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Wallet Hygiene 101
How to design effective policies around crypto wallets
It’s been a wild week in crypto, but DeOps Weekly is here to help keep you safe.
In this edition of DeOps Weekly, we’re about to get down and dirty with crypto wallet hygiene.
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This Week’s Topic
🛁 Wallet hygiene
Implementing a healthy wallet management system is one of the best ways to maintain operational success for any organization.
Unfortunately over the last four years, I’ve seen far too many businesses with terrible wallet practices.
And by “wallet” — I mean all the places where you custody your cryptocurrency. Exchanges like Coinbase, cold storage wallets like Ledger, multisig wallets like Gnosis Safe, and non-custodial wallets like MetaMask.
Here’s a more in-depth look at the different types of wallets for business-use.
Why it matters: Nothing is more frustrating for a crypto bookkeeper than to discover incomplete data, only to find out that they didn’t see every wallet they needed. Simply put, wallet hygiene is fundamental to the security and longevity of your business.
The problem: Crypto operators often neglect the designation and purpose behind each wallet. Some of the most common issues include:
Personal and business transactions are mixed
Either there’s one wallet for everything or ten wallets for one thing
There’s no process for reviewing and approving usage of new wallets
Nobody in the org has the full list of each wallet
If that’s you, don’t worry. It’s a new world with brand new processes for finance professionals and operators.
The good news: you can get ahead of these issues whether you’re a new crypto business or you’ve been around for years. Here are several practical tips to bring back to your organization:
Create separate wallets strictly for business use. This will help you avoid any discrepancies when it comes to personal vs. business transactions.
Define a strategy for each use case/flow of funds. Consider having different wallets for different purposes. For example, you could hold your treasury in a non-custodial cold wallet while your operations wallet (what you use to pay and get paid more frequently) could live on an exchange or in a desktop-based wallet like MetaMask.
Review new wallet requests to ensure they meet custody, security, and workflow requirements. Ask yourself questions like: does this wallet need to exist? Who has access to it? What is the expected flow of funds? How should transactions from this wallet be coded in the GL?
Document the existence and reason for each wallet. Maintain a living document that clearly defines each wallet with its accompanying wallet address.
The bottom line: It’s hard to fix poor wallet hygiene practices once you’ve started. Focusing on wallet structure and documentation early on could save you a ton of time in the future.
From the DeOps World
📚 What we’re reading
The FTX Debacle
ICYMI: Binance planned to acquire FTX after their major financial issues surfaced earlier this week. But the deal fell through yesterday. Now Justin Sun’s name is in the mix. It’s an evolving situation but the lesson here for operators is simple: If you’re using a custodian, do your due diligence. Avoid keeping funds on uninsured exchanges like FTX.
OpenSea shows its hand in the NFT royalty debate
In a relatively unclear announcement last weekend, OpenSea said they’re still figuring out their royalty plans for existing collections. But yesterday, they announced royalties will be enforced for all legacy collections. Furthermore, new collections will need to use an on-chain enforcement tool in order to add royalties.
Crypto is transforming accounting as we know it
A few weeks ago, the FASB decided that firms should treat crypto assets at fair value, rather than as intangible assets. The new guidance still needs official approval and reflection in US GAAP, but it’s a huge step forward for companies operating with crypto. The article below also discusses how crypto is creating a new form of bookkeeping called triple-entry accounting.
Listen & Learn
🎧 Accounting for Crypto Assets with Taylor Zork
In the third episode of the Decentralized Ops podcast, I had the chance to speak with Taylor Zork, CPA. Taylor shares his experience transitioning from accounting for cannabis to the world of crypto accounting and how CFOs should approach tracking crypto financials.
Here are some highlights:
Collaborating with other crypto CPAs to discuss the treatment of crypto assets
Challenges with accounting and revenue recognition for blockchain transactions
Writing a book on accounting for crypto assets
Launching a community for crypto CFOs
👾 Crypto Accounting & Finance Job Board
Our friends at Multisig Media just launched a job board specifically for accounting and finance jobs in web3. If you’re looking for work in crypto, make sure you check it out!
That’s all for this week.
As always, feel free DM me if you have any questions, comments, or topics you’d like me to discuss. I love hearing from you.
Brought to you by Gilded 💡
This newsletter is strictly for informational purposes only and does not constitute financial, investment, or tax advice. As always, do your own research.
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