a
lot of like arguments and discussion because of the talent, you know, lack of talent coming into
this space. So the shortage. Yeah. I don't know if you remember this. I'd like, out of your
graduating class, like, did everyone become a CPA or like, did you even have more, like, more
washout as it got to the test and making sure you got your hours and all of that?
Well, once it got to the, like the master's program, I think most people, because all my
classmates just think big four. I was like, one of the only people that did not do the big four
route. And so I kind of felt like my super senior year, I was like, I'm not doing big four, but then
I got over that. That's, that's so interesting to me. Why, why did they want big four? Like, why was
that so important? Okay. That's who caters to these big universities. So like the Lloyd,
UIP, PBC, they would all come to our accounting building and like give us free chick fillet,
like all this swag, they just out. So they really, they, they court you. And that's kind of how it works.
And so I think as a student, you're really wooed by that. And so I interned at the
light for literally three summers. And I just, I did not enjoy it for three summers. And I was
like, at the end of this, I can't do this. And you can do that.
Do that when you're an intern at Deloitte, do they work you as hard as when you're a first year
associate? Because the first year associate, if they 180 hour, I mean, you're, you're, yeah,
2000 hours, you need to, to bill all that kind of stuff. When you're intern there,
you're just like cruising along, eating chips, like drinking free soda.
Basically, yeah, I was an intern in Atlanta all three summers. And so there was a lot of
happy hours, a lot of going to breweries. I didn't drive to a lot of client sites and stuff,
but definitely was not as intense as my friend said, did eventually become first years like full
time. So was, was Figment your first job out of college then? No. So I actually worked at Honeywell
first. They had, yeah, they called it the future, we're getting the name of that future finance
leaders program. And so yeah, I actually interned my last summer in college. So I did three
summers at Deloitte and then one summer at Honeywell at Phoenix. And so I was part of their
accounting group for aerospace out in Phoenix. I was living in Scottsdale at the time.
Yeah, that's got to be interesting. But that's a incredibly difficult accounting from a totally
different perspective in terms of job billing, incredibly complex supply chains. That's actually
really, really interesting accounting also to crypto, which is incredibly interesting accounting.
Yeah, because I was doing, I wasn't doing a lot of the like supply chain stuff. I was doing revenue
accounting mostly, which is interesting because that's why I ended up doing a big miss. So I'm
very much been in this like revenue role for the last few years now. And so I just learned a lot
about just general accounting because in school, you learn a lot about the basics, but you don't
fully really apply them. And so it's like, how do I actually enter a journal entry into SAP? Like,
I just learned foundational skills like that. And so there was great Phoenix was just like
super high, lots of, lots of desert things, but actually I enjoyed that. So it was a go, probably
not. So you actually mentioned something really interesting that so I've noticed that a lot of
our clients do actually have someone who specializes in revenue accounting, which is really, it's
that's actually interesting to me. Like, I'm not sure I would have expected that going forward, but
like you think about like the open seas of the world, like figment, obviously, the crypto revenue
is the is by far one of the hardest parts. It's the highest volume component. Is it that
dramatically different a skill? Like, what do you, what do you think? Talk, talk me through like,
if if someone's listening to this and they're like, Oh, I like revenue accounting, like,
talk me through like, what are the skill set differences and like, how to think about that role?
Yeah, I guess just take big picture, like just revenue in general, it's just an item that
auditors really dial into and there's a lot of time looking at that. Obviously, but especially
in more so in crypto revenue, I found because it's just very hard to verify crypto revenue a lot of
the time. And so I think like a really good skill set, just being very detailed oriented. Like,
I know you mentioned the materiality part, which obviously, you know, makes sense for accounting,
but I almost tried to like, not think about the materiality. I pretend the materiality is like zero.
And so I actually tried to be as detailed as I can, especially in something like crypto because
auditors are going to be looking like if they're going to be tracing back to the transaction level,
maybe like, what's this revenue real or not? Do you actually own these tokens? And so I think
that's probably the biggest part. And also, like the new Rev. Right guys, it's not new. I think it's
been out for quite a while now, but that five step process for recognizing revenue,
especially in crypto, each one of those line items or steps, I think it's just a can of worms.
And you can like, well, you can view this way or you can view it this way. And so there's just a
lot of subjectivity in that, which is why I think you have specialized revenue accountants and why
the role tends to be more challenging. And it's interesting because I mean, essentially,
you're a specialized crypto revenue accountant. Like, we talk about this a lot. When we're talking
in general about crypto, I often say it's interesting that there's still an expectation that anyone
can do crypto accounting. Because like, if you go to a really complex, real estate shop, like,
they're not just hiring, you know, kids off the street that have a CPA to do really complex,
you know, depreciation, building level depreciation accounting for your, your various like revenue
streams off of it, all that kind of stuff. Like you have people who focus on real estate accounting,
people who focus on like depreciation accounting, we're now seeing the emergence of the specialization
of crypto accounting as a specialization. Like, do you see that as well from your side?
