“If you can’t measure it, you can’t manage it” is probably the most quoted sentence Attributed to Peter Drucker is known as the father of management thinking. Although this sentence is fabricated, it has a place in the pantheon of business books because it emphasizes the importance of reliable indicators in making sound business decisions. In the field of encryption, we still lack one of the most important indicators: the official daily reference exchange rate.
Reference exchange rates are essential to allow accountants to assign specific exchange rates between two or more currencies on any given date, even if those currencies may fluctuate outside of a specific time. The reference interest rate is a common benchmark for companies, investors, auditors, and regulators.
More than 10 years after the first Bitcoin came out, this is not accidental (Bitcoin) Is mined, we still lack this key indicator in the ecosystem. In the statutory economy, the central bank is responsible for determining the reference exchange rate according to daily coordination procedures. But in cryptocurrency, we do not have the concept of a central bank-we completely reject the concept of a central monetary authority. However, the result is a decentralized pattern of unofficial interest rates, and different exchanges and aggregators have different prices, which can cause confusion and, in some cases, fraud.
You may want to know: In any case, why is this so important?Maybe a decentralized economy does not need an official daily reference exchange rate. Maybe this was true a few years ago, but not anymore. The size, market value, and adoption rate of the crypto market are all growing mercilessly.Learn Suggest We have reached Over 100 million cryptocurrency owners Globally-approximately size The population of Egypt.Have about 43 million active cryptocurrency traders and up to 500,000 independent users who send or receive cryptocurrency daily.
We know that the recent cryptocurrency rally will stimulate new interest in crypto assets, especially its equally predictable hype. But we also know that with each wave of “blockchain tourism”, this industry will become bigger. This time, the behavior of the market and participants is different from the last crypto frenzy in 2017. More and more institutional investors are joining, making the market more mature and complex, and definitely more mature.
Those of us who have worked in the field of encryption for a long time also know that behind the ups and downs of the market are a group of talented people who have built amazing projects in the field of blockchain and encryption. At this stage, the decentralized ecosystem has many companies engaged in a wide range of professional work in different jurisdictions. However, this means that you need to consider the value of these transactions. You need to plan budgets, evaluate assets, pay taxes, and settle operations involving multiple currencies (cryptocurrency and fiat currency) at different times or even on different days of the week to consider time zones.
Decentralized exchange rate
The cryptocurrency “Wild West” is over, which means that asset value can no longer be explained. We need an official reference interest rate, without which accountants cannot accurately assess the cryptocurrency held on the balance sheet. This opens the door to fraud and slows the progression of encryption as a mainstream asset on the corporate ledger. Audit and compliance issues are one of the six obstacles to the adoption of blockchain. according to PricewaterhouseCoopers (PwC) “2018 Global Blockchain Survey”.
The reference interest rate will bring benefits to major participants in decentralized finance. For accountants, this will be a shared, standard way of valuation of encrypted assets, providing them with stronger protection against fraud. For investors, it will provide a real apple-to-apple comparison when evaluating investment opportunities. For auditors, it will provide a tool to independently verify that the company has correctly assessed its assets—not fraud.
From an accounting point of view, the current system is a nightmare. A few players have set themselves as the authority that determines the rate. Lack of a proper set of rules and details regarding the source and timing of the information. This leads to considerable price differences between different sources of unofficial exchange rates.
For those of us who are committed to building decentralized accounting protocols, it is natural that we are studying decentralized solutions. Now, as Chainlink’s decentralized price information flow becomes the de facto standard, it is time to continue to innovate and develop a transparent, independent, and methodical official reference exchange rate for all encrypted assets. The widely shared daily exchange rate allows investors, companies and auditors to rely on it to value any crypto assets and foreign exchange transactions at the end of any given period.
The current consensus is to “hold” your cryptocurrency on the balance sheet to hedge against inflation. But we need to prepare for the future. Brick-and-mortar companies are beginning to try to use their favorite cryptocurrency to bill for goods and services, use cryptocurrency to make contracts, pay suppliers and employees, and use cryptocurrency to settle taxes. This is the future we are working on, and this is why encryption needs a decentralized daily reference exchange rate.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Chris De Costa He is the founder of Totem Accounting, the creator and promoter of the implementation of peer-to-peer real accounting agreements. Before joining Totem, Chris spent more than 20 years designing and building corporate accounting, business intelligence, and enterprise resource planning (ERP) systems.