Re: Accounting for Cryptocurrency Mining Operations

[DaveC49]

I think the accounting for bitcoin production would be similar to any other
manufacturing cost accounting although identifying the component costs may
be interesting. If you are running your own hardware to do it then that is
one cost, (depreciation, running costs etc) which will more than likely be
in a conventional currency. If you are using cloud based facilities then you
have the leasing/hire costs, labor costs, indirect costs and overhead costs.
Life would be easier if those costs were in bitcoin itself. It would
probably be better to set up a bitcoin currency and only convert to a
conventional currency on sale or conversion.

In normal cost accounting you would use a Work-in-process Inventory (Asset)
Account to accumulate the value any direct costs (materials, labor) and
indirect costs (overheads), a debit to that account for the value of the
costs over the time period of manufacture.  The accounts for the other side
of these transactions would be either an Accounts Payable (if purchase is on
credit) or a bank account for cash purchases. On completion of the
manufacture, this value would be transferred to a
Finished-Goods-Inventory(also Asset) account.  Any costs in conventional
currency would need to be converted either with a conversion value at the
time of purchase of production needs (or at the time of sale). Local
legislation may affect when and in what form these costs can be recorded.

Debit   
   
Credit
Asset:Work in Progess  

Asset:Finished Goods Inventory  

At the point of sale there are two transactions
  Debit 

Credit
Expense:Cost of goods sold   
Asset:Finished-goods-Inventory  

Asset:bank  
income:Sales revenue


The difference between  and  is the markup on the cost or the profit
(less any costs associated with sale/trading of the bitcoin). The major
difference will be the comparatively short production time for a bitcoin,
but there will still be costs which can be assigned to its production as
distinct from costs associated with the sale or trading of the bitcoin.  The
above is also a very abbreviated description of cost accounting for
manufacture but does illustrate the basic process behind it.

Bitcoin seems to buy and sell largely like a stock so a trading account may
be the best choice for an asset account to record the bitcoin inventory.

As John mentioned the exact details are going to be determined by the
regulations and legislation (usually primarily tax related) applying in your
jurisdiction. These may govern what costs can be recognised and when you can
recognise costs in your records and what conversion rates may be applied.



-
David Cousens
--
Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html
___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Dustin Henning]

https://www.irs.gov/newsroom/irs-virtual-currency-guidance

IIRC (from reading in 2014, so don't count on me as your accountant or 
lawyer, of which I am neither), according to the guidance linked in the 
post above, mined cryptocurrency is to be reported as regular income at 
its then current value, which becomes your cost basis for said 
cryptocurrency.  Said cryptocurrency is considered an asset like a stock 
or commodity and should be tracked accordingly.  Many cryptocurrency 
users don't like this because they want it treated like cash, but the 
tax laws on investment assets are very favorable vs the tax laws on 
investment currency (and especially non-investment currency, where you 
still must pay taxes on gains, but cannot claim losses).



On 10/26/2017 12:01 PM, Adrien Monteleone wrote:

Definitely one for both a CPA and lawyer for anyone doing any actual mining. 
I’m sure someone big somewhere is already blazing this trail, and it would be 
interesting to see how it is being handled on their books.

Regards,
Adrien


On Oct 26, 2017, at 9:19 AM, John Ralls  wrote:




On Oct 26, 2017, at 4:19 AM, Jean-David Beyer  wrote:

On 10/26/2017 12:21 AM, Rodney Elliott wrote:

Hi All.


If I were to purchase a cryptocurrency (say Bitcoin) with a fiat
currency recognised by gnucash (say USD), then the procedure to
record the transaction is clear - create an asset account of the type
'stock', associate it with a new security that uses the coin ticker
(BTC) and the maximum number of significant figures supported by
gnucash, etc.



What to do in the case of mining a cryptocurrency is less clear. The
BTC asset account would need to be credited with the amount of coins
mined, but then what? How do you balance this transaction, given that
no fiat currency was involved? The cryptocurrency was effectively
created out of thin air. I feel like the answer is an equity account
of some description, but I do not think that it would be appropriate
to have an equity account of the type 'stock'. Is there a tractable
solution to this problem?


If you found gold on your property and worked as a gold miner, and took
the gold as payment for your labors, how would you account for that?
Maybe it is just income paid in that alternate currency; gold in the
case of gold mining, BTC in the case of bitcoin. ???

I doubt any of us has any experience as either gold or crypto-currency miners. 
It’s likely that the law varies by jurisdiction—especially in the case of 
cryptocurrency where national laws now vary widely—so consult a local licensed 
accountant for the right way to do it in your jurisdiction.

It would be wise also to consult a lawyer: You may need a business license. In 
the case of finding gold on your property you’ll also need to establish that 
you actually have the right to mine it, as some countries retain mineral rights 
as national assets and in those that don’t (including the USA) deeds may have 
separated the mineral rights from surface-use rights.