Yeah, 100%. And I really like that analogy used like, yeah, to be, it's understand real estate to
be a good real estate accountant. I think it's the same thing with crypto. Like, if you don't
understand how blockchains work on a fundamental level, then I think your job as a crypto account
just gets 10 times harder. Can you really do that foundational knowledge? Like maybe even some
programming knowledge to, because you might be reading contract logs or something. So,
yeah, I definitely see the field emerging. And I don't think anyone can just be a crypto accountant.
Like, I think you actually had to put in the time to research it and understand the field in the
industry. And then you just kind of lay your accounting on top. Well, it's a good point,
because from like, there's also like, there's this aspect of expectation versus reality where like,
the way that blockchain's been pitched is like, hey, everything just works. It's all magic. Like,
it's just on the blockchain, just all work. When you get to any of these places and you realize the
reality of it is that nothing really just works. It's like incredibly complicated. There's incredible
depth of complexity around any given transaction. None of the exchanges have good APIs. Like all
the exchanges or custodians you're working with have to have pretty iffy APIs, even in the best
of cases that you're then using as, you know, this is not JP Morgan that has a 30 year old API
that's been hardened by decades. You know, this is a startup that honestly, an API is like the
third or fourth thing on their list of priorities or 15th or 20th. So it is like the even just the
diligence to actually get to accuracy is very difficult. Yeah, I think it's fun because you
think it would be so seamless. And I people come at me like, Oh, is your job this easier now?
Because like everything is on the blockchain. And it's like, no, my job is definitely 10 times
harder. And then just like my job doing normal accounting. Like, because every single step of the
way, I feel like I have to research something new that comes up or as you said, like something breaks
and so you have to go and do some investigation into that. And so maybe in like 10, 15 years,
most of the interesting matures. And I definitely think it's maturing. I've had a lot of demos of
new like crypto accounting tools before, and they've really come along way even since like a year ago.
And so I think we will eventually get to that end state, but we're just kind of in this like
awkward growing pain space where it's just kind of painful. Yeah, I think it'll be
a juicy. I mean, even, you know, we think about that. We have a lot in terms like, when do we hit
that inflection point of the discos from being harder to being easier? You know, the new FASB
guidance will certainly help with that in some ways to sort of like get rid of some of the more
complexity around like some of the stuff, although even the new FASB guidance doesn't get rid of
impairment, it just limits what's getting impaired. So like we're going to this phase of like more
complexity before we get to less complexity, actually, which is, which is super interesting.
But then also, I mean, the other thing is like a lot of stuff has to be, there's going to have to be
more on chain support for stuff. So like things like request network working on is working on
some cool stuff. Like as more of the actual blockchain stuff gets on chain, you end up in a cool
situation where it's easier for the accounting tools to actually like deal with it because there's
more information on chain, you know, that's then that's a big part of all this stuff.
Yeah, it's funny. Mitch and request I recall them earlier today where we were getting a demo,
and they're one of those products where I think they've done a really fantastic job growing in the
last year or two. And so I think it's really cool. Like they have their invoices that are on chain,
but they showed me this expense feature, we can like take a picture of receipt and then it links
to invoice that you send out. I'm like, that'd be so cool that picture of your receipt is an NFT
that now lives on chain. And then you have auditable support that goes back to the receipt level.
And so yeah, I totally agree. I think what it there.
Yeah, that's a big part because that obviously would never work on an L1, but then the idea is
like now that we have these really cheap L2s, L3s, because you know, you don't want a picture of
your receipt on a public blockchain, you want to encrypt it on a on an L3 and like that you can
then give really specific access to your auditors around. So like there's stuff coming down the
pipe that's going to change the world here, but it's still interesting to see what happens, you
know, like it's we're not there yet. We're still figuring it out. And honestly, there's still a lot
of pushback. You know, that's that's like part of the tough part about this is like when you when
you get as much pushback as you get from the government right now, you do end up in the states
where like that does kind of like slow down innovation a little bit because suddenly everyone's
not quite totally sure how much they should really be pushing on this if the government's
going to try to make it illegal or whatever from that perspective, you know,
yeah, I heard somebody say one time that this environment is very uncertain because there's
lack of regulation and lack of clarity, but they're still enforcement. And so I'm really
serious people and I'm like, yeah, I can definitely understand that. Yeah, it's which is the absolute
worst place to be for an industry like this. And it's why like I mean, it's why we all get so
bummed about like Americans place in this because it's like we are the financial services
leader in the world. We should be leading on crypto. And yeah, we're doing so much to fight that,
you know, it's it's really tough. Okay, so you spent time at Honeywell and then Figment?
