Interview with Babbitt | Luo Mei, Tsinghua University: Digital currency accounting and tax system is the infrastructure for blockchain to promote industrial upgrading

American politician Benjamin Franklin once said, "In this world, nothing is certain except death and taxes."

With the blockchain ecosystem, bitcoin and other digital currencies are carrying more and more functions such as transactions and stored value. How to measure digital currencies in financial statements and how to pay taxes have already become international and domestic securities regulatory agencies, tax And accounting standards-setting agencies.

Professor Luo Mei is a doctoral tutor of the Accounting Department of the School of Economics and Management of Tsinghua University and the director of the Tsinghua Economic Management Digital Financial Asset Research Center . She has been engaged in the research of securities investment and fundamental information in the stock market for a long time. , Accounting and auditing issues. Recently, Babbitt conducted an exclusive interview with Professor Luo Mei.

Picture: Professor Luo Mei

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In 2018, Professor Luo Mei published a working paper "Accounting Measurement of Crypto Digital Currency" , which provided a framework for the accounting confirmation and measurement of encrypted digital currency represented by Bitcoin, and summarized the practical difficulties. In 2019, she published an article "Accounting Confirmation and Taxation of Digital Currency " , which carried out a detailed analysis on how to measure and pay taxes on financial statements of enterprises and individuals who own digital currency. This article has been included in the latest publication of People's Daily Press Published in "Digital Currency Leading Cadres Reading Book".

In order to popularize the knowledge of blockchain and digital currency, Professor Luo Mei launched relevant courses for master students at Tsinghua University, and co-sponsored the establishment of the Tsinghua Economic Management Digital Financial Asset Research Center. During the conversation, Babbitt reporters felt her frankness, humor, approachability and strong curiosity. She said with a smile that she is "the most understanding of blockchain in the field of accounting, and the most understanding of accounting in the field of blockchain ". She will also ask Babbitt reporters how to write a draft quickly after the interview.

Talking about accounting

Babbitt: Why study the accounting measurement of digital currency?

Luo Mei: I started paying attention to digital currencies in 2017. At that time, the price of bitcoin reached its historical peak. For people like me who have been engaged in stocks and securities investment for a long time, when a financial asset bubble is large enough, naturally Will be attracted. I used to study the relationship between securities investment, accounting, and financial statements. After the emergence of encrypted digital currencies, everyone will think about what the fundamentals are and what determines the price of encrypted digital currencies. But no one seems to find the reason.

I started with the company's financial statements. In 2017, there were no digital currencies in the financial statements of any listed company. Because companies that own digital currencies have not been listed, it is difficult to find the measurement of encrypted digital currencies from public information. Way and how it behaves in financial statements , so I started with this and wrote this thesis. This paper was very influential because it was still in the exploratory stage and international accounting standard-setting agencies did not know how to measure it. After the paper was published, many people felt refreshed. Babbitt: What topics are you currently studying?

Luo Mei: In addition to the valuation and fundamentals of encrypted digital currencies, and financial taxation of blockchain economies, he is also studying Bitcoin options and mining pool ecology . In terms of bitcoin options, bitcoin is the most liquid among all crypto assets, and has the highest public awareness and acceptance. Among bitcoin derivatives, bitcoin options is an emerging thing. What is its pricing mechanism? It is us Things being studied. In terms of the ecology of the mining pool, when the cryptocurrency is forked, the question of how the miners of the mining pool should choose. Does the miner choose to support the original coins, or support the forked new coins, or just give up these two coins? We want to use the behavior of miners to study what is the motivation behind their choice.

Babbitt: Is there any recent research progress?

Luo Mei: Last year I studied the accounting measurement of encrypted digital currency, this year it is the tax issue and the application of blockchain. Blockchain In my opinion, the current application of blockchain is not to generate income, but to save costs. For example, many companies do not have a high level of information technology, and can use blockchain technology to improve the information system, thereby saving the cost of paper document verification and circulation. The digital currency accounting system and tax system are the basic facilities for the promotion and development of the industry by the blockchain. How to measure and pay the digital assets that may be transferred and traded on the blockchain network in the future is a system issue that needs to be implemented.

Babbitt: Are the taxes on digital currency transactions and gold transactions comparable?

Luo Mei: There is some comparability. If we own gold for investment, then when the price of gold rises, the difference between the sale of gold (the difference between the purchase price and the sale price) is subject to tax. But the process for ordinary people to own gold and digital currency is different. Digital currencies are rewards obtained through network calculations, commonly known as "mining", and most people cannot obtain gold rewards by mining gold mines. In this sense, for individuals and businesses, the taxation of encrypted digital currency is not the same as that of gold, especially the encrypted digital currency has a forking behavior, while gold does not. When cryptocurrencies fork, how to measure and pay taxes? Only when we sell gold or digital currency and profit from it, do we need to pay taxes. If there is no profit, we do not pay taxes.

Talking about blockchain

Babbitt: What kind of applications can blockchain technology have in the fields of accounting and auditing?

