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Rafael: Welcome to Crypto with accountants powered by Betway, where we talk with technologists and crypto enthusiasts as we discuss current events in economy, politics, technology and digital assets with thought leaders from around the world.

Pat: Hi everyone. Welcome to Crypto with accountants. I'm your host, Pat White, alongside Trevor Ward, and we are just so incredibly excited to be talking about cryptocurrencies and accounting this week and be have long time friend of Bit Wave and a long time personal friend of mine Libby Schultz on the on the show with us today Libby is a crypto native let's see here crypto native technologists with a hybrid background in executive finance and information technology. She covered her first script when she was 12 and followed crypto since its inception in 2009. She founded Cipher Accounts in 2017, while finishing her master's in data science and algorithms at Carnegie Mellon. She specializes in financial technologies, analytics, micro transactions and data architecture. And she's just a really good human being. Libby, thank you so much for taking time to to chat with us today. Welcome to the show. Hi. So as we get into this, Libby, uh, how, what got you into crypto? You know, we'll go through all this like, amazing background you have and all of your, your great stuff you worked on, but like the first question I tend to like to ask people is what got them into crypto? What got you into crypto?

Libby: So back in its inception I got this link because I connected to some hacker communities and one of my friends sent me this link and it just said Bitcoin. And I looked at it and I'm like, Whoa, what's this? This is really interesting. And I couldn't stop thinking about it. And as some of my friends reminded me, you know, way after the fact that I apparently showed this to everybody in 2010, like just walking around talking about it because I really just wanted it to become a conversation piece because I was really angry at the financial system and the timing was spoke for itself. The fact that it came out right after the great financial crash and had a lot of rage. So it was just a great outlet. And I didn't really have like a lot of people who were talking about it who I knew deeply about it. And I was just like trying to spark conversations. And I'm like, Hey, let's buy $100 of Bitcoin. Let's just figure it out, or let's we're just scared we were going to download some screwy wallet and get hacked because even then these are like professional, you know, security network experts and full stack coders who are just all like, Wow.

Pat: It's like one of the ways because I got into crypto at a similar time, it's one of the one of the ways I talk myself down off the ledge from not having bought like $10,000 back then, is it? Actually wasn't that easy to buy back then. Like it really was not that easy to buy crypto in 2009 2010. Like either you were you were doing something for someone on a on a message board. You were meeting someone in a parking lot or you were you had to use like some weird wire service to send money to Mt. Gox in Japan. And like, that was, it was the shadiest thing in the entire world. And you were making phone calls and like, it was not easy to actually buy crypto back then.

Libby: Yeah. And we also were like, there were advertisements on eBay and we're like, Are we just going to get scammed? Super scammed. And we were poor enough at the time that like even any amount, losing any amount of money to us was like, would have been, would have been like, Oh no, you know.

Trevor: Even just the link sounds super sketchy. Just like I just picture like a hyperlink that just says Bitcoin. It's like.

Libby: Send us your wallet address and we'll send you some money and maybe you'll get it. I'm like, Well, great, great.

Rafael: So what were you what were you doing professionally at that time?

Libby: So at that time I was working, see 2009, like a lifetime ago. I was I was starting my career in corporate finance and I was working on, let's see, I was working on in the gaming industry and working on a lot. That's when I started working with micro transactions and analytics and marketing departments to really start understanding like I mean, data science was like not a huge thing then, but that's like when we were starting to have to script things to basically pass through and deal with auditors who were like, okay, well how do you audit like millions of transactions and when they're coming from foreign sources and all this? So I ended up working with that. It was a really fun job. Um, but, you know, like and then also like people were like, Oh, well, you should get your CPA license. And I'm like, Well, this wasn't part of the plan, but sure, why not? So you started working on that too.

Pat: You did accounting undergrad?

Libby: No, No, I didn't. I actually started in electrical engineering, computer science. Nice. Graduated with a degree in philosophy, and then kept taking coding classes because I just loved it and never actually intended to really work in finance at all. But because my family's ran businesses and I had this kind of background from a kid watching them run businesses, watching them do all that stuff, uh, I just kind of got invitations into finance and I was like, Oh, this is interesting. This will be useful for anything I. Do.

Trevor: Yeah.

Pat: That's interesting. I mean, if there's one constant in the crypto universe, it is a everyone followed a pretty fascinating background. There's not there's there are obviously some people that are just like, you know, accounting in college and then that. But so many of the folks in this industry have, you know technical backgrounds or philosophy. I have, you know, David Bird over at UI is a great example where he has a philosophy PhD. And then also I think he I think he was a theology major undergrad, just really interesting, interesting life paths that people follow to get in here. It's actually so before we I do want to go on a little tangent here because micro-transactions and crypto are such an incredibly complementary set of, well, paradigm and the technology. Are you starting to see are we finally starting to see that happening? Because I know for the last few years I would not have said that there was a lot of micro-transactions, but I, you know, we at bit wave here are starting to see it. How do you think about about that? Do you are you guys seeing it more in your in the in the customers you work with and the clients you work with? Do you think there's some really cool stuff to be done around micro-transactions in crypto?

Libby: Absolutely. And I do think that my background in micro-transactions and dealing with like intangible game assets was not quite 1 to 1, but it was so close into what I would be dealing with later. And yeah, I do because like the before it was just like send from a wallet to a wallet, right? And, and, and then they became let's take it into layer twos and then they kind of starting to get into these nice rollup technologies that are pretty reliable. And yeah, so I think we've been able to do more of that. And then also gas fees don't suck as much because they've been not just loading one single network.

Trevor: How do these not prohibitively expensive.