Regards,
John Ralls

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.


___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Adrien Monteleone]

Definitely one for both a CPA and lawyer for anyone doing any actual mining. 
I’m sure someone big somewhere is already blazing this trail, and it would be 
interesting to see how it is being handled on their books.

Regards,
Adrien

> On Oct 26, 2017, at 9:19 AM, John Ralls  wrote:
> 
> 
> 
>> On Oct 26, 2017, at 4:19 AM, Jean-David Beyer  wrote:
>> 
>> On 10/26/2017 12:21 AM, Rodney Elliott wrote:
>>> Hi All.
>>> 
>>> 
>>> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat
>>> currency recognised by gnucash (say USD), then the procedure to
>>> record the transaction is clear - create an asset account of the type
>>> 'stock', associate it with a new security that uses the coin ticker
>>> (BTC) and the maximum number of significant figures supported by
>>> gnucash, etc.
>>> 
>>> 
>>> 
>>> What to do in the case of mining a cryptocurrency is less clear. The
>>> BTC asset account would need to be credited with the amount of coins
>>> mined, but then what? How do you balance this transaction, given that
>>> no fiat currency was involved? The cryptocurrency was effectively
>>> created out of thin air. I feel like the answer is an equity account
>>> of some description, but I do not think that it would be appropriate
>>> to have an equity account of the type 'stock'. Is there a tractable
>>> solution to this problem?
>>> 
>> 
>> If you found gold on your property and worked as a gold miner, and took
>> the gold as payment for your labors, how would you account for that?
>> Maybe it is just income paid in that alternate currency; gold in the
>> case of gold mining, BTC in the case of bitcoin. ???
> 
> I doubt any of us has any experience as either gold or crypto-currency 
> miners. It’s likely that the law varies by jurisdiction—especially in the 
> case of cryptocurrency where national laws now vary widely—so consult a local 
> licensed accountant for the right way to do it in your jurisdiction. 
> 
> It would be wise also to consult a lawyer: You may need a business license. 
> In the case of finding gold on your property you’ll also need to establish 
> that you actually have the right to mine it, as some countries retain mineral 
> rights as national assets and in those that don’t (including the USA) deeds 
> may have separated the mineral rights from surface-use rights.
> 
> Regards,
> John Ralls
> 
> ___
> gnucash-user mailing list
> gnucash-user@gnucash.org
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Adrien Monteleone]

From what I read last night, the basic idea is to estimate the mineral value 
from the purchase if it wasn’t stated explicitly. When purchasing a property 
for the purpose of mineral extraction, the estimated lode value is listed in 
the sale documents. You’re making two purchases - one for the land, one for the 
mineral rights based on lode value.

Then you add to the expected mineral value, your inputs - equipment, labor, 
operations cost, etc.

There is then a depletion entry based on how much is estimated to have been 
extracted. (similar to a depreciation entry)

When you sell the metal, you realize the profit over this final book value.

If you paid some of your employees or yourself in gold as part of the 
extraction, you’d likely book it at current market value in local currency as 
‘personal income’ or whatever your local tax laws require.

bitcoin doesn’t come from a pre-existing territory or physical asset that is 
purchased with a ‘ore’ value known in advance or even estimated. That leaves 
inputs for mining. Unless one can come up with a reasonable estimate or 
accounting for those inputs (if they aren’t practically nil anyway) then the 
full market value at award point would likely be booked against income.

The terrible part about that is you’d have to pay tax on something you haven’t 
actually realized yet because bitcoin only has a particular value in an actual 
transaction. It has no value at creation.(if I understand how it works 
correctly) So then you have the mess of booking 12.5 bitcoin against zero 
value, then ‘spending’ some of those bitcoins at a particular value.


Regards,
Adrien

> On Oct 26, 2017, at 6:19 AM, Jean-David Beyer  wrote:
> 
> On 10/26/2017 12:21 AM, Rodney Elliott wrote:
>> Hi All.
>> 
>> 
>> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat
>> currency recognised by gnucash (say USD), then the procedure to
>> record the transaction is clear - create an asset account of the type
>> 'stock', associate it with a new security that uses the coin ticker
>> (BTC) and the maximum number of significant figures supported by
>> gnucash, etc.
>> 
>> 
>> 
>> What to do in the case of mining a cryptocurrency is less clear. The
>> BTC asset account would need to be credited with the amount of coins
>> mined, but then what? How do you balance this transaction, given that
>> no fiat currency was involved? The cryptocurrency was effectively
>> created out of thin air. I feel like the answer is an equity account
>> of some description, but I do not think that it would be appropriate
>> to have an equity account of the type 'stock'. Is there a tractable
>> solution to this problem?
>> 
> 
> If you found gold on your property and worked as a gold miner, and took
> the gold as payment for your labors, how would you account for that?
> Maybe it is just income paid in that alternate currency; gold in the
> case of gold mining, BTC in the case of bitcoin. ???
> 
> 
> -- 
>  .~.  Jean-David Beyer  Registered Linux User 85642.
>  /V\  PGP-Key:166D840A 0C610C8B Registered Machine  1935521.
> /( )\ Shrewsbury, New Jerseyhttp://linuxcounter.net
> ^^-^^ 07:15:01 up 20 days, 6:41, 2 users, load average: 4.31, 4.30, 4.12
> ___
> gnucash-user mailing list
> gnucash-user@gnucash.org
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[John Ralls]

