Cryptocurrencies are giving rise to legitimate businesses.
In a sign that cryptocurrencies are becoming mainstream, professional-services firm Grant Thornton recently announced that it audited more than $10 billion in cryptoassets during the first three months of 2019. Meanwhile, the Big Four accounting firms are hurrying to gain a foothold in the crypto audit sector.
Auditing cryptoassets can be tricky. Just verifying ownership can be challenging; anonymity is protected by advanced cryptographic processes, including private key and public address pairings. The difficulty of verifying cryptoassets is widely believed to have scared off institutional investors.
“The auditing challenge is at once simple and complex,” says Johnny Lee, national practice leader for Forensic Technology Services at Grant Thornton. “Firstly, can you prove that you own and control the assets you are claiming as yours? And, secondly, do those assets really exist and can you prove as much?”
Bitcoin “is probably rat poison squared,” investor Warren Buffett said last year. But if cryptoasset firms can secure the imprimatur of the largest accounting firms, it could lead to more widespread acceptance.
In June, PwC announced that its Halo auditing suite had been updated “to provide audit and other assurance services to clients holding or transacting in cryptocurrency.” E&Y introduced a new tax tool for reporting cryptocurrencies in March.
The major audit firms have mostly watched crypto activity from the sidelines, notes Markus Veith, a partner in Grant Thornton’s financial services practice in New York. But the sector is maturing, and the rewards of developing a crypto practice are beginning to outweigh the risks. Grant Thornton’s audits covered 40 different cryptocurrencies across more than 100 million addresses. The latest activity is “testament to the demystification of the crypto space,” says Lee, adding that today, crypto is “one step closer to the mainstream than it was a year ago.”
“The Big Four want to be in the game,” Gur Huberman, Robert G. Kirby Professor of Behavioral Finance at Columbia Business School, told Global Finance. Facebook’s new digital payment service, Libra, uses a “permissioned” blockchain platform (network permission is required to participate), but it may become “permissionless” (public and decentralized), like Bitcoin. “The world of money may change fundamentally in the next 15 to 20 years, and the audit companies want to be part of that,” Huberman says.