In the world of business, there are a lot of important concepts that people need to be aware of. One such concept is digital asset accounting.
What is it? How does it work? And why should you care?
In this blog post, we will answer all those questions and more! So, what is digital asset accounting?
Simply put, it is the process of tracking and managing your company’s digital assets. Digital assets are an important part of any business, and proper management of them is critical for success.
What are Digital Assets?
Digital assets are any digital files that contain valuable information for your business. This could be anything from website content, images, videos, audio files, customer databases and much more. These digital assets can be used to create a variety of products or services.
As such, it is important to track and manage these assets properly in order to ensure they are kept secure and used correctly.
Technological advances have led to digital assets becoming more valued and important in both our personal and professional lives. These digital assets have ownership rights and their value can fluctuate based on market conditions.
Digital assets have the potential to revolutionise how investors engage with the stock market and other traditional financial institutions. Therefore, it is important to accurately track the assets in order to properly account for them.
The rise of digital assets has led to the development of a new type of service provider: those who specialise in digital asset management (DAM). DAMs allow businesses to securely store, organise, and access digital assets. This provides a layer of security for businesses and helps them protect their valuable data.
Types of Digital Assets
1. Native Digital Assets
Native digital assets are created only in a digital format and have no legal or ownership value for other physical assets. Examples include cryptocurrency, digital artwork, software code, and audio or video files. In many cases, assets grow in value because of factors like opportunities and constraints (for example, scarcity).
Nevertheless, in the digital realm there is an issue of ‘artificial scarcity‘ because digital files can be copied and would then have less value unless they are under legal protection or encrypted/blockchain technologies.
2. Asset-Referencing Digital Assets
Asset-referencing digital assets are those which reference an underlying asset or right via a legal or operational process. Examples include rights-managed documents, fiat-backed stablecoins, tokens, digital securities, etc.
Why is Digital Asset Accounting Important?
Digital asset accounting is important for businesses because it helps track the value of digital assets in a timely manner. Without the proper tracking and accounting process in place, it would be difficult to accurately assess how much an asset or right is worth.
Digital asset accounting also helps to make sure that digital assets are properly used and safeguarded from malicious activities such as hacking or theft.
When digital assets are accounted for at fair value, users of financial statements can easily see how much the assets and liabilities were worth at that time, as opposed to antiquated data from a cost-less impairment model.
Not only would this more accurately reflect the economic market and investor behaviour, but it would also better explain why companies are trading in these products.
Overall, digital asset accounting is an essential part of any business. It allows companies to accurately track their digital assets and ensure they are being used correctly and safely.
By having a proper approach to digital asset accounting, businesses can better safeguard their digital assets and prepare for any potential risks that may arise. Additionally, it allows companies to capitalise on the value of their digital assets and optimise their operations.
Things to Know for Digital Asset Accounting
1. Understand the Digital Asset Economy
Businesses must have a clear understanding of the digital asset economy and all the players involved, including exchanges, investors, miners, etc. In order to effectively account for digital assets, it is important to understand their various characteristics and attributes.
2. Establishing a Proper Accounting Process
It is essential that companies have an auditable and consistent accounting process in place when dealing with digital assets. This includes setting up processes such as bookkeeping, taxation, and legal compliance.
3. Secure the Digital Assets
Digital asset accounting involves gathering and organising data, therefore businesses must ensure that all digital assets are secure and protected from any malicious activities such as hacking or theft.
4. Monitor Market Movements
Companies should monitor market movements related to their investments in digital assets in order to accurately assess the value of those assets.
5. Stay Informed
The digital asset ecosystem is constantly evolving, so it is important to stay up to date with the latest developments and trends in order to properly account for digital assets.
To conclude, digital asset accounting is an essential part of any business that deals in digital assets. With a proper understanding of its importance and the right processes in place, companies can ensure that their digital assets are secure and optimally utilised.
By implementing these measures, businesses can not only capitalise on the value of their digital assets but also better protect them from any potential risks.