Luo Mei: I am a professional in accounting and I am very interested in accounting, finance, auditing and other aspects. I just mentioned the issues of accounting and taxation. In terms of auditing, I would like to know whether blockchain technology can reduce the supervision cost of the capital market. In fact, the regulatory cost of capital markets is very high now. First, the CSRC has a lot of regulations for listed companies, and the supervision cost is very high. Second, every listed company needs to hire an auditor to audit the financial statements. The public needs to invest based on the true financial statements. Auditors of various companies The cost is very expensive. Even so, many companies still have false accounts.

1. The auditor should send a letter to the bank to inquire how much the company's cash is and whether it is authentic; 2. Inventory, the company that sells machinery and goods must have inventory. The auditor is going to take an inventory of how much inventory is there, whether there is any fraud, etc. 3. The auditor sends a letter to the company's main customers to inquire whether the company's income is real.

These inquiries are transmitted via paper and require on-site inspections by all parties, so the annual global audit costs are very high. If all the processes can be digitized, and the relevant information such as contracts can be put on the blockchain truly and without errors, and automatic verification can be performed through the blockchain, this can save a lot of costs . At the same time, companies are reluctant to commit fraud because the cost of fraud is high, which also protects investors in the capital market. Babbitt: You mentioned the concept of "blockchain economy" before. Can you explain it in detail?

Luo Mei: Each country's emphasis on the application of blockchain technology is different. As far as the blockchain economy is concerned, first of all, at the industrial end, it is the top mining field and mining pool, that is, the mining ecology; then the trading ecology, how to conduct transactions and investment in the secondary market; and finally the derivatives ecology, When digital currencies are in the hands of traditional financial institutions, a new financial ecology may emerge. In terms of technology, it depends on how these technology companies develop applications in the existing ecology. This is also the direction of China's current efforts. At present, it has not seen particularly rich results.

Babbitt: At what stage do you think the regulation of digital currencies is emerging?

Luo Mei: Generally speaking, supervision always lags behind innovation. Because only when innovation comes out will there be supervision, and supervision must adapt to the development of new technologies, so I think this state is now in the stage of innovation in all directions. Then, if some phenomena are innovative enough, then supervision will cooperate with him to produce rules and regulations. Taking the accounting measurement of digital currency as an example, when so many digital currencies first appeared in 2016 and 2017, there were no established accounting regulations, but this year they did. This is a very suitable stage for innovation. Various types of enterprises are trying to use blockchain technology and have fostered a new financial ecology.

Of course, the financial ecology is the most susceptible to regulation, because finance involves various households and investment funds of ordinary people, so for each country's regulators, special attention is paid to the financial ecology of financial institutions, and Active supervision. Unlike the development of the technology industry, it can relax the scale and let everyone innovate as much as possible. So I think at this time it is a living state that is interdependent. Now that technology is also developing and the new financial ecology is also developing, so supervision is currently in a state of close attention. Babbitt: What is the difference between digital measurement and accounting measurement you mentioned in your speech?

Luo Mei: The accounting measurement proposed last year specifically refers to encrypted digital currency, and digital measurement corresponds to digital assets. Now everyone puts all the information on the technology platform, such as stocks, bonds, contracts, personal data and other information, we need a unified unit of measurement for transaction circulation. Cryptocurrencies have units of measurement, such as how many dollars a bitcoin is worth, but digital assets have not. Without a unit of measurement, the value of this information cannot be measured and is currently in the research phase.

Talk about yourself

Babbitt: What role do you think you play in the blockchain industry?

Luo Mei: I think I am a researcher , because I like to study a thing thoroughly and then give lectures, especially for people with non-technical background. In recent weeks, I have been very busy. I have been invited to lecture in many places. I found that accounting professors who had previously ignored the blockchain technology are now paying attention. I'm a risk appetite, and accounting professors are risk aversion . Many of them don't like risk. So when they started to study the blockchain, it means that the blockchain has received great attention and attention.

Babbitt: What types of companies are you optimistic about in the blockchain space?

Luo Mei: At this stage, companies are optimistic about cash flow . Whoever has cash flow in the traditional stock market is optimistic. The current blockchain industry is like the Internet industry in 1999. At that time, many Internet companies did not make money, no income and no profits, but their stock prices were still high. Companies in the blockchain industry are a bit like this. Without cash flow, it is difficult to understand. So wait a few years and wait until these companies have income before they can know the value of the company.

Babbitt: Is it possible for companies to issue both stocks and digital currencies?

Luo Mei: This is a very good question. So far, we haven't seen companies that have publicly raised funds to issue digital currencies. If they do, it will be very attractive. The management of token financing is often through the establishment of foundations. It is impossible for the foundation to go public, but it will pay the blockchain team for the team to develop the technology. If this team goes public later and conducts equity financing, it is equivalent to the team's income from the income generated by the service foundation, which has little relevance to the currency price.

Babbitt: What are your plans for the future?

Luo Mei: The research on blockchain technology in auditing is a very large project, which will involve the company's finance department, the Institute of Certified Public Accountants, the Securities Regulatory Commission and other departments and institutions, and it will take many steps to implement it. Research in universities is not enough. Many financial properties of digital currency are also worth studying. Digital currency is different from traditional securities investment. The former has different prices on various exchanges, and the latter can be traded on two or three exchanges at most. Large price gaps are very interesting.

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