> On Oct 26, 2017, at 4:19 AM, Jean-David Beyer  wrote:
> 
> On 10/26/2017 12:21 AM, Rodney Elliott wrote:
>> Hi All.
>> 
>> 
>> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat
>> currency recognised by gnucash (say USD), then the procedure to
>> record the transaction is clear - create an asset account of the type
>> 'stock', associate it with a new security that uses the coin ticker
>> (BTC) and the maximum number of significant figures supported by
>> gnucash, etc.
>> 
>> 
>> 
>> What to do in the case of mining a cryptocurrency is less clear. The
>> BTC asset account would need to be credited with the amount of coins
>> mined, but then what? How do you balance this transaction, given that
>> no fiat currency was involved? The cryptocurrency was effectively
>> created out of thin air. I feel like the answer is an equity account
>> of some description, but I do not think that it would be appropriate
>> to have an equity account of the type 'stock'. Is there a tractable
>> solution to this problem?
>> 
> 
> If you found gold on your property and worked as a gold miner, and took
> the gold as payment for your labors, how would you account for that?
> Maybe it is just income paid in that alternate currency; gold in the
> case of gold mining, BTC in the case of bitcoin. ???

I doubt any of us has any experience as either gold or crypto-currency miners. 
It’s likely that the law varies by jurisdiction—especially in the case of 
cryptocurrency where national laws now vary widely—so consult a local licensed 
accountant for the right way to do it in your jurisdiction. 

It would be wise also to consult a lawyer: You may need a business license. In 
the case of finding gold on your property you’ll also need to establish that 
you actually have the right to mine it, as some countries retain mineral rights 
as national assets and in those that don’t (including the USA) deeds may have 
separated the mineral rights from surface-use rights.

Regards,
John Ralls

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Jean-David Beyer]

On 10/26/2017 12:21 AM, Rodney Elliott wrote:
> Hi All.
> 
> 
> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat
> currency recognised by gnucash (say USD), then the procedure to
> record the transaction is clear - create an asset account of the type
> 'stock', associate it with a new security that uses the coin ticker
> (BTC) and the maximum number of significant figures supported by
> gnucash, etc.
> 
> 
> 
> What to do in the case of mining a cryptocurrency is less clear. The
> BTC asset account would need to be credited with the amount of coins
> mined, but then what? How do you balance this transaction, given that
> no fiat currency was involved? The cryptocurrency was effectively
> created out of thin air. I feel like the answer is an equity account
> of some description, but I do not think that it would be appropriate
> to have an equity account of the type 'stock'. Is there a tractable
> solution to this problem?
> 

If you found gold on your property and worked as a gold miner, and took
the gold as payment for your labors, how would you account for that?
Maybe it is just income paid in that alternate currency; gold in the
case of gold mining, BTC in the case of bitcoin. ???


-- 
  .~.  Jean-David Beyer  Registered Linux User 85642.
  /V\  PGP-Key:166D840A 0C610C8B Registered Machine  1935521.
 /( )\ Shrewsbury, New Jerseyhttp://linuxcounter.net
 ^^-^^ 07:15:01 up 20 days, 6:41, 2 users, load average: 4.31, 4.30, 4.12
___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Adrien Monteleone]

After some more creative search phrasing, I found those mining entries, but 
they don’t really apply. I’d think then you’re dealing with a situation more 
like farming. You’re not extracting a depleting resource but creating one, with 
limited inputs. (unless you consider the artificial hard limit on the number of 
possible coins, but you still don’t have any predetermined value of them)

Do you want to try to quantify and account for your electrical usage, PC 
depreciation, and personal time and do so in CPU cycles? I doubt it. How do you 
then value the CPU cycles?

There is the added complication that cryptocurrency has no set value except at 
the exchange point. At the creation point you don’t know what it is really 
worth. This would align with growing crops. You have them on your books based 
on the input value, but you don’t know what they are really worth till you sell 
them, and then book the difference as revenue. Even worse with cryptocurrency, 
the input value is likely immaterial per coin, which means any value they end 
up with is likely to be 100% profit.