Pat: It's actually really cool to talk to someone who's an expert in this. How did the economics of credit card based transactions work? Was it like because I know you mean essentially with a credit card based microtransaction you you're not hitting the credit card for each microtransaction You're you're sort of bulking, batching up, you know, hey, we're going to pull $25 from your credit card and then we're going to slowly drain that out. But did you you, you're still paying like because the $25 still has a transaction fee that's percentage based, you're still kind of paying a percentage based transaction even on the micro transaction that's not hitting the the visa network. Right? Like can you talk about the hey, maybe even just step back a little bit because this is a really interesting topic. A Maybe describe what micro transactions are and then talk a little bit about the economics in the in the olden days before crypto.

Libby: Okay. So I'm going to speak specifically on the micro transactions that are digital assets because that's the thing I come from. One of the things that's nice about digital assets from the olden days is they don't really deal with sales tax. They kind of were in this special unicorn space where they don't have to do that. So you already are saving money right there. Secondly, it's like an intangible buy. And then it became, where is this person located? So it often wasn't necessarily credit cards. It was often PayPal. And what they were were small purchases, typically not less than a dollar, because once you start going below dollar, like they they charge a base fee. Sometimes it's like 30. I don't remember exactly the numbers at the time, but let's pretend it was like 2% plus $0.30. So if you start going like too low, you're not going to make any money. And of course, it drove the incentive for the gaming industry for kind of the casino model. So the more if you get like a high purchase price that none of that even matters. But basically, you know, you would get like people spending all these possibly buying low and selling high. They get pretty creative with in-game assets where they do it within their own markets as well. So they actually had their own tokenomics before it was tokenomics in these assets, in gaming assets.

Libby: But you usually wanted to try to keep the economy within your own system. So there are a couple of different ways you could have someone buy credits. So like there was a one time purchase. That's one way to like reduce it. It's kind of similar to like what you see in the crypto solving pieces where you want to like kind of bulk it and put it into a big bucket. Um, but other times, you know, there might be circumstances where it's just easier for whether it's like tracking by a single person to, you know, know your customer sources and things and know when they're buying it. And so some of it was data management and some of it was also like you're dealing with the other thing you were dealing with that was complicated is you were dealing with channeling partners. So you'd have someone like Kongregate or something like that who would host your game somewhere else. So then they would have these cuts. And so then it would be like, Oh, if you sell this much volume, you get this, if you sell this much volume, you get that. And so you're dealing with really tiny transactions where money is put into a different bunch of different pools, which is actually what makes crypto exciting because it can program that into the money itself, which is to me extremely cool.

Pat: So. Let's let's. This is super funny because I. I had never really sat to think about this, but, like, just for everyone listening, if you're not super familiar with with the gaming world, if you've ever played Farmville is a really good example. They were they were the kings of of microtransactions where basically like they had this freemium game where you could play it and you could every day you could like water your crops. I ever remember at this point but you would you'd water your crops and every time you water your crops you could then you could then like harvest your crops, but you could only click the water button like once a day. And then what they would do is you would you could pay like five credits to click the water button again or, or whatever to buy a seed to buy or whatever it was. And so you end up in this world where, like you, you get this dopamine rush from hitting that button and then they like kind of like trigger you to keep on paying to hit that button more. And then they put in these sort of artificial limits where you can kind of hit it. So and one of the really big models for this was you would send them money and then they would give you credits and then you had credits. Libby I'm actually super curious. What was the accounting for that like if you I don't know if you ever actually did that or not, but I am I'm really curious. Did was that essentially you held a liability to your client until they actually spent it and then you moved it from the liability. You basically booked it from the liability into the into your revenue account at that point?

Libby: No, they were actually happier to just permanently take someone's money and be like, That's mine and there's no refunds. So there wasn't a liability. It was just it went straight to sale. And it did matter because like I said, there's these channeling partner agreements. It simplifies the situation. And we didn't really have to deal with chargebacks because it was primarily done, like I said, through PayPal.

Pat: Oh, So if I if I.

Trevor: Have 100.

Pat: Credits you've already sold, you already. The act of me buying those hundred credits was the action that was selling. You didn't care if I ever used those, I could have sat on them forever and never use them. It didn't really matter.

Libby: Uh, no, actually. So what you were doing with what we were doing in the game industry is you were actually buying like a literal asset. You were buying a hero skin, you were buying access to doing something. And it was in the free to play market, just like you describe. And a funny fact that I want to say, it's the number one or maybe the second or two. The top player in the game actually didn't spend a single dime and managed to just because it was like you were paying for speeding up time, basically. Right. And they just played the game like 16 hours a day.

Trevor: And a good way to do it. They managed to.

Libby: Keep up like be at the top of the market. So I thought that was hilarious. But yeah, but you could the other thing you could do was you could purchase specific things. Like I think one of the people paid 16 was it $16,000 to go and get this special access to go meet the CEO at the gaming headquarters in and all this stuff. So it's like you could buy like these. They treated it like they were courting people, basically, and courting these deep relationships. And people were the game masters and things had like relationships to help them and special community stuff for people. What was the it was as much a social find.

Pat: It was the really interesting part of those games was the the tale for how money got spent was like the top. Like it was something like I mean the top 10% certainly, but something like even the top 2% spent the vast majority of the money, like hundreds of thousands of dollars. I think there was like something about Farmville, like the top spender on Farmville was spending $100,000 a year or something absolutely insane. And then like you very, very, very quickly hit a tail where people would spend like a dollar a year kind of thing. It was a really interesting economics model. Okay. But there was anything particularly clever about the accounting like that that would influence how we think about a crypto accounting today in terms of.

Trevor: Either it did.

Libby: When dealing with the intangible part, I would say because you talked.

Pat: About that a little bit. What was intangible? What were you actually tracking those intangible and what were you doing treatments on there?

Libby: The entire thing was intangible.

Trevor: Everything was intangible.

