The 2018 Digital Asset Security Summit Forum organized by Cobo, a digital asset storage and management service platform company, was held in Beijing today (November 14) to discuss the relevant content of the "security situation in the blockchain field". Luo Mei, the doctoral supervisor of the Department of Economics, Management and Accounting of Tsinghua University and the director of the Digital Financial Assets Research Center, attended the meeting and delivered a speech entitled "Financial and Financial Dilemma of Encrypted Currency". The main content of the speech is to understand and analyze the development of cryptocurrency in the existing framework of finance and accounting.

The full text of the speech is now available, enjoy:

Hello everyone!

I am Luo Mei from Tsinghua University. Recently, we have just established the Digital Financial Assets Research Center of the School of Economics and Management, Tsinghua University. Our research center is mainly supported by the School of Economics and Management, and is also supported by the Interdisciplinary Information Research Institute led by Schwarzman College and Academician Yao Qizhi. It is an interdisciplinary digital financial assets. as the core international research platform.

The blockchain initially attracted everyone's attention from the technical level, but now in the field of international research, including Tsinghua University, professors of finance, economics and accounting are also interested in various economic phenomena generated by the blockchain, so we This research center mainly conducts research on various phenomena related to blockchain-related economies, and also hopes to promote the healthy development of digital assets in this field and the establishment of rules and regulations, and provide the world's leading think tank support and academic exploration.

Moreover, we hope to cultivate innovative talents in the field of financial technology, because there are very few talents in this area. Tsinghua University has excellent development in various disciplines, but there are very few talents in comprehensive disciplines who understand technology, finance, and management. make an effort.

Trading in digital currencies is what initially attracted the attention of economists and finance scientists. Blockchain technology itself is not very relevant to the fields of finance and economists, but a series of phenomena after digital currency enters the exchange circulation has attracted the attention of many scholars. Today I will mainly share with you a very leading research field in the world, which is a question that has not yet been answered in the field of finance and accounting.

There are not many studies on the economic aspects of the blockchain, but generally there are pessimistic conclusions about the organizational form of decentralization. At the beginning, it was the decentralized consensus mechanism of the blockchain that attracted people's attention, but through the study of some economic phenomena, such as mining pools and miner fees, we found that the operation of the decentralized organizational structure is not particularly efficient. The organizational form of the blockchain provides economists with scenarios that could not be tested before. They can test whether the emerging organizational form has improved efficiency and whether everyone's risk tolerance is different.

With regard to finance, the most research still focuses on the price of currency, and what factors support the price of currency. Last year's bull market was supported by very different factors from this year's bear market. Last year's high risk was concentrated in the particularly high currency prices, while this year's bear market may be a manifestation of the release of systemic risk concentration.

In May of this year, I did a small research on what supports the price of digital currency. We found that the active state of the underlying technology of the blockchain project, the participation of the technical community in the project, and the attention of the project can provide support for the currency price. If the technical community of this project is more active, the price will be higher. Of course, because this is an emerging business format, the support system of currency prices is different at various times. For example, this may be the case in May, but now if we look at the activity of the technical codes at the bottom of these projects, we can no longer explain this figure. The price of the currency, in the case of a dominant systemic risk, that is, a bear market, the individual factors of each digital currency do not have much explanatory power for the price of the digital currency.

There are also theoretical models looking at what factors should support currency prices. Many financial studies are similar to stock research, such as what determines the price, whether there is manipulation in the digital currency market, etc.

There is very little academic research on accounting. Today I mainly want to share with you in-depth international accounting and financial aspects of digital currency.

Although there are many innovative and entrepreneurial projects in various industries related to the blockchain, everyone has a lot of discussions about this, for exampleICO、STO, but the biggest dilemma is the legal regulations related to supervision. For example, in the United States, lawyers, tax accountants and project parties work together to design a plan to see which norms they want to adopt. In fact, many norms come from everyone’s innovation. Based on the ready-made regulatory legal provisions, the regulatory environment for fund-raising blockchain projects is very uncertain.

Everyone tries to avoid taxation when doing blockchain coin issuance projects, especially regarding the STO that everyone is discussing. If the project conforms to the nature of STO, there is no need to pay tax, because there is no need to pay tax for fundraising by issuing securities, but due to the tax law It has not been updated, and according to the 2014 IRS tax law, digital currency is defined as property, not securities, so STO project financing still needs to pay taxes. Even if the regulatory level has been defined as securities, but the tax level has not been updated, these digital currency projects issued in the name of STO still need to pay taxes if they are issued in the United States.

Of course, many project parties did not choose to release in the United States. Although the discussions in China are very heated, in fact the current regulatory environment is still far away from these practices. No matter in terms of securities regulation, taxation laws and regulations, or accounting rules, there is nothing similar to it. A matching frame system, even in the US is a state of the art. This is the biggest factor hindering the development of this industry.

I made a very rough picture, the content is a series of processes that the project party needs to go through when it wants to raise funds. This process involves a lot of difficulties in accounting and tax payment. For example, at the beginning of financing, the project party received Bitcoin and issued its own Token (token). When receiving this Bitcoin, is this Bitcoin counted as income? In fact, it should be counted as income, but many project parties do not need to pay taxes by setting up foundations. When the Token is sent to all investors after the mainnet goes live, the income of the project party should be confirmed in turn according to whether the service content promised by the project party and investors will be completed in the next few years. Many project parties in this area have established a foundation model to avoid taxation, but the actual taxation and accounting aspects should be taxed.