Well, there was a little bit of an interlude, not really interlude, something that I did on my way
to becoming a crypto accountant. So while the Honeywell, I just got really into crypto. So one
of my really good friends, he was actually working at Maker in Dow at the time, he had interned there
just like really into DeFi. And we just were chatting about it a lot. And so I was telling
him that I want to do something like more cool with my accounting degree at some point not to
steal like, you know, normal revenue accounting. And so yeah, he's not really got me into crypto.
And this must have been like October of 2019, I think. So what was it? What was it that hooked you?
What was that? What was it? It sounds kind of basic though, like, oh, like blockchains are
letters like I'm an accountant, I get letters. And so it was something I was like watching seems so
technical to me. But then there's just like this fundamental piece. I was like, wait, I just kind
of intuitively understand this. And to me, that was actually quite powerful. And I just like all
the DJ any aspects as well. I was like, Oh, there's an achieve. This is cool. Like this is kind of
edgy. And so yeah, I just are researching it a lot on my own. And then throughout this process,
I also started doing some programming on code Academy on the side. So like Java basics, Python
basics. And actually had this thing called co-academy chapters where you could launch like a virtual
chapter around any topic that you wanted. So then I launched being crypto, which is just a virtual
community dedicated to teaching people all about crypto. So then I was researching things on the
side, like how do you simulate a blockchain in Python? How do you, you know, what does the merge
mean on Ethereum? And then I was giving these presentations out to just like random people on
the internet. And so I was able to just learn a lot that way. Because basically forcing myself to
learn by teaching others. And I think that was really instrumental. I mean, understanding crypto.
Amazing. So then what made you, what made you finally decide to take the dive?
I think I just, I knew it was ready. I've been doing Phoenix crypto for about seven or eight months.
And I just wanted to actually apply that knowledge and like an actual job. And that summer, I was
actually in San Francisco. And I think just being a San Francisco, obviously, it's like a such
startup like tech sort of scene. And I just felt like I wanted to do something in the technology
industry. And I was like, okay, like now we're never it's time. So then yeah, that's summer. I did it.
I was going to, you made a really interesting point. And I've heard you talk about this before,
you know, because we have a lot of accounts that are on the cusp or interested and maybe getting
in the space a bit more. And you just made a good point about the fundamentals, right? I just
understanding. And I've heard you talk about this a little bit before, but for some of those accounts
that are listening to us and looking to make the, you know, you talked about cash basis and on
transaction on train transactions and accrual. And the difference is there. And I'd like to,
if you want to kind of talk high level on that, that could be a really good,
you know, I think a really good one on one for some people just going to understand and looking
to get in the space because we have a lot of accounts that we, we talked to you and see that are just
trying to understand how to, what this looks like. Yeah, definitely. I guess on the on the
crypto side, like putting crypto accounting inside for a second, like I think it's important to
understand kind of like the first principles, the basics of crypto, like why do we even have this,
like crypto is supposed to be a better system for transacting on the internet. Like that's what
it's supposed to be. And so I often just try to remind myself that because sometimes it can seem
like, Oh, like, what is this entity project doing? Like, you know, what is this new network doing?
It can all seem very nebulous, but at least for me, like sometimes I just reread the Bitcoin
white paper and I'm like, this is why we're here, like peer to peer payments that are just supposed
to be fast, instantaneous, and, you know, anonymous or sedomist. So it's kind of the first part, but
I'm now switching over to more to like the crypto accounting piece. Yeah, I think that cash basis
part is very important, especially from the kind perspective. So it counts as no cash basis,
a cruel basis, different ways you can report your books under. But blockchains are just inherently
cash basis, right? Because they're you're sending tokens, you're receiving tokens, and that's what
the ledger sees. It doesn't know, Oh, I just performed some services. So technically I'm owed
a payment. Like it doesn't know that only knows when I've actually been paid by somebody. And so
for me, that was kind of like a big, like, I guess, reconciling item in my head and like,
how is crypto actually working? Like, always lures its sense of tokens and receives the tokens or
tokens doing something. And it happens whenever that timestamp says that has happened. And so I
think that's just the gap between what, you know, US gap or cruel base books are supposed to be,
and then what's happening on chain. And that's where a lot of my job with a lot of my work that I do
is just trying to always reconcile those two. And so I think the product that can actually
close that gap and just make blockchains understand a cruel basis accounting, and that's going to be
like the ultimate product. I don't know if we'll get there. That's not the nature of blockchain.