Libby: Because it's like it's like there is no the argument. So this was like to me, it was like the first argument that crypto would have to face later as a digital asset. As an intangible asset, right? When it's not linked to, let's say, okay, well that's a different conversation. But when it's not linked to like nfts and stuff, right? You're dealing with like basically like something you can never touch. And the gaming industry kind of fought that first. And so the argument they had to basically take strong positions to be like, yes, this is an intangible object. We're not selling it off the shelf copy. This is something that someone gets downloaded or whatever kind of thing. And so there were like there was like a whole thing with that. And then it was dealing with we were under GAAP in that case, and then the parent company was under IFRS. So we had to deal with like, you know, we didn't typically write it down because again, it was a revenue sale. But, but the treating of the intangible as an intangible asset, let it be in a very specific category which protected it from a lot of stuff, got basically protected it from a lot of governance.

Trevor: Would you ever.

Pat: Would you ever I mean, I'm trying to think back to to other analogies, to crypto here. Did you actually track an inventory? Tory of intangible assets that you were selling or did you create an intangible asset the moment you made a sale like?

Libby: Yeah. So it didn't have like the technical minting process in the same way because they could. So it was basically at the point of sale that it came into existence, so to speak. Yeah, because it was just drawing from code and it's like, in fact this was a problem because you could, you ended up with like very similar to Tokenomics. If you sold too many upgrades to your heroes, you broke your game. You know, like, Oh, I'm going to sell this special thing, but I want to we want to make some more money to clear the quarter. It's like you just broke that server and now people are going to have to migrate to another server because they're all OP and the game content that's going to come out with it next is going to be like, it's not coming out for three months. So you just you're going to have some really bored players and you don't want to lose them. So, so this was a whole balance that because marketing really wanted to make money and so they were making money. And then I would so the accounting part there was that that is kind of similar to crypto in that you have to care about gas with defi transactions is it was like they'd be like, look, I made all this money and they would take it at spot revenue and I'd be like, No you didn't. Let's, let's remove like 30% right here, right off the top before we even count overhead or let's remove 10% or 20, whatever the cost model was. Right? It was like, you can't count like that. You got it has to be profitable, profitable money. And if you spent for the other thing that was into it is spending for ads, which I think is starting to reach the crypto space as well.

Trevor: Pay to get ads and be a part of crypto. Certainly for a few years now. Yeah.

Libby: Yeah, exactly. So you know, yeah, we know.

Rafael: It's fascinating hearing you talk about that and knowing what the story of Vitalik and like crying himself to sleep because he lost his beloved warlock spell on Warlock spell. Yeah. And, and kind of just thinking about like, yeah, this was gaming in a way. Web3 and crypto was born out of the gaming industry and sort of the first digital assets that some of the first that we've seen.

Libby: And I feel like the culture came with it too. Actually. I feel like the, the crypto industry has very before Wall Street got to it, the crypto industry had very strong elements of the gaming culture.

Pat: So yeah, but Wall Street's now bored with us, so it's okay, we can get back to our roots. It's all it's all good. That's so interesting. Okay, so now fast forward then to today. Libby Hey, why don't you tell us kind of what cipher counts does and what you do. And I'd love to hear if you are doing if you are working with any games or anyone that is doing kind of microtransactions and how the world has changed, like what what it's like now versus what it was like back then, Is it is it easier? Is it harder? Like is it better having instant settlement? I don't know. Like I'm super curious.

Libby: Um, so I don't think of exchanges as instant centralized exchanges as instant settlement. So we still have some of those old headaches just because. Yeah, you know, we've been in some deep dives about that before. But like I would say, one thing I really like about it is that the blockchain makes it kind of there's these truths and you can double check your truths a little bit better. Like you don't. It's exposed information, so to speak. And you can also prove to people, you know, that they got what you said they got. You're like, No, yeah, I see your wallet. It's there, you know? And so it does things like that and it speeds up those kinds of things. It has an irrevocable. I can't speak, Rabbit. It's a rubber, irrevocable, irrevocable.

Trevor: Oh, my God. Irrevocable.

Rafael: I just chose the hardest word.

Trevor: I know you can't take it back.

Libby: So let's just say it has a finality to it, too. To the blockchain transactions. That I think is refreshing because when you deal with credit cards, for example, you often have to have a rolling turnover amount that they request you request slash require you to hold back. So so like you can your money is yours. Like there's no unless you decide because of the kindness of your heart or because they're very angry at you, you know, you basically are settled. So I think that's good. I see crypto rediscovering all of went through a process. I think it's getting past this now, but like with things like accounting software like Betway really help a lot with this. But it did rediscover all the problems that finance had. I feel like it really put it back.

Trevor: In the Did you use purely.

Pat: Were you purely on spreadsheets back in the day? Was there any specialized software to help? Were there was there subledger software for micro transactions or you were purely on spreadsheets?

Libby: I was dealing with like multiple different. Yeah. So a lot of CSV files, but I was dealing with because it was dealing with multiple systems that weren't talking to each other well. So I would usually transform a system and then have a I created a linguistics filter so it would map back into the US system with through which what I call the Great Firewall of China, because sometimes they would only go at 50 K per second. It goes faster to mail like a USB stick than it was to actually download something.

Trevor: Wow.

Libby: So. So yeah, so sometimes we had to deal with that.

Trevor: Now the other I do feel like, yeah, well.

Pat: So the other big difference would be of course now with crypto, you know, there is a difference, which is that if you, if you're going to allow people to withdraw tokens, that is drastically different than the old Farmville model of like, I'm going to buy five coins, those are locked in this system. And what we just talked about from the accounting perspective, which is that I recognize the revenue the minute I sell those coins now it's a little bit different because you're basically acting as a if you're going to let them withdraw those tokens, you're sort of acting as an exchange and then you owe a liability until they actually officially transfer those tokens to your to your ownership through some sort of a buy action or spend action, whatever it is. So that's there is like a there is a little bit of a of more complexity in the crypto world as we find with accounting here. Right?

