In Brief

Bitcoin and other digital assets have been prominently featured in the financial news and popular press, to the point where many individual may feel familiar with what they are. This perception, however, may not match the reality. The authors dispel some of the common misconceptions about digital assets and provide a starting point for CPAs to better understand the impact of the new digital asset ecosystem on the accounting profession.

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According to the U.S. Federal Trade Commission (FTC), there has been a huge spike in cryptocurrency investment scams (Consumer Protection Data Spotlight, CBS News notes that “as the popularity—and price—of Bitcoin, Dogecoin and Ethereum continue to rise, so too do the online scams associated with those digital currencies []”. In the authors’ experience studying blockchain and digital assets, such as Bitcoin and Ethereum, they have found recurring statements in publications aimed at the accounting profession that are inaccurate or, at a minimum, oversimplified to the point of misstatement. This article will discuss some common misperceptions about digital assets, and how they may impact businesses and investors. In this article, the authors follow the AICPA and NYSSCPA Digital Assets Committee’s convention of referring to Bitcoin and its successors as “digital assets.” The IRS uses the term “virtual currencies”; the SEC uses “digital assets,” cryptocurrencies, virtual currencies, and other various terms somewhat interchangeably.


Bitcoin and Ethereum are not the only digital assets, although Bitcoin is arguably the most successful, with Ethereum currently second in market capitalization; other assets have risen into the top five and fallen over time. There are services monitoring 7,000 (, 9,800 (, or even 270,000 other coins and tokens (, as well as digital collectibles. Many of the teams and supporters behind these alternatives claim their digital asset is better than Bitcoin or Ethereum, either for specific utilities or generally as a cryptocurrency. In fact, some of the leading competitors even have Bitcoin, or some variation, in their name, or claim to be “the real Bitcoin,” while alternates with Ethereum in their names have also hit the news.

Bitcoin, perhaps the best-known digital asset, recently blasted through its two-year-old “all-time high” to set new records for price and for “market cap.” On April 22, 2021, showed Bitcoin’s total market value of its circulated supply to be over $1 trillion, more than three times the next largest cryptocurrency (Ethereum); on May 18, the same resource showed Bitcoin having fallen to $810 billion and Ethereum rising to almost half Bitcoin’s market cap, at $399 billion. Market cap is a measure of the relative size of a cryptocurrency, calculated by multiplying the current market price of a coin or token with the total number of coins in circulation. With that forward momentum, along with major mainstream companies making major Bitcoin bets, investors and speculators who have waited for the right moment to purchase Bitcoin are now experiencing “fear of missing out,” or FOMO, as proponents claim Bitcoin is destined to continue to skyrocket in price and perhaps even replace traditional currency (which digital assets proponents refer to as “fiat”) as we know it. Ethereum likewise has been hitting new highs in market cap.

Beyond Bitcoin and its competitors, the underlying technology, known as “blockchain” or distributed ledger technologies, is drawing investment capital reminiscent of the dot-com era. (The authors will use the term “blockchain” to encompass the broader intersection of blockchain and distributed ledger technologies. Although there is wide disagreement about these terms and their relationship, this article relies on definitions from ISO 22739:2020(en): Blockchain and distributed ledger technologies—Vocabulary.) The promised power of “the Blockchain” to solve problems, such as the trustworthiness of voting and elections or bringing transparency and automated validation to combat corporate fraud, is the subject of much debate.

There is no single universal blockchain. For example, Bitcoin and Ethereum use different blockchains.

This article has been written with the goal of answering the following questions:

  • What is meant by “the Blockchain”?
  • Is blockchain really an immutable and complete audit trail?
  • Is everything named Bitcoin related to “the Bitcoin”?
  • What is meant by “Not your keys, not your coins”?
  • Did blockchain begin with Bitcoin?

What Is Meant by “Blockchain”?