Well, it's just so interesting to mention that because that is it's one of the gaps. Like when
people say, Hey, like, is this making your job easier? It's like, well, no, because like all the
normal stuff is there. It's just a slightly more efficient bank account. But then with some
detrimental pieces versus an actual, an actual bank account. And like when it's a lot of the
stuff that we want to get to is the idea of like, it's bigger interchange problems. Now, of course,
what's interesting about that is like interchange, interchange for things like invoices has existed
for a long time. But you always are in this like really tough situation of like fitting in with
somebody's model that maybe you don't like maybe someone uses work data person use SAP.
You're trying to do an interchange and it's just not working exactly right. You know,
where it's getting to the blockchain is really this story of it's it's how do people like blockchain
in general is good for how do people who don't trust each other work together. That fits really
nicely into something like agreeing on an invoice like an invoice gets created on the blockchain,
both sides agree on it. Like that's request networks doing really, really cool stuff here.
Like we think they are doing some really interesting stuff around this. We partner with them. They'll
be at Edass both as a I think they're going to be on one of the payments panels and then they'll
also have a have a booth there. So like we we think that that's a major part to actually really
actually streamline a lot of this stuff. And the other side would be like, you know, getting more
metadata on the blockchain also also kind of does it there for sure. Yeah. Yeah. On the one
click on the payments, I definitely agree that it is getting a lot better. But I still think like
having crypto or blockchain in the middle kind of does add a few extra steps. Like let's say I
sent an invoice to somebody. So okay, great. Now I have to tell my ERP. Okay. This is a CAS
receivable booked the revenue and then to wait for the payment to come in. And let's say I see
the payment on like Bitwave or something that I'm okay. This payment come in comes in. Now I
to go ahead and close it on the ERP side. And the transaction does think which is good, but at
least there's also like a reclass entry that needs to happen. So you put it in the right digital asset
account. And so I have found that there's like a few extra steps is easier to reconcile because I
am pointing on chain transaction. Like okay, this actually happened actually did get paid.
But on the account inside, there's just like a few other things you have to do to fully close
the transaction. So we're getting there. Yeah, no, it is. It is a it still is a project. And
there's still I mean, there's still a lot of complexity there too. But I think, you know,
where it's going to change would be once we start to see, because honestly, you know,
where we don't want to be with crypto in my world, and I'd love to hear your thoughts on this,
it's like we don't want to be that there's a there's an example. And it's it's I think it's
been debunked. But I still like using it of when one of the first cars came out, they they put a
stuffed horses head on the front of the car to like a make people more comfortable with the car
and be make the other horses that were still on the road comfortable with the car. So it's this
idea of like taking this new technology, but just sort of using it like old technology. And we're
kind of in that phase of crypto right now, which is like, yeah, if you're if you're trying to replace
your current A R A P A C H process by itself, like just take that really narrow slice of
clicking the the yes button on a CH and you're trying to place that with crypto, which a lot of
the payment projects are doing right now. You're basically saying, Hey, we have this enormous
awesome technology that is really, you know, a groundbreaking new financial system and automation.
But what we're going to use it for is like just replacing this little tiny narrow slice.
I'm not sure that that's where you get the benefit the benefits when you start to codify,
you know, actual contracts like you basically say, Hey, you know, I mean, how many times have
people ignored their net 30 terms because at the end of the day, it's kind of a pain the ask to do
it. These are people you have to deal with every single day. You don't really want to be too
confrontational. Like how often do you really worry about that? But if you can enforce that at the
smart contract level, either like a net 15 bonus for pain or a net 30 plus penalty for not paying.
Some of you actually have, you know, self enforcement of things like your net payment terms. And you
can add more stuff like that in terms of streaming payroll and or streaming invoices,
better use of the funds while they're sitting in this escrow. So you even got this thing that like,
you can start to change the way you think about payment terms where like you have to deposit the
payment on the first, but we don't remove we don't actually have access to the 15th. And you have
like more and then it's a crewing interest or something in that in that interstitial period.
That's like what I get really excited about around payments is is when we're not just
paying between two people and like replacing a CH.
Yeah, it does feel I think the term is more fake, right? I think you're still kind of in that phase
where we're just trying to replace everything that was in Web to just like give it like the Web
three version of it. So yeah, definitely still great. But I think there's actually payments.
There's a lot of opportunity there like super fluid, for example, in the streaming payments.