Libby: Yeah. There's, there's, there's the tokens that like I think, I think that this is something I've thought a lot about. And one of the things is that like tokens do allow you to go from place to place. But let's, let's pretend that like, let's just use Steam as an example. Let's pretend there was a token you could take to leave Steam and be like, Yeah, I got all my steam box and I can go spend them somewhere else. The problem is if you don't actually have another platform or place to redeem it, or let's say your assets came from that game and they rubbed the game, they still rubbed the asset that connects and adds value to it. So the network is as sophisticated as that. But I do agree with you that there's more complicated treatments, especially where you can farm rewards and things like that, and you get something back like it was more of like a single transfer situation. A lot of people made their money on eBay literally selling their hero characters and things. And that obviously is a straightforward transaction or even within the marketplace. It's like it moves and it goes.

Trevor: Would you?

Pat: Whereas if you rewarded someone, did you guys have a token or we get a hypothecate on this, but like if you rewarded someone with additional tokens, would you, would you write that down? Would that be a discount or would you just ignore that from an accounting perspective in the old microtransactions world?

Trevor: Oh, you mean.

Libby: If you gave if you like, gifted someone.

Trevor: With a skin? Yeah.

Pat: If you gifted someone a bunch of tokens, like did that have an accounting impact back in the day? Because obviously now.

Libby: So the thing is, it's something that you created out of thin air the minute you did it. So one thing with tokens is that you mint a quantity. This is a difference. So like you mint a quantity and then you're pulling from that bucket of assets where as this one, it's like, Oh, that person's angry. We'll give them a blue hero skin that doesn't, right?

Trevor: You know, it just doesn't feel better. Yeah.

Libby: Yeah. And so we didn't necessarily account for that, although we did track the giveaways because like I said, depending on what you're giving away, it could dilute the market. And that was more from like a game economics standpoint and preserving the integrity of the game.

Pat: So so tell us briefly, just tell us about cipher accounts. What do you guys do? And then I'd be I'd be fascinated to hear about some of your clients that are doing this today. And like, what? How how it's all working, like what some of the complexities are, all that kind of stuff.

Libby: Okay. So yeah. So cipher counts. Got its name a couple of years ago. For a while we didn't have a name.

Trevor: But what we that was my favorite was.

Pat: Was libs, libs, whatever that company. Unnamed company. Yeah.

Trevor: Yeah.

Trevor: And she like you finally just got a website, right. Everything was pretty much word of mouth. Yeah.

Libby: I think it was related to iOS. I was like, oh my gosh, if we arrive to this without a name, that's kind of silly. So we spun up a website and we spun up a name because we the thing is, it was we were so inundated with business. It's just like, it doesn't matter what our name is, okay? Who cares?

Trevor: Yeah, we didn't have time to think.

Trevor: All the accountants are listening to this salivating like, Man, I wish I had so many clients that I didn't have time to create a name or a website.

Trevor: Yeah.

Libby: So. So basically, you know, we do. We hired a pretty technical based team, so hired accountants who are like as nerdy as possible in like the technical sense. So one of the things we require them to do is study and become fluent in defi and crypto and how to use wallets and all the security stuff and to get down into the weeds a bit more than like traditional accounting does. And then and that comes partially from my hybrid background where I believe that every accountant can benefit from having a background in tech and actually literally speed up their job. Um, just being able to script just that, that by itself, you know, if you're dealing with large transactions. But yeah, we work on a lot of really great projects. Um, I know that one of the, one of our baby projects we work from, from the beginning, it's not such a baby now. We worked with Colorblind and we recently helped them with their token launch that they did during East Denver. And then they're about to launch a marketplace. And they're complicated because they basically host all of these communities and they're basically a token gated technology that allows you to do those kind of tokenomics within it. And at one point they had tipping and things like that. So they were experimenting with a lot and that's pretty fun.

Pat: Um, tipping is one of the big use cases for micro transactions with crypto. Like you see that in Reddit. A lot of the big Reddit, the subreddits have tipping bots for tipping like tipping posts and things like that. We still haven't really seen that. I mean, honestly, I think it's it's the future of a lot of this stuff. I mean as social media goes through a, a what I think could only be called an incredibly tumultuous time right now. Reddit had a huge outage today, for instance. Twitter is weird right now is the only way to really describe it. Um, you know, it keeps going back to like one of the great monetization mechanisms is going to be this like real direct to direct point to point. Like, hey, I'm going to tip you because I love your content. And it's been weird that we haven't really seen any of the major platforms actually do that. Like, it's weird that it's always bots or like other sorts of mechanisms as opposed to Reddit creating a point to point tipping mechanism for content producers, which I think is really fascinating. It's weird that they haven't done that and that you end up with cloud land having to build those rails around other systems, essentially.

Libby: Yeah. And they're trying to do chain on chain, multi chain, multi network things. And ultimately, you know, you end up having to deal with some sort of L2. It's like impossible to deal with without it because one of the challenges is that you end up, you know, back when we're like having like the crypto bull market and like eath transactions get really crazy expensive and they're like, I want to do it on main net, I want to do this NFT drop. And I'm like, And then they're like, the clap was like, Oh, that's going to cost you like $30,000, you know, just to do the drop, just, just the gas. So it can be it's one of those things that is not trivial at all. But then also, like, you know. Um, and then. But then you also don't, you don't want to get involved to the point where you have to manage entire all of their subsets of communities. So there's like at what distance do you go operate at? So they tend to focus only on their, their ledgers and things like that because it is a nightmare.

Trevor: Yeah.

Pat: And I'll say for everyone who's listening, one of the cool things that Collab Land does is that is very, very future looking and that everyone should be interested in and thinking about is it's NFT gated community. So like this is the idea that we've talked about a lot and if you're if you're not deep in crypto, you might not think about this too much. But this is the idea that Taylor Swift moves to doing all of her her ticket issuance for her concerts to an NFT. So when I buy a T sweezy a concert ticket, I get an NFT dropped into my wallet. I use that NFT and my private key to basically get access to the concert. But then after or even before the concert, I use that NFT to actually get access to discord channels, to websites, to any sort of different places where she can directly engage with me. And I talked about Taylor Swift, but this goes for gaming companies like you can imagine this happening with Diablo. You can have imagine this happening with all, you know any form of like, you know, you're an Internet, a new company and how it goes there. So there's this really powerful element of nfts is identity and a second you have an NFT as an identity, you need to have something that actually asserts identity to allow you into a community or into a concert or whatever it is, right? Liberty I do a good job explaining that.