What is even more difficult to keep track of is the airdrop issued before the mainnet launch of the project party, for investors and everyone, hoping that people who have nothing to do with the blockchain project can also be attracted to the blockchain project, but in the United States Those who receive the airdrop should pay personal income tax, but there is no fixed statement on the principle of tax payment, because the airdropped currency will not have a fair price if it is not listed on the exchange.

Another difficulty is that after the mainnet goes live, the project party distributes coins to investors and miners, and digs out the coins it keeps for itself. Will the coins it keeps count as its income? Now that it is not counted as income, how to keep accounts is very difficult.

Therefore, if we want blockchain-related economies to develop in compliance, we must update the securities law, tax law, and accounting standards at the same time. However, neither the International Accounting Standards nor the US Accounting Standards have a separate definition of digital currency, including There have also been no specific updates to the tax code.

The distinction between Cryptocurrency and Token is getting blurred. The characteristics of Cryptocurrency are obvious. Everyone knows that it has no entity, nor is it a legal currency, nor is it an electronic currency connected to real objects. Its main function is value exchange, and Token is endowed with many other value concepts. If we temporarily define Cryptocurrency as a digital currency used for value exchange, such as Bitcoin and Ethereum, how do we carry out accounting measurement and how to write the balance sheet? When we judge what kind of asset it is, we first look at which entity owns it and for what purpose it is held. These are questions that accountants need to answer.

There are three main holding methods. The main holding method of Cryptocurrency is generated by mining. For example, many miners will be rewarded, and some mining machine manufacturers may get income in the form of coins when selling mining machines. The second type of cryptocurrency is held for the purpose of sales. For example, there are many companies that specialize in quantitative transactions. The main purpose of owning digital currency is for short-term profits, so the purpose of holding is to sell for profit. The third is for investment purposes, such as Token funds. Token fund accounting is a difficult problem because Token is not cash. Token-based finance is currency, so how to measure the rate of return? This is also a big difficulty. The Token fund is invested in the blockchain project to obtain the currency of the project party, which is held for the purpose of investment.

I want to tell you in the most in-depth way how to carry out accounting and measurement of cryptocurrency generated by mining. Everyone knows that this cryptocurrency is not controlled by a single entity, it does not represent the rights and interests of the entity, and it is not like a financial asset based on a contract. Our regulations on financial assets mean that you have a counterparty, such as wealth management products that put money in the bank , the bank is obliged to return the money to you. But cryptocurrency has no counterparty. It is not cash, because cash needs sovereign endorsement, and digital currency does not have sovereign endorsement. It is not a cash equivalent, because the value of cash equivalents will not fluctuate too much, and people who hold digital currency must not know the value in a few days, because the price fluctuates too much. Why is it so difficult for accounting firms now? It is not easy for an accounting firm to speak publicly about how to keep accounts, but there are many business needs. Now it is generally recorded as intangible assets in practice, but accounting firms will also think that there are several ways to choose, but there is no standard that can be relied on, so practice is ahead of supervision.

The initial cost of intangible assets is based on the currency price when mining generates income, and is measured at fair value. If the price falls, it will be depreciated. A company with many coins can reflect the fair value of all its digital currencies on the reporting date. Mining has costs, but unlike ordinary manufacturing companies, the labor costs, machine depreciation, and water and electricity costs paid for producing products can be included in assets, and the cost of mining is included in expenses.

There are many controversies about counting intangible assets as cryptocurrency. Our so-called assets must bring long-term future cash income, such as a factory building, an equipment, and an office building. We must expect you to generate future income and profits when you own it. But holding cryptocurrency has no such purpose, it is more of a store of value, and you don't expect to own it to bring a lot of cash income in the future. Therefore, although it is included in assets, it is actually different from the assets on our ordinary balance sheet. We know that assets are listed according to their liquidity. The most liquid assets are listed at the top, and the worst are listed at the bottom. Generally, intangible assets are listed at the bottom because they are long-term illiquid assets, but cryptocurrency flows The price is very high, you can sell it at any time, so now the listing position is actually below the cash.

One of the difficulties in including intangible assets is that the cash flow from operating activities cannot reflect the liquidity of companies holding digital currencies. We all know that if a company owns a lot of digital currencies, its cash flow is better, because digital currencies can be sold at any time , but when the intangible asset is sold, the cash inflow is included in the cash flow from investing activities. Therefore, cash flow from operating activities cannot measure the profitability and cash-earning ability of a company holding digital currency. Another difficulty is how to do the impairment. When the market price is far lower than the book price, the impairment must be calculated and measured at fair value. However, the price of digital currency fluctuates too much, and intangible assets are used to measure assets with large price fluctuations. above is problematic.

It is easy to calculate the cash rate of return of general equity funds, such as the rate of return after seven years, but calculating the rate of return of Token funds involves how to manage the raised digital currency and the management strategy of when the received Token will be converted into legal currency. The fund invests in Ethereum, should the Token be converted into Ethereum, or converted into USDT or stored as cash? The management of the conversion method will affect the calculation of the rate of return. Many companies calculate their profits based on Ethereum, but they are considered losses based on cash. Therefore, there is no unified standard for measuring the income of Token funds.

thank you all!

thank you all!