Accounting For Crypto Assets

Exchange wallets are funds held on centralized exchanges (CEXs). If a taxpayer purchases crypto assets on a CEX like Coinbase or Kraken, then the assets are in the exchange’s wallet.

Show Notes

Exchange wallets are funds held on centralized exchanges (CEXs). If a taxpayer purchases crypto assets on a CEX like Coinbase or Kraken, then the assets are in the exchange’s wallet. When investors leave funds on exchanges, they are relying on a third party to secure their assets. Exchanges have been hacked and bad actors inside an exchange have stolen and mismanaged funds; in the strange case of the Quadriga Ex exchange founder who suddenly died under suspicious circumstances, the private keys to $190 million of users’ funds vanished.

Relying on exchanges to secure funds is only for active traders and those comfortable with the security vs. convenience tradeoff that this provides.

Hot wallets are the next step up in security after exchange wallets because they allow the user better control over the protective measures they implement. The user can create complex passwords and cybersecurity features to reduce the chances of their funds being compromised.

These wallets are “hot” because they live on your computer, generally as an app or as a plugin to a web browser. As they require an internet connection to use, malware, keyloggers, and other common hacking tools can be used to gain access to this type of wallet.

Hot wallets are only as good as the security measures put in place to protect them. As a result, they should only be used with small balances of cryptocurrencies to reduce risk exposure.

Creators & Guests

Host
Taylor Zork CPA, MBA
Co-Founder CryptoCFOs
Editor
Brandon "Bova" Santiago
Co-Founder CryptoCFOs

What is Accounting For Crypto Assets?

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*This podcast is NOT financial, tax, accounting, or legal advice. The opinions and commentary herein are intended to facilitate discussions only, and may not be relied upon for accuracy; you must conduct your own research or engage with and seek the advice of your accounting/ tax professional and attorney as necessary.