Libby: You did a really good job with that and I wanted to just go a little deeper. With the NFT being your identity or your wallet being your identity even more specifically because you can measure how long someone's had something when they had it. You can reward past participants, you can create a version, and this is something that Nfts are dealing with with non transference, which is something that's typically really important to have that option in the ticketing industry. So, you know, you don't always want to be able to just you don't want to necessarily have it be that someone who wasn't helping at the market buy it. Buy from that market. And then just like, Oh yeah, I spent like ten grand at the last minute and I'm going to get this moon drop. But you do want to be able to send tokens to all the people who do this, so they sometimes they help. You have multi tiered claiming mechanisms, but it also because it's programable, you know, you can retroactively create rewards or say if you have like at least four of our nfts in the system, you qualify for this other thing and it allows you to have a more sophisticated relationship, which is very cool.

Pat: The other thing which you alluded to, but it's worth it's worth calling out because it's such a it's such a different. It's such a different paradigm for this stuff would be the ability to actually also reward because all this is public for the most part. All of these feats are public. You also could start to do these sort of like advertising campaigns to to other people that are in the space. So whether that be a game, like if I see someone's playing a particular game because their wallet is accumulating tokens and assets from that game, I can drop them some free. If I'm a competing game, I can drop them some free credits on my game to come play my game. If I can see they're a power user or same thing. If you see someone as a is a major teasy-weasy fan. I don't know. I don't know who she competes with, but let's say like some up and coming star group out of K-Pop, like, like a K-Pop group could suddenly drop a bunch of tokens in this person for them to join their discord and listen to their albums. You could send links to all that. So you actually start to create this really compelling because it's anonymized or it's at least pseudo anonymous. You don't really know who this person is, but you know that they're willing to pay to engage with Taylor Swift. So you almost like get you get the benefits of advertising and like this sort of like, you know, the cross advertising kind of stuff without a lot of the downsides of having your data mined all to all to to hell there. So there's a there's a really fun new marketing model we're seeing pop up here, too.

Rafael: I think on the user side too. I mean, we talk a lot about privacy and and you mentioned the anonymity aspect of this is that it totally presents a new paradigm of like right now we're so used to signing with email. We've, we've seen more like SEO stuff emerge signing with Google. But like none of those are really privacy preserving. Whereas if you just have an NFT connected to a wallet address, I wouldn't say it's completely private, but it you don't have to type in your address, your email address, your name. It's just do you have the NFT or not?

Trevor: Yep. One thing I like.

Libby: And I love that because one of the things is we have such a tiered allowance of privilege within our financial system. It does to some degree, democratize things as long as you have an access to a computer and a wallet, you can you can qualify to participate in something. And it kind of gives people a fresh start in a way, potentially.

Pat: And, you know, the data mining algorithms use, you know, they use your first name, last name to do economic, socioeconomic mapping and stuff like that. I mean, all everything that that uses this mining pulls from every single possible possible variable they can. And that just gets into it more is like, who cares if what your your name is? If you're a big Taylor Swift fan, you should be able to, you know, be rewarded for that. Yeah. Taylor Swift, the backbone of this episode's in the important.

Trevor: Parts of this episode.

Trevor: We ended up talking about her a lot as an example.

Pat: So she has a new album coming out, right? As in I don't really follow her all that closely, but she's also like, she's she's like this amazing force. And I know she's it's she she comes up a lot in my mind for this stuff because she she got so dinged by Spotify and then her record label like in the two different situations, she had absolutely terrible experiences with the status quo of music production, especially when you hit like super stardom at a at a young age where you really get kind of taken advantage of by a lot of people around you, that she just is the perfect person to like actually really embrace web3 and all this kind of stuff. Yeah.

Trevor: Well, and I think I read something that Rihanna recently dropped one of her albums as an NFT. Oh, did you going back to the point of like, really like the easiest way to explain what Nfts are in my mind is like it's just programable digital assets, whether it's a ticket, whether it's an album or a single song. And so now it's like if you go and buy Rihanna's album and you have the NFT, there's royalties programed in. So depending on how many listens you get rather than all of that going to Spotify and some of it going to Rihanna, the record label, the actual listeners, the audience, they can capture some of the the incentives there, which I think that's fascinating.

Pat: Well, it's it's awesome because it gets back to Libby's point about democratization because I think it was I think it was Paul McCartney or Michael Jackson. Someone did that a few years ago. Oh, no. It was a Aerosmith. One of the big guys out there did that a few years ago where they basically they packaged up their royalties and they sold them. But you had to be an accredited investor. You had to they they did this like really weird, limited offering. Like it was really hard to get access to it, but it was a great way for them to basically say it was a way for them to immediately monetize future earnings in sort of a discount kind of model. And so now you can actually do that yourself through nfts very easily. And if Rihanna did it, that's that's spectacular. Um, you have a whole there's a whole bunch of other stuff before we finish off here. There's a whole bunch of other stuff we wanted to chat with you about. Um, do you know Trevor? You want to take it away on some of these?

Trevor: Yeah. So you talked a little bit about collab land. What are. Are some of the other projects that you've worked with and maybe in answering that question. The second part of it is like, what are some of the big challenges you see from your perspective of doing crypto accounting or accounting for digital assets?

Libby: Oh, okay. I'll bring one up. That gave Pat and I a lot of headaches. Yeah, Refluxer was a pain in the butt. And so they just basically they went all the way to burning the contracts. So they started with an organization and everything.

Trevor: But what is Refluxer for?

Trevor: So yeah.