If there is no measurable or ‘material’ input value, then you may be dealing 
with the conversion of an intangible into cash. I’m sure there are example 
journal entries for that floating around somewhere, but I can’t see any of them 
as being analogous.

I suspect however, the most likely answer is an entry similar to what central 
banks use, they use a liability account, but you’d have to create equity out of 
thin air instead, and therein lies the rub.

Cryptocurrency is not a currency. It is not a medium of exchange. It holds no 
value on its own. It merely facilitates a barter transaction by calculating the 
relative value between two goods, while removing one of the actual goods from 
immediate consideration. (thus building in a ‘time value’ of one or both of the 
goods into the calculation)

Thus, it is not an asset and has no value. You shouldn’t track it as a stock or 
commodity or any other thing of value. It is a factor(term) that is part of a 
calculation, not a ‘thing.'

Regards,
Adrien

> On Oct 25, 2017, at 11:21 PM, Rodney Elliott 
>  wrote:
> 
> Hi All.
> 
> 
> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat currency 
> recognised by gnucash (say USD), then the procedure to record the transaction 
> is clear - create an asset account of the type 'stock', associate it with a 
> new security that uses the coin ticker (BTC) and the maximum number of 
> significant figures supported by gnucash, etc.
> 
> 
> 
> What to do in the case of mining a cryptocurrency is less clear. The BTC 
> asset account would need to be credited with the amount of coins mined, but 
> then what? How do you balance this transaction, given that no fiat currency 
> was involved? The cryptocurrency was effectively created out of thin air. I 
> feel like the answer is an equity account of some description, but I do not 
> think that it would be appropriate to have an equity account of the type 
> 'stock'. Is there a tractable solution to this problem?
> 
> 
> 
> 
> 
> - Rodney
> 
> 
> 
> ___
> gnucash-user mailing list
> gnucash-user@gnucash.org
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Re: Accounting for Cryptocurrency Mining Operations

[Adrien Monteleone]

Ironic that you refer to Bitcoin as coming from ‘thin-air’ in the same 
discussion claiming no ‘fiat currency’ was involved.

You might have just exposed cryptocurrency as not having any clothes.

At least for now, I’d posit the answer has to lie in the accounting equation.

Have you decreased some other asset?

Have you increased a liability or equity?

Have you earned revenue?

I doubt you want to recognize it as ‘revenue’ which raises income and taxation 
questions, though that may be your only option.

I can’t see any equal value asset being reduced.

Does it constitute a liability owed to someone else?

It may increase your equity I suppose, perhaps as an ‘opening’ type entry. But 
as an ongoing operation, this would be suspect.

You might find some guidance in journal entries with respect to mining physical 
elements. (like precious metals, oil, timber, etc.) I tried a cursory search 
but came up empty.

Regards,
Adrien


> On Oct 25, 2017, at 11:21 PM, Rodney Elliott 
>  wrote:
> 
> Hi All.
> 
> 
> If I were to purchase a cryptocurrency (say Bitcoin) with a fiat currency 
> recognised by gnucash (say USD), then the procedure to record the transaction 
> is clear - create an asset account of the type 'stock', associate it with a 
> new security that uses the coin ticker (BTC) and the maximum number of 
> significant figures supported by gnucash, etc.
> 
> 
> 
> What to do in the case of mining a cryptocurrency is less clear. The BTC 
> asset account would need to be credited with the amount of coins mined, but 
> then what? How do you balance this transaction, given that no fiat currency 
> was involved? The cryptocurrency was effectively created out of thin air. I 
> feel like the answer is an equity account of some description, but I do not 
> think that it would be appropriate to have an equity account of the type 
> 'stock'. Is there a tractable solution to this problem?
> 
> 
> 
> 
> 
> - Rodney
> 
> 
> 
> ___
> gnucash-user mailing list
> gnucash-user@gnucash.org
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.

Accounting for Cryptocurrency Mining Operations

[Rodney Elliott]

Hi All.


If I were to purchase a cryptocurrency (say Bitcoin) with a fiat currency 
recognised by gnucash (say USD), then the procedure to record the transaction 
is clear - create an asset account of the type 'stock', associate it with a new 
security that uses the coin ticker (BTC) and the maximum number of significant 
figures supported by gnucash, etc.



What to do in the case of mining a cryptocurrency is less clear. The BTC asset 
account would need to be credited with the amount of coins mined, but then 
what? How do you balance this transaction, given that no fiat currency was 
involved? The cryptocurrency was effectively created out of thin air. I feel 
like the answer is an equity account of some description, but I do not think 
that it would be appropriate to have an equity account of the type 'stock'. Is 
there a tractable solution to this problem?





 - Rodney



___
gnucash-user mailing list
gnucash-user@gnucash.org
https://lists.gnucash.org/mailman/listinfo/gnucash-user
-
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.