I'm like, why has not everyone just adopted streaming payments? I mean, I'm sure it's good
reason why the infrastructure might not be like fully ready yet. But things like that, I'm just
like, yeah, we need to actually think about it. You know, it's a great question though that I
tend to think about because like you are, it's ultimately a business discussion, right? Like
that's it's, you know, why everyone hasn't as a picked up streaming payments is ultimately like,
well, what's the business reason for streaming? Like, there's there's a lot of reasons not to do
it, right? Like if you're doing streaming payroll, it is incredibly difficult to do the accounting
for that, right? Because you essentially are going to do a draw you do a draw down on a salary
that you then satisfy on at the end of the month, or or you do day by day rec, but even that's like
kind of a nightmare. So streaming payroll is obviously very complicated. Streaming invoices
are complicated. So the question this ultimately has to come down to the business, which is like,
why does the business want streaming? And honestly, where I kind of come out with this, like, I'm not
sure we'll see I'm really, I love the streaming use case. I'm not sure we're going to see streaming
payments for individuals. I actually think it's a lot more likely we'll see it for businesses,
but actually that reminds me, so Mackenzie, why don't you explain what streaming payroll and
streaming payments are, and then we can kind of get into some of the interesting use cases for those.
Yeah, definitely. So you set up, I think you set up a smart contract first, and basically the
payments that you're sending to like a contractor, for example, it's kind of in the name. They just
kind of slowly leak out or like send out to this other person's address. And so instead of having
to wait here, paycheck at the end of the month, you can just receive payments, you know, every hour,
every day, or I think whatever the cadence is that you set up. And so it's better for the person
receiving payments because they can actually have access to their funds right away. They don't have
to wait. Nothing's uncertain about it. But definitely agree on the accounting and tax. I just was
thinking, how do you withhold taxes on a streaming payment that sounds very complicated?
Yeah, when we have folks doing it, we do it on, we basically do it as a draw, in particular for
withholding employee payroll, because you basically do as a draw that just satisfies with the course
of a month. But we come, you know, where you get really interesting there is then you start to see
there are really interesting things that come out of that. So essentially, if I set up a streaming
payment for you, so let's say, you know, we do some, we do some services and, and you know,
I'm going to pay you, you know, 100 ETH over the course of a month. And I do that as streaming.
I mean, essentially it is a depending on on what month you do it. Like it averages out to a net
15 payment. And so the question is like it averages out to a net 15 payment, but with earlier access
to some funds and collateralizable access to the full amount. Like that's what becomes really
interesting here. So it's like, we have to go to like the second derivative of use cases here,
which is like, okay, if I just do net 15 on the 15th day of the month, I suddenly get a payment.
That's great. But if I am sitting on the full amount is in a smart contract, and I am slowly
getting it on a day by day basis, a I have earlier access to cash as the pay, but be on the other
side is that I actually as the payer, I am able to earn interest on the amount past the 15th.
So there are real reasons to actually want to kind of sit on it. And I now have a record of my
payments. I could potentially use some of that as if I'm the payee, I could use this collateral.
Like I can say, Hey, this contract is mine. You can see exactly how much there is in this month.
I could borrow against it a month out. And that could be enforced on chain as opposed to, you know,
through contracts, through factoring and things like that. So I don't know, like it has to ultimately
be driven by something the business wants, not just by how cool the technology is.
Right. Well, I think that just came in mind, like from the payers perspective, the person
actually sending the money, like then you just have a constant stream of gains and losses as well.
So how does one calculate that? Like how, you know, what's your cost basis for those assets
that are just streaming out? 100% Yeah, you basically, you turn it into a, it's a variable
money amount of money going out. So you've, you sort of struck a price. Because I mean,
what you ultimately, what you do is you probably would want to book it when you move it into the
smart contract to pay for that month. That's when you would kind of book a, you know, a payment
going out or sort of thing. But realistically speaking, you actually are picking up a forex
delta every single day as you relieve it, you're picking up a forex delta off of it.
Exactly. Yeah, it's like how do you track that? Yeah. Super, super interesting. This is,
this is the fun stuff about crypto accounting. I mean, it really, it really is like,
more people should do it. It's constantly changing like every hour. I mean, what, what are like
resources that you go to to kind of stay up to date on fun things and keep you up to date?
Yeah, I don't do a good job as I showed it, especially on the crypto news part. I'm definitely
still trying to get better at that. So like, you know, I get like the bankless newsletter just
on the crypto news side. I have crypto Twitter. So that's where I get my actual crypto news and
also just by talking to people in the industries where I get most of it. But on the crypto accounting
side, it's more, there's, you know, I don't know if the FAS really tweets about crypto. So I don't
really go to Twitter for my crypto accounting news needs. But a lot of guides are being put out,
especially by big four. I know like KPMG has some really good guides on entities and staking
rewards like all the big four they just have like, here's like a practice aid for, for this type of
crypto activity. My favorite one of all times the AICPA is accounting for an auditing digital
asset. So that thing is my favorite thing. I've run that so many times at this point.