Libby: So in simple terms, Refluxer is an algorithmic token that's intended to be a type of stablecoin. And basically what what ends up happening is when it's similar to Makerdao, where you have like a vault and it's minted when you lend. But then what happens is that the because the token itself, it's imagine if Dai fluctuated when you made a vault.

Trevor: Which dies and.

Libby: Your retain. So you were you have basically and you and then you loan against ETH. So you have two unstable assets that you're dealing with and that was getting that with Pat was a whole journey. But you know, because getting it to be like, okay, well this isn't stable and it changes all the time. And then the whole point of it is for people to arbitrage it. Yeah. So it's, it is. You're definitely making money and then finding out, okay, how much money do we make from that? If we earned rye, which is their basically their version of Dai.

Trevor: Yeah, I'm simplifying.

Libby: A lot, but that's like the general gist of it.

Trevor: Yeah. So zooming out, if we were to give that like a blanket term, would you say like valuation is one of the number one challenges that you come against?

Libby: I would say yeah, doing valuation. And then also like when, when are you capturing cost of something? Like when are you valuation and disposition? So disposition is like when you dispose of an asset or basically acknowledge that, oh, that turned into from when I'm no longer holding that we sold that or we bought that or whatever, it's changed hands at some point. And and when you do that, that moves where it goes in the accounting component.

Trevor: Yeah.

Trevor: So give us some examples of that disposition component like what are some of the transactions just for those.

Libby: At the most simple level, let's say you did some work with me and I sent you like $100 worth of eath and I sent the minute I sent that to you, that's a disposition from my eath wallet to you. And so basically we would recognize, oh, we don't have that $100 worth of eath and now you do. It's it's gone, it's out. And we spent that on something that would go to an expense at the simplest level. The other part that happens along with this, though, with the disposition on or is that effectively let's say we send you eath is we sold eath effectively at that price. And this is something that is basically in a large enterprise system with lots of transactions, especially things like Refluxer that I mentioned. It's it's really hard to deal with the Fifo or whatever weighted weighted average, whatever you want to do, tracking that in and out. It's like it gets really complicated when you start getting into the defi aspects, when you start getting into the pricing oracles, when you start getting into even like when you have to chew it up to a contract and prove that and then, but then it goes through Coinbase and, and you have to get 1099 for a different value because it passed through something else. You have to be really aware that, okay, you just hit a gate entry point for like a regulatory entity that's reporting to the IRS. So what does that actually mean for that company? And it's under this name, but if you did it on behalf of another let's say you're a multi organization and you did it under your sub or whatever, you have to really care where you're receiving it. Whereas in crypto wallets it's very easy to be like, Oh, I'm just sending it to this other wallet. So it's very easy to think, Fine, fine, fine, fine, fine. Coinbase is also another crypto wallet address. Bam, You hit that entry point and you just hit like you just got like 1099, just automatically. Yeah.

Trevor: So I know you like to talk about this, that one of the biggest challenges with accounting for digital assets is basically any time you move a digital asset, unless it's like to your own wallet, there's not only an accounting event, there's a tax event. And you might even argue a third like regulatory event depending on at this point.

Pat: Now we have regulatory events as well. Yeah. So it's nothing. Nothing like Crypto world is easy.

Trevor: Yeah. It's like there's three things you need to be thinking about. With every single transaction. And then it's like you start talking about micro transactions and it's like you're looking at we work with NFT marketplaces and it's like you've got 50 million transactions in a year. It's just absolutely insane.

Pat: Or we work with a few blockchains too, that like they get 100th of a penny or a thousandth of a penny every time a block is mined. And that's the ultimate of micro transactions is they're doing 3 billion transactions a year Each are 1/100 of a penny or a thousandth of a penny. It adds up. But boy, is that tricky when each of those is accountable, taxable and potentially a compliance issue. Because if they're, you know, in some situations, depending on how the blockchain set up, there might be a component of it that's going to a producer. And in the US we might find that that falls under 1099 rules here in the not too distant future. So it's getting kind of nasty out there.

Rafael: Yeah, it definitely is. Um, Pat, you hit on something that I think is definitely worth touching on. We don't need to go in super deep or anything, but just last week, the SEC gave A12 punch and filed lawsuits against Binance and Coinbase. And it's I mean, crypto Twitter is just ablaze with this news doesn't take much to.

Pat: Get crypto Twitter ablaze. Yeah.

Trevor: Yeah. Um, but tell us your just kind of general thoughts on the issue while acknowledging you're not a lawyer or giving financial or legal advice. What are some of your general thoughts on these lawsuits?

Libby: Mere Pat.

Pat: Libby. That's a Libby. That's a question.

Trevor: Yeah, that's a question. Okay. Yeah. Yeah.

Libby: Okay. I wasn't sure. Sorry. So basically, there's a lot of saber rattling going on, you know, just not speaking about party or partizan, anything. Just speaking about financial from a financial regulatory point of view, you know, the person, the Gary Gensler, just to go back up into history, you know, allowed to do whatever the heck it wanted. And then all of a sudden last winter when things are in flames, he suddenly like just going after, you know, every single thing he can and literally backtracking on things. He's been recorded for saying the opposite. Like, for example, 75% of crypto out there is not a security and I stay focused on him. I in the sense that like we have to remember the source is that and we also have to. And the other thing I feel a little positive about is that the judge for Coinbase is at least reasonable, seems to be reasonable and understanding towards Coinbase thing is like, hey, you don't even have clarity in Gary Gensler and SEC give clarity. I actually think they're undermining, you know, short term they're going to scare a lot of people and maybe he'll avoid it's like the ultimate gaslighting, you know, And then long term, he's discrediting the SEC.

Trevor: From being.

