The top 6 reasons to start tracking your crypto 🚨 This article is 5 years old...
The top 6 reasons to start tracking your crypto
4 min read
Updated: Jan. 13, 2020 at 1:40 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
There is an abundance of new and existing crypto tokens, coins crypto wallets, service providers and decentralized financial instruments powered by blockchain.
More wallets, exchanges, tokens and coins means more assets to track for businesses, institutions and investors. When referencing CoinMarketCap, there is more than two-thousand listed cryptocurrencies worth a combined market cap of almost value of $200 billion USD. With thousands of coins in existence across the globe, and for investors that may own hundreds of cryptocurrencies, tracking and managing assets comes with great difficulty.
The difficulties multiply when investors have crypto stored on hardware or software-based wallets. Moreover, because crypto can be bought, stores and transacted in so many different networks and blockchains, tracking across portfolios, wallets and crypto exchanges requires meticulous organization and monitoring.
This is why more and more platforms and technologies are being developed and deployed to make it easier and smarter to track and manage crypto assets, untangling even the most intricate of webs.
The arrival of increased government regulation in the U.S for crypto tax and accounting emphasizes the importance of tracking.
After years of relative silence on the government’s legal position on cryptocurrencies and their classifications, the U.S-based Internal Revenue Service dictates that all Americans that own cryptocurrencies must report their gains and losses on their annual tax reports. For aloof investors or those that own crypto and are simply unaware of the changing legal landscape, it’s time to get informed.
New guidance from the IRS helps crypto accountants to identify taxable versus non-taxable crypto transactions, while also addressing the accepted formulas for cost basis, known as First In, First Out (FIFO), and Last In, First Out (LIFO).
For crypto businesses, investors or anyone that owns cryptocurrencies, they will be required to provide a complete history of their crypto transactions. For larger investors or those with a diverse portfolio, compiling a full list of records occupies a lot of time, energy and demands organization. A 2019 letter to crypto holders by the IRS has made it clear that they have new expectations for crypto tax in 2020.
To improve financial management, businesses and investors need tools and software to monitor and manage assets.
The introduction of new guidance and the potential for even greater cryptocurrency adoption has resulted in a rising demand for technological solutions. Most traditional accounting or tax software is unable to facilitate the needs of cryptocurrencies. Many bookkeepers or accounting professionals spend hours reviewing, organizing, and calculating using spreadsheets. When considering the complexity of tangled webs of crypto activity and transactions, the potential for human error is high.
It is important for businesses that operate using cryptocurrencies, to understand their complete financial picture, from savings, and expenses to payroll and daily profits. When software helps professionals to better visualize their crypto portfolios and assets, keen accountants and bookkeepers can better identify areas of strengths, weaknesses, growth, and opportunities.
For basic investors that “hodl” their crypto, having access to tracking solutions can help to understand the health of their portfolio when making future investments, or financial decision making.
Crypto tracking solutions already exist, but only a few can complete the job.
When the great hype of crypto arrived and billions poured into the industry, dozens of tracking apps arrived too. Most of these apps had noble intentions, but few provided an easy and clean way to manage their crypto. The first generation of tracking apps required manual data input to sync your accounts, rarely fetched new information and provided details in a dysfunctional format. Additionally, these tracking apps poorly displayed information, making it difficult for users to understand their financial situations
The continued dominance of blockchain has brought about the next generation of tracking apps and software. These tools go well above and beyond tracking and offer its users features such as Audit Trail, Transaction Table, Cost Basis P&L calculator and organizational tools. It is becoming easier every day for businesses and investors to take complete control over their crypto using one app, instead of many.
In the near future, these tracking apps will become far more sophisticated, handling everything from crypto bookkeeping to crypto tax and cost basis.
Manual asset tracking is difficult, even for well-trained professionals.
Because the government expects all crypto holders to pay capital gains tax based on the cost basis result, it’s important for these professionals to have a full list of transaction history for each account or portfolio. Any missing information can lead to inaccurate results when filing annual taxes.
Moreover, when a bookkeeper needs to prep for the upcoming tax season and calculates the cost basis, they typically rely on manual calculations. On average, a professional can spend hundreds of hours calculating cost basis (gain/loss) of just 100 crypto transactions. Most accountants don’t know that technology exists that is already automating cost basis, producing accurate calculation results in minutes, not hours or days.
On top of having a complete transaction history and the need to calculate manually, most crypto tracking is hindered by poor organization methods. The organization of large crypto portfolios containing a wide range of assets requires immense concentration and attention to detail. Should blockchain and crypto enter the mainstream, the volume of transactions will multiply tenfold, creating an even more complicated web of transactions to track.
Crypto tracking is difficult and complex but can improve productivity and efficiencies for businesses and investors.
For crypto tracking, one of the primary difficulties is the wasted time, energy and resources spent on tracking businesses or individuals assets, especially for accounting and tax professionals. When accounting or bookkeeping for crypto tax, an audit or general accounting, these professionals rely on their technology and tools to help them during day-to-day operations or annual accounting.
For example, accounting pro’s will need weeks to manually track and calculate 100 crypto transactions. However, technology has the ability to track and calculate 50K transactions in under one minute.
By making it more accessible and easier to track crypto assets, software is capable of generating reports, automating calculations and providing accurate results to users in need of immediate solutions. By eliminating the laborious tracking challenges, professionals can prioritize time towards other areas of importance, while improving the speed, accuracy and ease of use.
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Blox
Blox is an industry-leading platform for crypto accounting, tracking and asset management for businesses or professionals..