2.1 Introduction

Digital asset transactions (e.g., buying or selling digital assets) can affect various facets of an entity’s business. The appropriate accounting for such transactions will differ depending on the type of digital asset and the specific rights attributed to the asset’s holder.

There are many different types of digital assets, including various subtypes. For example, for digital assets commonly referred to as “cryptocurrencies” (which are not currencies, as discussed in Section 2.2.1), many are familiar with BTC, but there are thousands of other cryptocurrencies. Other types of digital assets include stablecoins, liquidity tokens, coins received as part of an initial coin offering, central bank digital currencies, tokenized assets, and wrapped tokens, to name a few.

As with any other asset, to determine the appropriate accounting for a digital asset, an entity needs to understand and evaluate the rights associated with that asset. This evaluation can be complex for digital assets, since there may be no legal contracts governing these rights. Further, a digital asset may be issued or created by a decentralized blockchain protocol rather than by a single central party; accordingly, there may not be a traditional “counterparty” on the other side of the transaction. Rights associated with a digital asset may be governed by a protocol whitepaper or tokenomics paper or may sometimes be embedded in code written into a smart contract.1