Blockchain is often spoken about as if there were only one universal blockchain on which all activity is recorded, as if all transactions and all their detail needed for audit purposes are written on that singular blockchain. In fact, there is no single universal blockchain. For example, Bitcoin and Ethereum use different blockchains; many of the newer alternatives, such as Cardano (, have their own blockchains as well. The Bitcoin block-chain does not inherently have the set of utilities that was developed later, such as smart contracts, required for the validation capabilities that blockchain enthusiasts tout. (At the time of this writing, the community is watching the potential adoption of an update called Taproot, which may facilitate smart contracts with the Bitcoin blockchain; see The Bitcoin blockchain is also not designed to be scalable for either the level of detail or volume of transactions described, and the built-in 10-minute delay means it will not be as “real-time” as some claim ( There are no accounting classifications or business details natively on the Bitcoin and Ethereum blockchains, or on any generic public blockchain.

Proponents say that the need for accountants and auditors will go away, as “the Blockchain” is inherently self-auditing ( As noted above, when people say “the blockchain,” they are usually referring to the Bitcoin blockchain, the record of Bitcoin activities, and the related network. Bitcoin’s blockchain is simply not designed or equipped with the utility proponents say you can accomplish with it.

There are many other blockchains, including other public blockchains (such as Ethereum), and private block-chains, which are accessible only to a limited group of parties ( Generally, anyone with Internet access can participate on a public blockchain. In contrast, a private blockchain uses the same basic underlying technology as that of a public blockchain, but is a closed network with access restrictions, generally limited to those with permission. The core difference between the two is accessibility.

The distributed ledger technology underlying private blockchains is potentially appealing to large corporations and supply chain participants, as it would only allow certain entities that have been granted rights and restrictions to participate in the closed and controlled network. Such private chains allow for a more traditional framework of controls, which is presumably more palatable for publicly traded organizations subject to robust control requirements, such as under the Sarbanes-Oxley Act (SOX). Examples of private blockchains include those built on Hyperledger (

When claims are made that all business happens on “the Blockchain” and that the utility for accountants and auditors will go away, this claim is highly aspirational, as there is no singular blockchain to support it; no automated rules to drive accounting beyond balance changes or provide evidence to support management’s assertions. At the present time, insufficient interoperability mechanisms exist for multiple blockchains to act as a single virtual blockchain.

Is Blockchain Really an Immutable and Complete Audit Trail?

Blockchain is “immutable,” some proponents say, a self-validating audit trail where, for example, a vote for President of the United States on “the Blockchain” would resolve any questions of trustworthiness in the U.S. elections.

Under that logic, once a blockchain transaction has been validated, in theory, it is ensured that it can never be edited or deleted. The claims that a blockchain has complete fidelity to every transaction and can never be changed, however, is not entirely accurate; even Bitcoin’s blockchain has been rolled back before (

Collusion is a problem that block-chain cannot solve. Just as traditional fraud can be perpetrated by two employees colluding to get around a system of prevent and detect controls, the same is true in a blockchain environment where “blocks comprising transactions can, in theory, be reversed if enough nodes decide to collude. Reversing transactions may be even easier with permissioned blockchain than public blockchain, where colluding miners would at least need to spend computational power and/or cryptocurrency funds to do so” (

Although blockchains have shown relative resiliency to attacks, there is no such thing as total immutability. A goal of Bitcoin was not ensuring immutability—but rather, making it “computationally impractical for an attacker to change if honest nodes control a majority of CPU power” (

Along with “immutability,” the pseudo-anonymity of blockchains is another impediment in its success as a complete audit trail. The Bitcoin blockchain and most of its competitors are based on a new privacy model, where the addresses used on a blockchain create a layer of abstraction between the transactions and the parties involved. Although governments and others with the requisite processing power are often able to link parties with their transactions, the typical auditor will find it difficult to have confidence in the actual parties involved.

Is Everything Named Bitcoin Related to “the Bitcoin”?

One of the challenging issues with digital assets is the absence of someone in charge of trademarks and copyright. Success for one digital asset therefore may result in many other digital assets being developed to exploit the name recognition.

