5 ways accountants can track Cryptocurrency

When it comes to business news, it’s difficult to avoid hearing about cryptocurrencies. They have been in the news for a time now for various reasons, the most notable of which is their volatile value.

As criminals increasingly use Cryptocurrency to launder the proceeds of crime, forensic accountants are combining old-fashioned detective techniques with complicated blockchain investigations.

According to Cryptocurrency accountants and blockchain experts, the sector needs to gain a firm handle on increasingly popular virtual currencies and recognise the apparent indicators that they are being used to hide criminal funds. As a result, we’ve put together 5 ways an accountant can keep track of Cryptocurrency.

How does Cryptocurrency work?

Cryptocurrency is undeniably the new wave in the financial world. Consumers, corporations, and governments pay more attention and interest to it and other digital assets.

It runs on blockchain technology, a decentralised public ledger that records all transactions updated by currency holders. The purpose of blockchain is to allow for the collection and distribution of digital data without the possibility of changing it.

Mining is a method of creating cryptocurrency units that include using computing capacity to solve complex mathematical equations to collect coins.

Users can also buy the currencies through brokers, which they can then hold and spend with the help of encrypted wallets.

If you own Cryptocurrency, you don’t own anything tangible. You have a key that allows you to send a record or a unit of measurement from one individual to another without using a trusted third party.

Although Bitcoin has been around since 2009, cryptocurrencies and blockchain technologies are still in the early stages of development in terms of financial applications, with more to come.

5 strategies for accountants to keep track of the Cryptocurrency

Forensic accountants look at data to identify missing money and ways to get it back.

They may also offer financial findings reports as evidence in court sessions, where they frequently testify as expert witnesses. It serves an essential purpose at Public accounting and advisory firms, law offices, law enforcement agencies, and insurance companies.

In the case of Cryptocurrency, Even accounting experts have to face difficulties. We have listed how accountants can keep track of Cryptocurrency to simplify the process.

1.   Examine the points of entry and exit

Many investigations begin with a paper trail because individuals can purchase Cryptocurrency in various ways.

Investigators frequently start with bank and credit card statements. It could indicate that a suspect purchased virtual currencies exchanged on an internet exchange using a platform like Coinbase.

Investigators can then start putting together any pieces of evidence they find to try to show ownership of the virtual funds using blockchain. This transparent database records each coin’s transaction history.

If you know what possibilities are available, you can assess the problem and begin your inquiry, but it will be tricky to find if you don’t know where to look.

Any business that accepts bitcoin as payment can be subpoenaed to provide over transaction information that investigators can use to trace and identify cryptocurrency holdings.

The success of such subpoenas, however, is determined by the jurisdiction.

2.   Create a suspect’s profile

Creating a detailed profile of a suspect is essential for investigators to follow their trail and, hopefully, collect any money they may have hidden away.

Determining whether a suspect has traded cryptocurrencies before or has accounts with multiple exchanges increases the probability that they will convert ill-gotten gains to virtual currency.

There’s always the possibility that a suspect will declare virtual currency transactions on their annual tax filings.

Even internal surveys asking about cryptocurrency holdings might assist in determining whether staff are knowledgeable about the sector.

The blockchain has a wealth of useful publicly available data, but unique tools and extensive contextual expertise are required to analyse that data in many circumstances. On the other hand, traditional investigative work can usually yield a significant amount of helpful information.

We’ve found that combining blockchain forensics with more typical digital forensics investigation work yields a considerably more effective result.

3.   Locate the devices and collect the evidence

When it comes to unearthing evidence that a suspect has changed money into cryptocurrencies, equipment seized as part of an investigation is a gold mine.

Expert forensic research of electronic devices and personal email accounts may reveal that they have cryptocurrency exchange apps installed and are trading online.

They could include virtual currency “addresses” used to receive payments in emails. Alternatively, a suspect’s private “keys,” the unique alphanumeric numbers required to approve transactions, could be buried inside their gadget.

In addition, forensic device examination may reveal helpful information about the “wallets” that they can use to hold bitcoin keys and account information.

While paper wallets, such as those provided by bitcoin ATMs, can be used to store cryptocurrency information, additional options include USB-style hardware wallets, smartphone wallets, and cloud-based web wallets.

4.   Look into the specifics of the transactions

Determining whether or not a suspect has changed money into virtual currency is just the first step.

The next step is to correlate transactions to the person under investigation using information obtained, such as wallet, addresses, and keys.

It’s a complex, time-consuming operation requiring specific technical expertise and access to investigative blockchain software, which only a few accountants have.

Professional blockchain forensic organisations with the experience, technical knowledge, and instruments to effectively examine are increasingly helpful for accountants.

To complicate matters, anonymous “privacy currencies” like Monero or Zcash, now on the market, do not publicly reveal much transaction data.

Investigators can still find ” digital fingerprints” at entry and exit points demonstrating Zcash purchases, even though Zcash itself can’t be traced off-exchange between personal wallets.

5.   Get the appropriate people on board

Forensic accountants add compliance and anti-money laundering professionals and virtual currency experts to their teams for more complicated investigations.

Companies that don’t have the technical expertise or blockchain intelligence software in-house can hire outside forensic experts to help them sift through transactions.

While breaking cryptocurrencies may be a new challenge, forensic accountants may still rely on their tried-and-true investigative skills.

Matching cryptocurrency transactions with traditional transactions and the criminal’s additional layer of online conduct will allow you to trace transactions. It can also offer prospects for recovering cryptocurrency assets or other value.

Future of Cryptocurrency

Accountants are the financial backbone of any successful organisation, and the accounting profession has thrived throughout history as money has evolved.

The development of crypto accounting will be complex and ever-changing, but technology’s role has opened up new avenues for developing solutions to business problems.

As cryptocurrency adoption grows, so do the risks to the finance industry. The dangers could threaten a company’s fraud losses and regulatory compliance.

Today, many cryptocurrency accounting businesses and management platforms are accessible to tackle any size crypto accounting problems. Many people are unaware that there are a variety of systems available for tracking, managing, and organising assets in one central place.

While it may be a problematic endeavour, deploying the right technology for your professionals or organisations can help you avoid a high learning curve and peace of mind.

The future potential of Cryptocurrency is undeniable. Cryptocurrencies will become the mainstream, universal means of transacting in some shape or form. The most favourable period for companies to establish real-world solutions for these rising industrial concerns will be during this drive from the margins to the mainstream.

Even if cryptos comes with a risk and frauds, they will continue to thrive as their benefits outweigh the drawbacks.

Final thoughts

There is a transformation in the financial sector by crypto and blockchain technologies. The strength of blockchain and crypto is how it’s the future of finance and transaction and kind of transactional rails, payment rails, and accounting moving forward. The ramifications that it’ll have on accounting in the future are endless.

Criminals will continue using cryptocurrencies to fund their unlawful activities. Follow the above ways to track Cryptocurrency and reach out to the potential crypto thief.

Experlu Editorial Team
The editorial team at Experlu is comprised of seasoned financial professionals dedicated to providing high-quality content on accounting and finance. With a wealth of experience and diverse expertise, the team produces insightful articles that have established the Experlu blog as the UK's leading financial and accounting resource. The team includes accountants, auditors, and business advisors who stay updated with the latest industry developments. Their commitment to excellence ensures that Experlu remains a trusted source of information, helping readers stay informed about audit, business, finance, and tax matters.