Libby: A party. And so what might end up happening is this SEC loses power or gets dismantled a little bit because it's getting to the point where Congress people are actually taking a stance and saying and actually siding with Coinbase. I don't really know how to say anything about Binance just because they're a different jurisdiction and they do things. But specifically with Coinbase who went under, um, you know, did all the things and like really closely and did like a very good faith effort to do all these things. Um. You know, and they're going to have, you know, basically has an uphill battle here in the sense that, like all eyes are watching. And, you know, this is also a question of is the US going to participate in crypto or isn't it?

Trevor: Or are we just going.

Pat: To completely step away from it?

Libby: And I really hope we don't because we're going to walk away from one of the biggest earning opportunities where we could be the leaders we already have. The Federal Reserve. So it's just one step away. They could just hop into this and they don't necessarily have to tyrannically create a cbdc to do it.

Trevor: Yeah. You know, I saw a.

Trevor: Story today that Hong Kong pitched Coinbase on like said, hey, come over here. We've got regulatory clarity.

Pat: Hard to imagine that. God, it's hard to imagine an industry where China is a better steward than the US would be. But it's certainly I mean, it is it's at the end of the day, like the the way the SEC is doing this sort of regulatory action, like enforcement, like regulation through enforcement is just so blatantly unfair across the board and so nonsensical. I mean, I think it's one of the things that I've been talking about recently around this is like, you know, there are certain laws that you break that it doesn't matter if you know the law or not. Like you murder someone, you murder someone, you go to jail. That's that's sort of a separate issue. You know, financial services laws are not usually like that. They really are this thing where, like there's a lot of expectation on people to be doing as much the right thing as they possibly can. There are guidelines. There are there are some hard laws here and there. But but often intent matters quite a bit in in financial services regulation and and how much of an effort you're putting towards this goes through.

Pat: It goes for tax. It goes for GAAP, like GAAP accounting, like all these things are the same, which is like if you're making a good faith effort and applying the regulatory framework the best you can, you generally will not get into deep legal trouble if you are making a good effort. And that's where what's really broken down with the SEC is like, you know, Coinbase was making a good legal effort. There's and they have kind of the receipts, you know, they showed up. They had so many different meetings with the SEC. They have a they have a a latent exchange broker license that they weren't able to register because they don't trade stocks. And so they weren't able to actually register under that. But like they did all this stuff in the auspices of of correctness. And the SEC is just like one day is like, no, we didn't like any of that. Like, you're now in trouble. That's that's not exactly the way that most financial services laws and regulation and regulations and taxes all work. That really is a a very contrary methodology. Yeah.

Libby: And I would I would also add that one of the things is they keep claiming we're doing this to protect the people, to protect the people. And it's like, well, well, why don't you approve an ETF?

Trevor: Like, why.

Libby: Don't you approve the instruments that allow people to actually be protected and regulated? It's like you literally blocked that. And then you also made claims like, oh, no, individuals or retailer is allowed to participate in this market. Yeah, it's only going to be like hedge funds and like large scale investors. And I'm like, that's not protecting either. That's actually forcing the oligarchy's hand even more.

Trevor: So why didn't you why.

Pat: Didn't you ask SVB what their financials were before the entire thing imploded? Why didn't you actually ask them to do mark to market on their assets? Like there's so many great examples of like where this it's it's very much like theater, theater regulation in some ways, I guess. Yeah I.

Trevor: I think you almost can't group. It's unfortunate for Coinbase that the like Binance happened the day before their lawsuit because in my mind there are two entirely different cases where Binance is case references wash trading and self-dealing like calls out the CEO for some shady practices. Whereas Coinbase, it really just comes down to like what is a security? And it's unfortunate that we now have to go to through the courts to decide that. Or I think the other route, to your point, Libby, is that legislation is currently in the works. So either way, I think the positive is that we will get some kind of clarity, even if it's not what the industry is hoping for, At least we'll know, like here, here, these assets are securities, these assets are commodities and here are some frameworks you can apply.

Pat: There's got to be some really interesting stuff. There's got to be some really weird knock on effects of this, which is to say that like, you know, because the argument that using about Solana comes down a lot to it comes down a lot to communication from the foundation or the founders before it was available. Right? So a lot of the argument around security comes down to was, was there a advertisement of expectation of returns based on this which gets like when you when you look at the world through that lens, it's really an interesting world we live in. Like if you think back to like the old days when you have SkyMall on an airplane and you'd have like those coins, those like commemorative coins that they would sell. They're like bound to go up in value. Like now all these commemorative coins are securities, you know, really nice action figures. They're designed to appreciate, like, are those all securities? You know, there's this really interesting thing that like anything that that anyone hinted might go up in value as the creator of it, which is like pretty much everything that we have in capitalism, like, you know, outside of even cars like, you know, a lot of people buy cars. They're like, oh, these cars, this car is going to appreciate. Like suddenly cars are all securities. I mean, it's it's obviously nonsensical. And that doesn't it's a silly argument to even be made. But but that's the argument the SEC is essentially making is that if you ever said this is going to go up in value, boom, you have a security right there.

Trevor: Yeah, it is really interesting. And I think, uh, on that on that note, there's just a lot of complexities with digital assets, right? We talked about there's a taxable event, there's an accounting event, a regulatory event. It's constantly changing. There's a lot of technical aspects to this. I mean, both of you, Pat and Libby, like you have computer science backgrounds, right? What are some practical tips for accountants looking to get into Web3 with Libby?