It's just got really good use cases and examples. How is that? Because that's been around for a
long time. How's that aged? I haven't looked at it for a while. Well, they updated. They have
different, they released a new appendix, I think a couple months ago. And so they are continually
updating it. So that's just like, that was my first introduction to crypto accounting. And so
I just hold it very near and dear to my heart. So love that one. Yeah, I guess they got in.
They got in. Do their appendix, including anything about DeFi or anything like that, or it's still
kind of like more basic level stuff. It's more high level. I guess I'm getting into it. Yeah, I know
essentially a thing that like they had like a mining section, just mining, not stinking. So I
was able to use that, but it is still more fairly high level, I think. But yeah, and also like
fast, we have an exposure draft that came out. The IRS just came out the new noticeable NFTs and
collectible rates. So just going to like the actual source and saying those things come up,
like I just read those. I must have missed this. A new item came out on the NFT collectible
rates. Yeah, so I forget what I think they just put out their requests for comments,
what they asked for. Oh, yeah. For certain NFTs, they will be taxed at the 28%. But they have this
thing called a look-through analysis. So basically you have to look like look through the NFT to what
it's actually doing. And is the underlying like right or assets, is that considered a collectible?
Is it like a coin? Is it a work of art? And like what are your rights with regards to that?
And if so, then it gives a 28%. I think it's this way everyone's been doing it up to this point,
is you do a different treatment for a board aid than you do for a real T NFT. Like a token that
grants you rights to a house in Atlanta or something. Those are apps or a uniswap liquidity pool.
Like that's obviously a different kind of like use case than a board aid or something. That's good
that they actually finally codified that. Yeah, so that's something NFTs are so fascinating.
Because like you really need to understand like the exact collection or project and like what's
the underlying right that this NFT is giving you because that can totally change the accounting
or at least like the tax treatment. So it's like you relate to the kind of sharp about
what's going on with the collection. It's a fun part of this is just sort of keeping up on all
the things that are happening as the world matures here. Like oh this changed. All right.
Yeah, like okay, well we gotta do it. I mean it is interesting like one of the things that's
going to come down the pike here is the FASB guidance has come out. We won't go into too much
detail here but it is, you know, there will be a very different way that we are accounting for
all these assets here going forward. There's going to be a couple of really interesting
parts about that. Like first of all, so we're moving from for a subset of the assets. Well,
Mackenzie, I don't know if you saw this part but it'd be fun to talk about. Like so for
subs of the assets, you're going to be able to move to fair value. There's carve outs on that.
So things like governance tokens may or may not be carved out. NFTs are obviously carved out
whereas NFTs you still would impair governance tokens. You still impair. The one that was really
a really nasty carve out is the wrapped tokens. So they... Yeah, I saw that. Yeah, so right now
they're saying that you will be able to fair value treatment for ETH but ETH will be
impaired. What do you think about that? I mean, based on their definition, it makes sense.
When you have ETH, it gives you an underlying right to then redeem it for ETH. So it does
adhere to their definition but at the same time it's like, my gosh, they're like the same thing.
Like, you know, so it's like, why do you have this different treatment? But it makes sense.
And there's also like STE. So I think all these derivatives are not going to qualify
for the fair value treatment but it's just going to make the accounting really confusing and kind
of hard. Like if you get a balance sheet and you see ETH and then you see we friend or
ether and you're looking at them at two different evaluations. Like that's just kind of confusing
for the reader. Two different evaluations, two different spots, two different parts of the balance
sheet. Yeah. Because essentially digital assets are going to move up the balance sheet.
Or ETH and Bitcoin move up the balance sheet. ETH will stay at the bottom of it. I mean,
it's a really interesting. Yeah. That's really interesting also.
Yeah. So I think, well, I like the disclosure parts of it mentioned like the disclosures have
to get a lot more robust and then they'll be able to see like maybe ETH and ETH next to each other.
Here's the cost basis and like here's a fair value. So I think that is good but I mean,
it'll keep accounts like me employed. So I guess that's good from that point of view.
Yeah, I definitely don't get like weak because we're rolling out as part of our like inventory
views. We're rolling out the ability to have segmented. You can actually select what tokens
you're for value and what tokens you're impairing. So that's going to be fun, I guess. I don't know.
We'll be announcing that at ETH and showing it off but oh, that's exciting. See, that sounds
like fun to me, Pat. I'd be like going to each asset. What is it? You know, like I like that.
The thing that is going to be really tough about all this is that traditionally most of our clients
have treated ETH to ETH as equivalent. What becomes really hard about that is that the important
part of that is that when you trade ETH to ETH, you don't pick up a gain or loss.
