Understanding the Challenges of Digital Asset Taxation

Furthering the adoption of digital assets through consumer routes and through TradFi pathways requires the proper underlying infrastructure. As a leader in digital asset accounting infrastructure, Ledgible teamed up with leaders in digital asset accounting, FORVIS, to address some of the challenges surrounding crypto tax planning and strategy in a recent release.  

At the core of the challenges facing digital asset taxation are three key fields: data, evolution, and regulation.  

Data 

The core challenge of digital asset taxation and accounting starts with data. Just like a business starts with transaction data to compile financial statements, a similar approach must be taken to compile the overall economic impact of crypto transactions. In many ways, the decentralized nature of crypto means that compiling accurate data is a challenge – but in others, the immutable records of blockchains aid in the process.  

At the core, what enterprises and businesses need are experts in data aggregation and normalization; able to ingest and normalize cryptocurrency data from a variety of sources, DeFI, NFT, blockchain, or otherwise. 

This challenge is at the core of the value proposition Ledgible provides to users. 

Evolution 

Another challenge with crypto taxation is the constantly evolving and complex nature of underlying digital asset technologies, which makes it difficult for CPAs and accounting professionals to keep up with the latest developments and fully comprehend the information they are handling. Because of the pace of change in the industry, it has been said that spending one year devoted to crypto is like 10 years outside of crypto. Not every blockchain works the same, and not every application on the blockchain works the same. 

For example, holders of the ATOM token can stake their ATOM and in exchange for securing the COSMOS blockchain, they receive ATOM tokens as a reward. Once ATOM tokens are staked, they are locked up and cannot be traded until unstaked. Contrast that with staking Ethereum (ETH) through Lido; holders of the ETH token can stake their ETH and in exchange for securing the ETH blockchain, they receive ETH tokens as a reward. However, with Lido, ETH stakers can choose to receive stETH, a liquid derivative of ETH. This liquid derivative allows stakers of ETH to effectively trade their ETH while it is locked up. Catch all that? Now imagine the data and the data format needed for CPAs to help their clients report this information. It’s complex, to say the least. 

This complexity necessitates experts solely focused on this complex calculation,  something most enterprises and institutions are not adept at handling internally. However, this is possible at Ledgible with the expert assistance and scalable SaaS platform.  

Regulation 

Finally, the last rapidly evolving and unpredictable challenge of digital asset accounting is regulation. All digital asset taxation and accounting must keep up with the evolving regulatory landscape. Ledgible Chief Advisor, and Honeywell Professor of Accounting, Vivian Fang, recently addressed tentative guidelines by FASB, the Financial Accounting and Standards Board, around digital assets. However, this is just one of many potentially impactful regulatory changes and hurdles digital asset accounting procedures must keep pace with.  

This is why managing digital assets in a scalable SaaS platform made by digital asset accounting experts, like that of Ledgible, is necessary for institutions, enterprises, and investors. You can learn more about the platform here.  

This post is commissioned by Ledgible and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.