Cryptocurrency is digital or “virtual” money, which uses cryptography to secure its transactions, control the creation of additional currency units, and verify the transfer of assets.

In contrast to traditional forms of money which are controlled using centralized banking systems, cryptocurrencies use decentralized control. The decentralized control of a cryptocurrency works through a “blockchain”, which is a public transaction database, functioning as a distributed ledger. This has advantages in that two parties can transact with each other directly without the need for an intermediary, thereby saving time and cost.

More and more entities, including private enterprises, are entering into transactions in which they obtain cryptocurrencies. The following are examples of situations in which an entity may obtain cryptocurrencies:

• An entity may accept cryptocurrency in exchange for goods or services sold in the ordinary course of
  its business;
• An entity may purchase cryptocurrency with the intention to hold it for investment purposes (i.e., to
  benefit from increases in value);
• An entity may act as a broker-trader of cryptocurrencies and purchase cryptocurrencies with the
  purpose of selling it in the near future in order to generate a profit from fluctuations in price or brokertraders’
  margin; or
• An entity may be involved in cryptocurrency mining activities.

Cryptocurrency mining describes the process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. Those that perform cryptocurrency mining are generally referred to as “miners”.

Cryptocurrency miners use large amounts of computing power to solve blockchain algorithms. Once a block has been solved by the miner, he may, depending on the mining algorithm, be entitled to transaction fees as consideration for verifying cryptocurrency transactions and entering them in the blockchain ledger. Such transaction fees are specified by the original transacting parties.

Depending on the mining algorithm, the miner may also receive a reward of newly minted cryptocurrency for solving the block, with the amount of the reward being determined by the underlying blockchain software.

ASPE do not contain explicit guidance on how to account for holdings of cryptocurrencies or cryptocurrency mining activity. Furthermore, neither International Financial Reporting Standards (IFRS) nor generally accepted accounting principles in the United States (US GAAP) provide guidance which is appropriate for entities applying ASPE to analogize to in accordance with Section 1100, Generally Accepted Accounting Principles. Download this summary of some of the main accounting issues and, in the absence of specific guidance, our views on the issues.