One example is Bitcoin, which launched the cryptocurrency revolution. Over time, factions broke off from Bitcoin, often claiming to be the original. There are many cryptocurrencies with “Bitcoin” that are not be tied to “the” Bitcoin at all. The supporters of these alternatives often claim they are the “original” Bitcoin, carrying on the initial philosophy or vision. Although legacy owners of “the” Bitcoin” may own these as “forks” of their original holdings, they are different. The different kinds of forks predicate that records of ownership are copied into a new network, with different rules, wherein transactions impacting the records going forward are independent of the other copy. Any keys that controlled an address before the fork, however, would now control that address in both copies going forward. Any keys that controlled a Bitcoin address before August 1, 2017, will also control the address in Bitcoin Cash, Bitcoin SV, Bitcoin Cash ABC, Bitcoin Gold, and every other coin that has forked since then.

Although blockchains have shown relative resiliency to attacks, there is no such thing as total immutability.

Confusion has become so fierce that OKCoin (, a leading cryptocurrency exchange, dropped support for some of these alternatives ( As noted above, CoinMarketCap ( tracks more than 9,800 alternatives to Bitcoin. This is not to minimize the importance of Bitcoin, which dominates the market capitalization of cryptocurrencies (as of December 31, 2020, representing 38% of the total “market cap” of digital assets, per

Bitcoin Cash, a fork of Bitcoin, is led by those who felt Bitcoin had lost its way ( Bitcoin SV is a forked asset that emerged when Bitcoin Cash participants had a falling out over their vision of Bitcoin Cash ( A more recent dispute led to yet another split of Bitcoin Cash. These have values that differ significantly from the “real” Bitcoin. Buyer beware: what do you get if you buy Bitcoin from It may be Bitcoin; it may be Bitcoin Cash. publishes an op-ed noting “12 Reasons Bitcoin Cash is the Real Bitcoin” (

There are also Wrapped Bitcoin (, renBTC (, and other coins and tokens where an Ethereum token is backed 1-to-1 with Bitcoin. These trade off the safety of Bitcoin on its own network for the greater functionality of Ethereum. The oddly spelled Bitcoiin ( leveraged the goodwill of the Bitcoin name and brought some unwanted attention on the reputation of its backers, including a onetime endorser, the actor Steven Seagal (

Bitcoin is not the only name that has been exploited. As the price of Ethereum began to rise sharply, Ethereum Gold began picking up steam ( Another entry, Ethereum Classic, is the continuation of Ethereum’s blockchain after several upgrades were made to create the version of Ethereum people are using today ( Ethereum Classic’s price has risen by multiples recently, despite being considered an obsolete coin and having experienced multiple “51%” attacks that call the reliability of its blockchain into question.

A Bitcoin wallet does not store value directly; it stores and manages private keys.

In the world of mistaken crypto-identity, it is difficult to ignore the current fervor over another cryptocurrency known as DOGE, or Dogecoin ( Although the coin started as a joke, interest in Dogecoin has skyrocketed thanks partly due to endorsements from Elon Musk and Mark Cuban ( The coin has jumped into the top 10 by market cap, with its value having increased by a staggering 20,000% over the last year ( Exploiting the sentiment, new coins have recently hit the market; Shiba Inu (SHIB,, became a top 30 coin based presumably on the fact that the dog breed upon which the DOGE meme started is a Shiba Inu (

What is Meant by “Not your Keys, not your Coins”?

“Not your keys, not your coins” refers to private keys. A private key is analogous to a password associated with your cryptocurrency. If you have the private keys, you control the movement of the cryptocurrency; if you don’t own or control the private keys, a third party likely has complete control, and potentially constructive ownership, of “your” cryptocurrency.

What does it mean to “own” Bitcoin? When you buy Bitcoin, have you even bought the rights and privileges of Bitcoin? Do you have access to the keys? Even if you have a handle on the valuation of your asset, without access, you may not be able to send your Bitcoin elsewhere, and must instead sell your holdings from an exchange or other intermediary.