And most people agree with that. Like this is it's taken a stock and it's handy at
to TD Ameritrade and having them hold on to it in a lot of ways and giving you a
promissory note back to you then go and sell. I mean, that's from a very, very like direct reading
of like how this actually works in the blockchain. But suddenly you're actually not going to be able
to do that. So if you do have to impair ETH but not ETH, that actually has really major
ramifications because something that means you cannot treat ETH and ETH as the same item and
that means you do have to do a gain or loss. And that's potentially some of our clients that's
millions of dollars of gain or loss on that. Yeah, I think that is calling more lining like
accounting to the tax treatment. Because I think the IRS said that like wrapping till
because it's because they're a taxable event. So I guess in that in that sense, like they are
more aligned so we don't have this wide of a gap between what gaps saying and then like what
the IRS is saying. But still, yeah, it's even probably not even that one is super ancient because
like if the IRS were really to sniff it that like does the IRS really think that you can
wash trade by by going from ETH to the W to weave them back? Like of course they don't like that's
you know, it's one of those really funny things where maybe at first blush that seems good for
them. But when they ultimately get into this and they ultimately look at like the real monetary
pieces of this, they definitely they don't want you to be able to wash trade that way. They do
want you to treat that as the same asset. Is my my prediction on these things. So we'll see.
I'm so waiting for watch trading to be like is outlawed by the IRS. I don't think they I think
you can still do it with crypto, but I think that's going to go away at some point. Well, it depends
a lot on how you read like the the statute itself is unclear and it does reference security. So it
relates back to like if you think crypto security or not and all these other things. So like we
talked to a lot of people who do in fact think that watch trading is is illegal today or whatever
against against guidance today on crypto and do not recommend doing it. But the most recent
guidance they gave is that all you have to do is wrap and now it's okay. So you get it's a free
to get a jail free card on on wash trading. So for those listeners that out there, can you guys
explain what wash trading is just maybe not familiar with Kenzie take it away. Yeah, so we
have an asset and then you basically trade it into something else to realize the gain or loss.
Well, you want to do it to realize the loss and then it is buy back the original asset. And so
you're taking the loss, but you're still ultimately in the same ending position.
And the government is I mean the way that the regulations are written is it's actually
incredibly penalized pretty severely when you wash trade. If I remember correctly because basically
you lose. Mackenzie, you have to remind me of this. I'm sure there's some regulation for it, but you
basically you have to use the higher cost basis on the or the lower cost basis on the go forward
period without recognizing the actual loss. So you end up getting penalized when you do wash trade.
You don't and it resets your your date. So you take the worst part of trading, which is to change
your long term versus short term. And then you also get the worst of the cost basis without
actually picking up the the underlying asset change. I could I could be remember that incorrectly.
Yeah, I'm not exactly sure about that, but I can see them doing the same thing with crypto
because it'd be fairly easy to just oh, now your cost basis is lower, I guess. And now you're
in now long term or short term. So yeah, and that's and so this has been a debate like most if you
ever have used the tax loss harvesting product, if you do your retail taxes with crypto and you go
they they all have tax loss harvesting. They tell you to tax loss harvest. Generally when they're
speaking, it is the way that yeah, you just have to be very thoughtful about how you're going to do
it. So like if all you do is sell and then rebuy, there's a very good chance that a that's not okay
today, be that won't be okay tomorrow. See, even if it is okay today, the IRS tomorrow might decide
that it's not okay and that they can do retroactive law, like regulation changes around that kind of
stuff and something you have to go back and read declare it. But then there are then I mean,
honestly, if you're very thoughtful about it, there are ways to get exposure to it. Wrapping is one
potential one, depending on your reading of the rules, going to liquidity pool is another potential
way to get to tax loss harvest, where you maintain exposure to the underlying asset, but you are
you have really dramatically changed the shape of the asset. Yeah, no, no, it's it's going to be
interesting. It's going to be super super interesting. We'll see one thing that's come up recently is
I guess on the on the topic of tax loss harvesting is donor advice funds because I know ifidelity
has their donor advice charity fund for crypto, which is actually really cool. So you can just
donate your assets and then you can realize the loss you want. But then the charity just has
their their fund, which is tax free. So that's also interesting. Oh, that's great. I didn't hear
about that. That's really cool. And I assume any sort of fund once we get to this more,
once we do get to like other ETFs and things like that, that'd be another way to tax loss
harvest is go out, like sell your Bitcoin and buy the fund for it. That'd be some other
traditional tax loss harvesting on the stock exchange. Okay, so Mackenzie, you worked for
Figment did Rev. Rick there. And now you've you've you've stepped out on your own, like tell us a
little bit about about your new company. Yeah, so we are hash basis. You're a crypto native accounting
firm, which is our tagline. I love it. But we're helping companies with their crypto accounting and
bookkeeping and also helping them get set up onto subledgers like Bitwave, for example, and also
we're doing individual crypto tax as well, which is also involved with subledger. So we're kind of
doing both of those right now. Just kind of seeing like what the market is out there was the demand
for that. But I do eventually see a specializing more in business crypto accounting, like more
enterprise level. Because I love us gap. I think it's awesome. And I really just want to implement
subledgers and help clients get their books in order. So that's a little bit of a hash basis.
