CA(SA) - IGNORE BLOCKCHAIN AND CRYPTO'S AT YOUR PERIL!

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Clive Kaplan is a top-rated Executive/Leadership/Career Coach. Contact - 072-280-6878 (SMS) or [email protected]. Visit the website www.coach.greenmindcapital.co.za and download a free E-Book on the latest hot topic - Executive Presence.

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You’ve probably irritated by the media-attention that cryptocurrencies have been receiving over the last few months. This one has collapsed, that one is on the rise, and a new one is around the corner.

But, with the recent collapse in the crypto markets and the number of frauds and hacks that have been reported, the hype has been on the decline.

Coupled with this bad news, in April 2018 Sars announced that it will be taxing cryptos pretty much the same way as any other security. If you’re shown to be a trader, you can expect to be taxed in terms of the laws relating to revenue profits. If, however, you can put a good case forward for being a “hodler” (one who essentially intends to hold their crypto’s on a long-term basis, even though profits might be taken when volatility is prevalent) you could be taxed under the CGT rules. Affected taxpayers will, therefore, be expected to declare cryptocurrency gains or losses as part of their taxable income. And have a composite audit trail of info supporting their intentions if they want the benefits of claiming capital profits. (Don’t forget to claim your crypto trading losses in your 2018 tax return!).

And in amongst all this hype around this new, confusing monetary ‘asset’, is something called blockchain which is a complex, layered technology that provides the backbone of cryptocurrency, but is potentially the real disruptor, one which can deliver so much more, especially in the way we relate to money.

Blockchain is the underlying technology that drives the whole cryptocurrency market. This is only a small part of what this technology can enable. Blockchain itself, where the real value lies, is largely unexplored, even though it has been around for nine years now.

We all probably know about cryptocurrencies, the most obvious being Bitcoin (BTC).

Blockchain, on the other hand, remains a complex mystery.

So what exactly is this blockchain technology?

According to Deloitte, blockchain is defined as a ‘digital and distributed ledger of transactions, recorded and replicated in real time across a network of computers or nodes’.

In essence, and to keep it simple, the blockchain is a tracking system that allows the user the assurance that every activity in the system can be trusted. Thus, if you make a payment using the blockchain system, you can trust that it has been thoroughly tracked from both yours and the receiver’s side. You both can be assured that the transaction is valid in every respect. Besides keeping a transparent audit trail (literally forever!), the best part is that transaction happens just about instantaneously. This is in contrast to payment through the banking system which can take up to 7 days to clear.

In addition, the current cost of doing a blockchain transaction is substantially less than those charged by the bank.

To all intent and purpose, blockchain has the potential of wiping out the most lucrative part of the banking business – transaction and account maintenance fees.

In fact any financial middleman/agent/clearing house/broker is also in the firing line!

If you could make and receive instantaneous money transactions with a 100% level of trust and security, there is little doubt that you would abandon your current banking service provider and go it alone.

To simplify it even further, look at it as though payments will happen as efficiently and quickly as sending an email. Furthermore, there will always be a verbose audit trail that will be assessable forever. No more begging your bank for past bank statements (at an eye-watering cost) or finding out that electronic downloads cannot go back more than 6 months!

The overriding issue here is that the cryptocurrency is the monetary unit that will be used to effect these payments. Already certain businesses are giving the option to make payment via Bitcoin. Air travel and hotel accommodation are the most popular but other industries are climbing on board.

It seems that the monetary system, as we know it, could be under massive disruption. Right now the crypto’s are extremely volatile and any entity willing to receive payment using this method could find themselves 20% out the money virtually within hours. Accordingly paying via crypto’s is not currently practical.

Another worrying issue is that crypto’s are stored in virtual ‘wallets’. These usually lie on the crypto exchange’s website. You have no physical evidence such as a coin or piece of paper (bank note) that assures you of ownership. If that website disappears, your money will be lost.

This is probably the most interesting part of the whole system: all transactions are done in an environment of very little regulation, legislation or governance. Everything is based on copious transparency and an inordinate level of trust. The Bitcoin market is currently valued at $159,000,000,000. That is nearly R2 trillion! Of course Bitcoin is by far the largest crypto, but taking in all the other crypto’s, the total crypto market cap is closer to $420,000,000,000 or R5,000,000,000,000. Not to be sneered at.

But, don’t get me wrong. This is still an almost totally unregulated market that could be one huge Ponzi scheme. Accordingly, it’s not the place for your emergency savings or to invest your retirement fund. Don’t be bamboozled by the price movements over the last 3 years (a statistic flaunted by the guys selling mining contacts). A lot of people have been badly burnt over the last 4 months. The prices have plunged substantially. Bitcoin alone has tanked from R19,900 in December 2017 to $6,200 in February 2018 and then back up again to $12,000 only to collapse back to just over $6,000 some 10 days ago. As of right now (Saturday 28th April 2018) it is trading at $9,400. Just a week ago it was below $8,000! And it reached nearly $10,000 a few days ago, settling back to $8.700 within hours!

Not for the feint-hearted!

But this is not what this article is all about.

As a CA you are going to need to understand these crypto’s and the blockchain system. More and more clients are going to be exposed to this very exciting technology and you will need to understand its substance, the risks involved and the tax implications.

And whilst you are doing that, consider that our whole profession as we know it might just become redundant as this new technology takes over.

In his recent article on Moneyweb, blockchain guru Darren Gorton had this message for us all:

“For the CA’s(SA) and other financial professionals, the pressure is on. By understanding how blockchain works and the impact it has, they can provide clients with exceptional insight into everything from the latest regulations to innovative applications. In South Africa, we still have a way to go, but that doesn’t mean that the accounting professionals can put their head in the sand and ignore it. As cryptocurrency fluctuates and organisations such as the Reserve Bank, Sars and other government departments implement regulation to manage the movement of money around the globe, blockchain is going to evolve at a rapid pace. It is difficult to say how blockchain and cryptocurrencies are going to play out.”

As CA’s we need to keep abreast of this technology.

I deal with a number of CA’s and there is kind of complacency that has developed around the whole cryptocurrency saga. Most think it’s a scam. This, in my view, is leaving them behind the curve. Whether it be Bitcoin or blockchain or a plethora of other technologies, you can be assured that the financial system, as we know it, is under huge disruption. The humungous banking charges, inefficiencies in financial markets and a monetary system that leaves us in the hands of incompetent politicians, change is desperately needed.

And, as professionals, we need to face this challenge or prepare ourselves for redundancy.

It’s that dramatic!