Libby: So, um, let's see. First of all, educate yourself at the source whenever possible, Like, listen and learn. But, you know, there's a lot of, you know, just basic stuff, like, you know, it's this is something a developer would automatically do when they're working with an API or something. But this is something that everybody who can take a little bit of time to do, you know, read the source material for the the protocol you're using, just even uniswap, you know, just something very simple read, read around, have lots of conversations. This is a collaborative journey, um, where there's an intrinsic voting thing that happens with, with, with lack of guidance. You know, it is like everyone making their best guess. And so the more you educate yourself on what's possible and the more you do both structured learning and also just organically keeping your ears open, that's really helpful. You know, when in doubt and some really strange legal place, I'll talk to a lawyer. It's worth it's worth the time if you're going to like instead of jumping into something soon. Because a lot of the regulatory stuff comes from, as you said, did you start the correct way from the beginning? And if you had like that wrong thing for the first 2% and then you corrected it, you could get nailed by the SEC. So it's just just in this very conservative regulatory environment and and educate yourself a little bit about technology, because the hacking, the phishing, the the security stuff is so important. And also, you can kind of look back if you're like an accountant, you can look back to what are controls like related to auditing and things. Those are similar things that actually really come into play and are really helpful and applicable. So looking at how you can apply your current knowledge to build on what we're doing with these new systems is also helpful. You don't have to necessarily start from zero. You can start from like a scientific method style, have a hypothesis or like an application and work with that and then go from there. Um. And like I said, there's a lot of things between university is.

Trevor: Actually a good chance for.

Pat: Us to talk about a little thing we've got coming out. Trevor, why don't you tell tell everyone about Betway view?

Trevor: Yeah, I mean, if you're perfectly well done.

Trevor: Libby Yeah.

Rafael: So we are launching Bit Wave University this week. I mean, depending on when you're hearing this. But yeah, this week we're launching it.

Pat: That'll be the week of June 12th.

Trevor: Yeah, week of June 12th. It's a platform to educate accounting and finance professionals that are either curious about digital assets or are deep in this industry. And Libby, you and your team at cipher accounts put together some really solid courses. Honestly, I think they're probably the first of their kind because there's some general like Crypto 101 stuff, but getting into some of the deeper like how do you account for mining and staking revenue? Tell us a little bit more. Libby because this was like obviously we we've been talking about education, but what prompted you to create these courses and maybe you can speak a little bit more to the content you guys put together.

Libby: Some of this came from was motivated by accounting nightmares of everyone creating their own standards and designs. And and it's like the sooner we can educate the client or the professionals, the the better. We have better positions we have with regulatory people, but also the better the the, the quality of work you can do as accountants and things like that. So some of it is just like getting that. And the other thing is I come from the fundamental belief that knowledge should be shared. And I saw that, you know, a lot of the conversation around it was really surface level of, okay, this is what you do, but it's not getting into the philosophy. And if you read a good accounting books, they get into the case studies, they get into like the whys and hows. And, you know, I just wanted to go like a layer deeper. And again, we come from the technical background, so I was adding a technical information for people to understand it too, because if you understand the way the technology works, then you can understand like how to work together. Because oftentimes we work with engineers and with our clients and try to try to design something that works both for the accounting and for the engineering side. And you can save companies a lot of money that way and also just build a better, more robust crypto system. Yeah. So yeah, we wanted to like, we were like, Well, we know all this stuff and it's like in our heads, yeah, we should share it. Yeah. And you guys.

Trevor: Seriously go check this out. We'll drop a link in the show notes below. But Libby's courses are absolutely amazing. Like I said, she gets into some of the deep technical issues, but in a way that's really pretty easy to understand, even if you're just getting started on the digital journey.

Pat: It's university betway of.io is where you can get it. So that's we'll drop a link in there also, but it's easy. University.betway.io in there. Well we're coming up on time here. Libby I want to do one final thing before we go, which is I know you've been writing a book, and I wanted to ask you about, a, how it's going, and B, what got you writing it and talk a little bit about it because it obviously relates back to to crypto here. Well, once you tell people what it is, they'll be obvious.

Libby: So yeah, so the title of the book is called Win Condition inspired by watching our capitalist world with zero sum games and things like that. But, you know, I was speaking to a friend and she's like, You should write about crypto. And I'm like, I work in crypto. And she's like, No, you should write it. I'm like, But I want to write a sci fi. So she's like, You can write about crypto. And I'm like, okay.

Trevor: Okay.

Libby: And then I'm like, What is crypto going to be like? If we take it several generations forward? What kind of world do we live in? And I wanted to also show people something that you don't really see in technical videos, which was the culture and the anecdotal lessons. So I did it through kind of a fairy tale. And so it's it's going into where is this going long term? What are the what's going to happen with the Tokenomics multiple generations from now? And it kind of deals with all of those components and also has a little bit of fun stuff and callbacks and Easter eggs in there because of course, you know, I'm coming from gaming and it also has it's centered around a game as well that I wished existed.

Trevor: Yeah.

Pat: So Libby, is is it out yet or is it coming out soon?

Libby: So it's I'm thinking that I'm trying to decide between dropping it at the end of this year or early next year. But basically I am handing literally in about three weeks I'm handling the final copy to the editor for. Recruiting and then it's done. And then the question is, am I doing an audiobook, which I probably will be, and do I put them at the same time or first and then it might have an NFT that goes with it as well because it's because it's crypto.

Trevor: So why not?

Pat: Is there a place people can go to follow, learn more or anything like that?

Libby: Um, not yet, but I will be putting information on my site. Libby. Libby I'm an ally. Libby Life. And I am probably going to make a formal site as well, and I will direct them from that website. But. Libby Life was what my old graduate thing was that my company name sort of informally was for a long time before it became cipher counts. So that's always been a hub for all of my information. And so I'll make sure I put information there for that. So it's Libby life.

Trevor: Awesome. Amazing. And then if you are a crypto project or dealing with digital assets in any way and need a trusted advisor, um, cipher counts.io is Libby's website. They're amazing. Uh, feel free. They have a contact form there on their website, so definitely go check that out. Yeah.

Pat: Cyber counts.io.

Libby: Yeah. And we do everything from accounting to product consulting and we do some technical consulting as well. So and fractional CFO, we kind of do a lot of different things there because we just love every part of it.

Pat: Well, Libby, thank you so much for being on with us. This was this was really a pleasure. It's always a joy talking to you. Good pontificating on all things from SEC to sci fi world. So thank you so much for for being on with us. And thank you, everybody. Have a really wonderful week.

Libby: Thanks so much.

Trevor: Libby. Thank you.