What's subledger you guys using for the retail side of things? A mix. So we squintly quite often,
especially if customers have a cosmos based activity, because Coignley actually has a need
integration with both the osmosis and cosmos, which is awesome. And then the other one, I think
those are only two, but they at least like pull on the pricing for like June or Star Gay. So at
least it recognizes it. So we use that coin tracker, tax fits. Those are the main three that we have
been using. I saw token tax day, as well, but that hasn't been as popular as ever.
Yeah. And you think Coignley is sort of one of the better ones that's out there?
I think so. Yeah. I think I started using it last year, because I was doing some personal
crypto tax inside. And so I'm just very familiar with that software. But yeah, a lot of the
personal ones kind of give you the same results for me. It's more about like how user friendly is it,
how fast is it is actually pulling up your pricing, things like that. Yeah. Yep. Amazing. And
how do people find you and get in touch with you? And are you guys taking new clients, I assume?
Sure. We are probably not until after tax season though, because we're already fairly
booked. We got our hands closed, crazy. We just launched like a month and a half ago. I'm like
Courtney, because my co-friend, I'm like, I don't know if we can take anybody on until after
tax season. So hit me up after April 18th. We can find us at hash basis dot xyz. And then
also we're at the same thing on Twitter. And yeah, my email is just my name,
mckenzie at hash basis dot xyz. Awesome. And then you also brought up your EDAAS,
you know, our benefits that don't know enterprise digital assets. So that's happening end of April,
April 25th, right before the conference consensus in Austin, Texas. And you'll actually be speaking
there, which we're honored to have you. So I'd love to let the audience know what you're going
to be talking about and they could come and meet you. Yeah, give us a sneak preview.
Sure. And also, I love EDAAS. I was there last year. So I'm so honored to be back. It's really
the best conference for crypto accounting tax. Anyone in like the financial space for crypto.
So yeah, this year, I'm going to be talking about, well, I think the title is going to be like,
it's all about timing, curls and deferrals in a cash basis blockchain world. And so basically,
just trying to, you know, diving more into what we're talking about, cash basis versus a
cruel basis, giving some examples of like deferred revenue, accrued revenue, what the
journal entries, like how do you even wrap your mind around it and start reconciling use to. So
going to be all about that. And yeah, I couldn't even work excited.
Well, I'll give everyone the most popular session or one of the most popular sessions last year was
Mackenzie's deep dive into AAC 603. Wait, I said right. 606. I'm sorry. AAC 606
has been a long day already. All about how to do revenue recognition. So someone who's passionate
about about doing the actual the deep technical accounting, like reviews of these, these kinds of
treatments. So should be incredibly fun. If anyone's interested, you can go to e-dast.live where we
are, we have tickets going out there. It's going to be a blast. It's the day before consensus. So if
you're already going down to Austin for consensus, which I'm sure a lot of folks listening are,
it's a come out one day early, learn about it, come out two days early, and we're doing a full
certification course for BitWave too. So you can get your BitWave certified NFT,
learn from 101 onwards on crypto accounting and go from there. So Mackenzie,
are you, you and Courtney going to be there? Yeah, we'll be there. I assume we have you teaching
the class or? No, I'm just a participant. I want to get the NFT. Actually, I think I already
haven't but I want to go to learn. So I'll be there. I love it. That's going to be, that's going to be
an absolute blast. Well, Mackenzie, thank you just so incredibly very, very much for coming on today.
This was delightful. I think this was the appropriate level of detail. Like we haven't,
we don't always get into like deep accounting details on a lot of this stuff. This was a great
day to actually do that. Really, really fun. Thank you so much for coming on today.
Of course, thanks for having me as I said, this is great.
Well, we'll have you on, we'll have you on again in the not too distant future.
And to do an update, once Faz becomes out, we're all like wrapping our heads around that.
We'll do a little update on it and go from there. We'll be lost to talk about fast for sure.
We'll also be figuring it out, but we can figure it out together.
I love it. Thanks again, everyone. Thank you for listening. And hopefully we have you on soon
in the near future and looking forward to seeing you at EDAS. Thanks, everyone. Have a great rest of your week.