The cautious approach of many businesses to cryptocurrency prompted Harbert’s accounting faculty to examine the issues surrounding the use of these unconventional financial instruments.
Cryptocurrencies, including Bitcoin, Ether and Dogecoin, have received extensive news coverage from the Wall Street Journal, Forbes, Fox Business, and other media outlets. The market for cryptocurrencies, fueled by press coverage and social media buzz, has seen dramatic growth with a recent combined market value of more than $2 trillion, or roughly 10 percent of the U.S. gross domestic product according to a report by the Wall Street Journal.
Although the prospect of cashing in on this growth has led to a great deal of individual interest in Bitcoin, Dogecoin and other cryptocurrencies, interest among corporations and business executives overall has been more restrained. Because innovation and risk-taking are commonly associated with business success, researchers naturally ask themselves “What are the reasons for this restraint?”
Several likely reasons for this cautious response drew the attention of faculty in the school of accountancy. For example, the value of cryptocurrencies fluctuates wildly, much more than traditional currencies such as the U.S. dollar, and introduces volatility and risk that can be difficult to manage.
Security concerns are likely another factor. Because a cryptocurrency’s security depends on how well its platform is supported, one with a smaller support community is more vulnerable to attack. Consequently, there may be unique security risks with a cryptocurrency that are not present with traditional currency transactions.
Finally, and perhaps more fundamentally, the basics of cryptocurrencies (e.g., proper valuation and recording of transactions, storing cryptocurrency and reporting cryptocurrency transactions and balances in financial statements) are unknown to many. Business processes and controls have to be developed or existing ones need to be modified to ensure appropriate financial reporting.
The extent to which these and other factors influence a business’s decision to engage in cryptocurrency transactions is an open question for researchers. However, cryptocurrencies and virtual money appear to be gaining legitimacy.
A recent report by PwC found that more than 60 central banks are actively developing or exploring the development of what are referred to as central bank digital currencies (CBDC). Will businesses embrace CBDCs more than non-government-issued cryptocurrencies? Will government-backed digital currencies address corporate hesitancy? Or will recent actions by China to restrain cryptocurrencies have ripple effects that fundamentally alter the cryptocurrency landscape?
These are just a few of the many questions that researchers can explore.
Greg Jenkins
C. McKenzie Taylor Jr. Professor
School of Accountancy
