Crypto & Accounting:
What You Need to Know

Proof-of-Work (PoW)

Used by Bitcoin, Litecoin, and legacy Ethereum (pre-2022), this mechanism relies on miners solving complex cryptographic puzzles. The first to solve the puzzle:

• Adds a new block to the blockchain
• Receives newly minted coins and transaction fees as reward

Because the puzzle is difficult to solve but easy to verify, no separate validation step is needed — the system itself enforces integrity.

Proof-of-Stake (PoS)

Used by Ethereum (post-Merge), Cardano, and Solana, PoS selects validators based on the amount of cryptocurrency they “stake.”

• The selected validator proposes a block
• Other validators must attest to that block before it's accepted

This creates segregation of duties within the protocol — a feature highly relevant to audit and assurance processes.

Wallet Providers

Wallets enable storage, transfer, and receipt of crypto assets. They can be:

• Custodial (managed by a third party)
• Non-custodial (controlled entirely by the user)

Examples: Hot wallets: MetaMask, Trust Wallet, Coinbase Wallet
Cold wallets: Ledger, Trezor

Relevance for accountants: Wallets with export functionality allow tracking of balances and transaction histories. Some providers also offer API access or audit support, which is vital for documentation and reporting.

Miners (Proof-of-Work Systems)

In PoW networks like Bitcoin and Litecoin, miners perform the dual role of:

• Verifying transactions
• Adding new blocks to the blockchain

The mining process results in the creation of new coins and validates the block’s integrity through computational effort.

Validators (Proof-of-Stake Systems)

Validators secure PoS networks by staking coins and being selected to:

• Propose new blocks
• Confirm the validity of others through attestations

They receive staking rewards and play a central role in maintaining the network’s integrity, offering built-in audit-like functionality via consensus mechanisms.

Valuation Approaches

1. Cost-Based Valuation (Default Standard)
   Under most accounting frameworks, cryptocurrencies are valued at cost price, unless specific exceptions apply. Advantages:
   • Aligns with the common tax treatment, avoiding mismatches between financial reporting and the corporate tax return.
   • Offers simplicity and consistency in recordkeeping.
   Implications:
   • Requires tracking both the purchase price and the sales price in your ledger.
   • For small companies or during the startup phase, it is often permissible to apply fiscal principles in the financial statements, further reducing complexity.
2. Market Value Considerations
   Cryptocurrencies may be valued at fair market value if:
   • They are held for trading purposes, or
   • Treated similarly to inventory or financial instruments under Dutch GAAP or IFRS.
   However, this method:
   • Often leads to debates with tax authorities, particularly due to the volatile nature and limited history of many crypto assets.
   • May increase the volatility of reported earnings.
   As a result, many businesses still prefer cost-based valuation, even if market valuation is technically allowed under certain conditions.
3. Securities-Like Features — But Not Quite the Same
   Although cryptocurrencies share several characteristics with securities, they are treated differently under accounting rules:
   • Accounting classification: Securities are often recorded under financial fixed assets or trading positions. Crypto, by contrast, is usually classified as inventory (short-term) or intangible assets (long-term).
   • Regulatory oversight: Securities fall under stringent regulation (e.g. AFM, ESMA). Crypto lacks a central regulatory body (though this is changing with MiCA).
   • Underlying value: Securities represent a claim or stake in an underlying asset (e.g. a company or debt). Crypto typically lacks a claim, which is why it's often classified as intangible.
   In our view, crypto should be treated as a separate class, with its own recognition and measurement principles. Read more about this on our “Crypto Classifications” page.
4. Changing Valuation Methods
   Companies often ask whether they can switch valuation methods — for example, from cost to market value. This is only permitted when:
   • There is a justified reason (e.g. structural business change)
   • It results in a clear improvement in the relevance or reliability of the financial statements
   A more favorable financial result is not a valid reason. If a change is made:
   • It must be disclosed transparently in the financial statements
   • Prior-year figures may need to be restated retrospectively
   • The effect on earnings and equity must be clearly explained

Bookkeeping Considerations

• Cost-Based Valuation Approach: In line with common accounting principles, cryptocurrencies are generally recorded using a cost-based valuation method. This means you must register both the purchase price (cost) and the selling price (realized value). The crypto holdings themselves often resemble inventory in their behavior and are treated accordingly in the ledger.
• Inventory Tracking (FIFO Method): When selling part of your crypto position, you must determine which portion is being sold. A common and accepted approach is FIFO – First In, First Out. This means the earliest purchased coins are assumed to be sold first, which directly affects your calculated profit or loss.
• Exchange Rate Adjustments: Most cryptocurrencies are traded in USD, even for European companies. This introduces foreign exchange exposure, requiring conversion of values from USD to EUR and recording of exchange gains or losses based on applicable day rates. Our system automates the application of daily exchange rates to reduce manual errors and ensure compliance.

Choosing the Right Application

• Basic Administration (Manual or Semi-Automated): Recommended if you have a limited number of transactions, modest investment, and no formal audits or external stakeholder reporting. A simple Excel-based setup or lightweight software package is often sufficient.
• Advanced System (Full Integration): Recommended if transaction volume is high, investment amounts are significant, or you require reporting accuracy for external stakeholders. A robust system can prevent errors, offer real-time tracking, and improve audit readiness.

Choosing the right software solution — one that matches both your technical environment and reporting obligations — is essential. We guide you through this selection based on your goals and risk profile.

1. Loss of Crypto Assets

Asset loss is one of the most fundamental risks in crypto. Whether due to mismanagement of private keys, forgotten passwords, phishing attacks, or technical failures, lost crypto is often unrecoverable. This risk applies not only to private investors, but also to companies managing assets on behalf of stakeholders, clients, or employees.

Risk mitigation strategies include using secure wallets, implementing multi-signature setups, and maintaining clear internal access controls.

2. Audit Complications & Limited Acceptance

Cryptocurrencies are still subject to limited formal recognition under traditional audit frameworks. As a result:

• External auditors may lack clear guidance
• Documentation and classification standards vary by jurisdiction
• There’s no equivalent of central bank backing or institutional guarantees

However, the underlying blockchain technology may provide stronger assurance than traditional systems, offering:

• Full transaction traceability
• Immutable records
• Built-in internal controls (via consensus mechanisms)

Auditors increasingly recognize these features, but documentation must still be structured, consistent, and reconcilable to accepted standards.

3. Taxation Uncertainties

Despite the widespread use of blockchain and cryptocurrencies, tax guidance remains inconsistent across countries. The key areas of uncertainty include:

• Valuation methods (cost-based vs. market value)
• Timing of recognition for gains and transfers
• Treatment of staking, mining, and token rewards

Currently, cost price is the most widely accepted standard — but many tax authorities are expected to shift toward market value in the coming years. This shift could result in:

• Earlier taxation of unrealized gains
• Disputes over fair valuation
• Increased compliance burdens

In some cases, taxes may effectively be deferred until crypto is transferred out of the company, similar to latent capital gains.

• Establish a clear audit trail for your crypto transactions: Use systems that allow for complete and time-stamped exports, and document wallet ownership and control.
• Document your internal processes: Especially for activities such as trading, staking, or custody, a description of procedures helps auditors understand risk and control.
• Perform a pre-audit assessment: A proactive review of your accounting and crypto documentation can prevent issues during the official audit and may help lower audit costs.