Bitcoin: The new gold rush infographic
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Risk and compliance Bitcoin raises many concerns from a compliance and risk perspective. Risk governance and internal controls may need to be developed or updated to account for Bitcoin and other cryptocurrencies. Tax and accounting The adoption of Bitcoin may carry numerous tax and accounting implications, among them revenue recognition, mark-to-market valuation, the characterization of profits and losses for tax purposes, the applicability of barter transaction rules, basis tracking, and hedging considerations. Operations and technology Software and other IT investments may be needed to integrate alternative digital currency platforms into infrastructure and product offerings. Bitcoin The new gold rush? Bitcoin basics Bitcoin is a cryptocurrency, a digital alternative to traditional money relying on cryptography for its operation. The Bitcoin protocol, a system of open source processes, governs the currency and is primarily supported by a peer-to-peer network. This design also makes Bitcoin a payment network, one that exists outside the traditional payments system. Conditions for mainstream adoption Pros • Low transaction costs • International transferability and convertibility • Protection from some political risk and inflation • Basic alternative digital currency problems of supply growth and double payment/verification solved • Operation is outside the banking system — immune to bank failures, but not protected by deposit insurance Cons • Currently volatile value • Limited adoption by retailers • Combined with other software, anonymity can be used for illegal purposes • Lack of trusted intermediaries to challenge fraud • Potential to expose users’ transaction history to the public • Uncertainty about security and operational resiliency • Inadequate mass-market understanding Stability Trust Acceptance • An increasing number of businesses accept bitcoins, but the currency still remains a niche phenomenon • The lack of acceptance by traditional financial institutions limits Bitcoin’s use • Without price stability, widespread adoption appears unlikely • Trust may be a challenge given Bitcoin's complexity, decentralized system, operational issues, volatility, and association with illicit uses • Lack of consumer protection may further inhibit trust • Bitcoin's volatility needs to moderate in order to enter the mainstream • Bitcoin's utility as a medium of exchange, unit of account, and store of value will be limited until stability is reached Business implications Hedging and investment services Firms may consider creating new investment offerings focused on Bitcoin, such as index funds and exchange-traded funds. $ Business and institutional implications for financial services companies Retail and investment banking These firms may begin looking at the acceptance of bitcoins as deposits, the use of bitcoins as collateral, the pursuit of business with Bitcoin-related companies, and Bitcoin trading. Payments Transfers between individuals via Bitcoin are faster, simpler, and less expensive than those offered by many financial services companies. Companies may need to innovate to retain their dominance in this space. For more information and to download the full report, please visit www.deloitte.com/us/cfs/bitcoin. Contact To learn more about the Deloitte Center for Financial Services, its solutions, thought leadership, and events please visit: www.deloitte.com/us/cfs Engage Follow us on Twitter at: @DeloitteFinSvcs Subscribe To receive email communications, please register at: www.deloitte.com/us/cfs The Deloitte Center for Financial Services offers actionable insights to assist senior-level executives in the industry to make impactful business decisions. This document contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this document, rendering business, financial, investment, or other professional advice or services. This document is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2014 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited Institutional implications
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The Bitcoin frenzy seems to have reached new heights lately, spurred by a growing user base, price volatility, and the rapidly evolving network of Bitcoin-related companies.1 Reports of big investments in "mining" equipment and the expanding ecosystem supporting the protocol remind us in many ways of a gold rush — an analogy made easier by Bitcoin's other similarities to the precious metal. It's hard to say whether this excitement is warranted, but it's equally hard to deny Bitcoin's increasing relevance to businesses and the broader economy. Bitcoin, along with other cryptocurrencies, may have implications not only for the technology industry, where much of the current action is concentrated, but also other industries from retail businesses to financial services. View our infographic to learn about Bitcoin in the context of the financial services industry, particularly payments and banks. What is it about this cryptocurrency that is inspiring such attention and what might the future of cryptocurrencies mean for traditional financial services? 1Ashlee Vance and Brad Stone, "The Bitcoin-Mining Arms Race Heats Up," Bloomberg BusinessWeek, January 9, 2014, http://www.businessweek.com/articles/2014-01-09/bitcoin-mining-chips-gear-computing-groups-competition-heats-up.
Transcript of Bitcoin: The new gold rush infographic
Risk and complianceBitcoin raises many concerns from a compliance and risk perspective. Risk
governance and internal controls may need to be developed or updated to account for
Bitcoin and other cryptocurrencies.
Tax and accountingThe adoption of Bitcoin may carry
numerous tax and accounting implications,among them revenue recognition,
mark-to-market valuation, the characterizationof profits and losses for tax purposes,
the applicability of barter transaction rules,basis tracking, and hedging considerations.
Operations and technology Software and other IT investments
may be needed to integratealternative digital currency
platforms into infrastructureand product offerings.
BitcoinThe new gold rush?
Bitcoin basics
Bitcoin is a cryptocurrency, a digital alternative to traditional money relying on cryptography for its operation. The Bitcoin protocol, a system of open sourceprocesses, governs the currency and is primarily supported by a peer-to-peernetwork. This design also makes Bitcoin a payment network, one that existsoutside the traditional payments system.
Conditions formainstream adoption
Pros
• Low transaction costs
• International transferability and convertibility
• Protection from some political risk and inflation
• Basic alternative digital currency problems of supply growth and double payment/verification solved
• Operation is outside the banking system — immune to bank failures, but not protected by deposit insurance
Cons
• Currently volatile value
• Limited adoption by retailers
• Combined with other software, anonymity can be used for illegal purposes
• Lack of trusted intermediaries to challenge fraud
• Potential to expose users’ transaction history to the public
• Uncertainty about security and operational resiliency
• Inadequate mass-market understanding
Stability
Trust
Acceptance
• An increasing number of businesses accept bitcoins, but the currency still remains a niche phenomenon • The lack of acceptance by traditional financial institutions limits Bitcoin’s use• Without price stability, widespread adoption appears unlikely
• Trust may be a challenge given Bitcoin's complexity, decentralized system, operational issues, volatility, and association with illicit uses• Lack of consumer protection may further inhibit trust
• Bitcoin's volatility needs to moderate in order to enter the mainstream • Bitcoin's utility as a medium of exchange, unit of account, and store of value will be limited until stability is reached
Business
implications
Hedging andinvestment services
Firms may consider creatingnew investment offerings focused
on Bitcoin, such as index fundsand exchange-traded funds.
$ Business and institutional implicationsfor financial services companies
Retail andinvestment banking
These firms may begin looking atthe acceptance of bitcoins as deposits,
the use of bitcoins as collateral, the pursuit of business with Bitcoin-related
companies, and Bitcoin trading.
PaymentsTransfers between individuals
via Bitcoin are faster, simpler, and less expensive than those offered by many
financial services companies. Companies may need to innovate to retain their
dominance in this space.
For more information and to download the full report, please visit www.deloitte.com/us/cfs/bitcoin.
Contact
To learn more about the Deloitte Center for
Financial Services, its solutions, thought
leadership, and events please visit:
www.deloitte.com/us/cfs
Engage
Follow us on Twitter at:
@DeloitteFinSvcs
Subscribe
To receive email communications,
please register at:
www.deloitte.com/us/cfs
The
The
The Deloitte Center for Financial Services offers actionableinsights to assist senior-level executives in the industry tomake impactful business decisions.
This document contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this document, rendering business, financial, investment, or other professional advice or services. This document is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.
About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
Copyright © 2014 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited
Institutional implications