Some people looking for a fast and convenient way to buy Bitcoin are trying sources such as PayPal ( However, those buyers are not getting Bitcoin they can send to someone else; instead, they are getting something that is sort of indexed to Bitcoin but must be cashed out using fiat currency. It cannot be transferred out to a wallet or sent directly to others, nor can Bitcoin be transferred in.

To a lesser extent, having Bitcoin or a similar digital asset in an account at an exchange, such as Coinbase, is also limited. One cannot track balances on the blockchain; transactions are not recorded one-to-one on the blockchain, rather, account changes are aggregated by the exchange. If the exchange has problems, one’s investment is threatened. Although there are decentralized exchanges where keys are still involved, most centralized exchanges trade off the comfort and assistance of having someone oversee one’s investment, with the attendant risks of delay or potential loss.

Another common misunderstanding is that Bitcoin balances are stored in the Bitcoin wallet itself, just as coins or currency are in a physical wallet. A Bitcoin wallet does not store value directly; it stores and manages private keys. Users can have a wallet on their phone, their tablet, and their PC; each managing the same sets of keys and bringing information from the addresses those keys control.

Did Blockchain Begin with Bitcoin?

While this misperception probably won’t impact investors directly, saying that blockchain began with Bitcoin is incorrect. Bitcoin was built on the back of many innovators before it. Related to blockchain technology itself, in 1991, portions of the initial concepts that lead to blockchain were written about by Stuart Haber and Scott Stornetta, mathematicians and cryptographers, focused around the concept of digital time-stamping while maintaining complete privacy of the underlying documents (“How to time-stamp a digital document,”Journal of Cryptology 1991; 3: 99–111;; see also Chris Gaetano, “Inventors of Blockchain Explain Project’s Humble Beginnings, Sound Warnings About Its Future,” The Trusted Professional, October 29, 2019; Haber and Stornetta proposed “to time-stamp the data, not the medium.” Most of what we associate with blockchain today—“confirmed blocks organization in an append-only, sequential chain using cryptographic links,” (ISO 22739:2020(en): Blockchain and distributed ledger technologies—Vocabulary), using cryptographic hashes and Merkle trees, came from their work and was commercialized in 1995. (A cryptographic hash functions like an electronic fingerprint, the result of a mathematical algorithm on files of any size to calculate a unique way to reference the file that can easily be reproduced and checked. A Merkle tree is a structure that creates a single hash from a number of others hashes using a hierarchical tree and iteratively hashing pairs of hashes; it simplifies the process of checking whether a document or transaction is represented in the grouping.). The underlying technical foundation was adopted in the Satoshi Nakamoto white paper, which added miners, consensus models, and financial motivation for the system ( Haber and Stornetta are acknowledged three times in the white paper for their important foundation.

Buyer Beware: Perception Is Not Reality

In conclusion, the emerging, growing, and evolving digital assets ecosystem is one that touches on investment, on commerce, and on the foundation of the structural economy. Much of the information readily available for CPAs to try and keep up with these changes is confusing or oversimplified, leading to misperceptions. A solid understanding of what is—and what is not—a cryptocurrency; how one acquires, stores, and uses it and its counterparts; and the extent to which the underlying blockchain data can be relied upon is an excellent place to start coping with these changes.

This article has highlighted just a few of the larger misperceptions related to digital assets and blockchain technology. Misperceptions have led to people thinking that they are acquiring cryptocurrency that they can send to others, finding out it that isn’t actually cryptocurrency that they control, discovering that the cryptocurrency isn’t the one they thought they bought, and realizing that and the recordkeeping of blockchain technology falls short for audit purposes in and of itself.

It is important for CPAs to conduct their own research on these digital asset concepts in order to understand the available tools and sources. Buyers must beware—the popular perception of digital assets does not match the reality.

Eric E. Cohen, CPA, is at the proprietor of Cohen Computer Consulting, Mechanicsburg, Pa.
Anthony J. Vinci, CPA, MBA, is a director in the office of financial and operational risk policy at FINRA, New York, N.Y.