Cryptocurrency and blockchain have been buzzwords for years now, often talked about as a great idea with huge potential though in practice we have not seen the effects of this technology garner much mainstream adoption. But some recent moves in the space suggest that mainstream usage might just be around the corner. And when the mainstream hits, can we possibly see an Accounting Firm Coin where firms start launching their own branded cryptocurrency or token soon afterwards?

Why would that make sense, what would it look like and what would the benefits be?

Let’s dig in.

The Crypto Tipping Point?

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One of the reasons why cryptocurrency, namely Bitcoin, is so popular is due to the concept of being able to exchange value in a peer-to-peer global network easily, cheaply and seamlessly. Blockchain, the technology that underpins Bitcoin, which at its core is essentially just a public ledger, is also seen as something with huge potential for a variety of reasons, but namely due to the way that the technology can automatically and accurately record all activity hitting the ledger without any central authority governing it. I give a small primer on blockchain in a recent article here.

To date though, only an outlier group of people have been leveraging the technology in practice since its inception. Big companies and governments have shown interest, but none have gone all-in.

Perhaps not until now.

Facebook, one of the largest tech companies in the world, recently announced their latest project called Libra. Libra is a cryptocurrency that will allow their Facebook, Whatsapp & Instagram users to exchange value with other users easily & seamlessly directly from within their apps in a decentralized fashion, where no one person or company will control the cryptocurrency, not even Facebook. We won’t go into specifics about the project and why I think it’s cool (which I wrote about it my weekly newsletter here – sign up if you like the vibe), but if you want more information, you can read the Libra white paper here.

While there has been a lot of hype around Bitcoin and blockchain for many years now, not much has truly materialized. However, I believe what we have been waiting for all along is a catalyst in order to achieve more mainstream adoption of cryptocurrency and blockchain. My opinion is that Facebook’s Libra could very well be that catalyst.

But this move also signals another very important trend. A trend that I think could have interesting opportunities for innovative accounting firms: tokenization.

Tokenization

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A token is a unit of value. There are tons of different kinds of tokens out there. If you go to the arcade, you’ll get tokens which you can exchange for playing video games. Air Miles are commonly recognized as points, but essentially, they are a form of tokens that you are rewarded with and which you can exchange for a variety of things. You can also have certain kinds of tokens that represent ownership of an asset or a stake in a business. In the end, tokens represent value which can be exchanged for other things of value.

The issue today is that there is a lot of friction around exchanging value (if I want to send you money today, how seamless is it really? How many clicks need to be made and is it truly instant?) and on top of that, in order to make it even quasi-functional, you would need an expensive and complex infrastructure to issue, track & redeem tokens. What blockchain helps with however, is its ease of being able to create a network heavily integrated with the internet where value can be issued, tracked and exchanged, which is why we are beginning to see new uses cases for creation and exchange of value by innovative companies that want to leverage the technology to take their business to the next level.

Facebook is one of those companies.

With its billions of users, Facebook knows that its value resides in them being engaged and active on its platforms. Without this, they have no business. While we don’t know exactly how Libra will be rolled out, I would wager that, in addition to being able to flat out buy Libra tokens (which we know will be possible according to their white paper), active users would be rewarded in tokens based on certain events that bring value to the platform.

For example, if you post a quality piece of content on your Facebook page that gets 100 likes, perhaps you get rewarded with a Libra token. Or, let’s say someone on Instagram posts an awesome pic of their trip. So awesome, that you decide to tip them with a Libra token with the click of a button. Essentially, something as easy as pressing the “like” button, but instead, value in the form of tokens is transferred as that happens. By being heavily integrated into the internet, blockchain can assist with this entire process of tracking all distributions, transfers & redemptions instantly and seamlessly on a tamper-proof ledger. And because of this, we see these new kinds of use cases emerging.

The interesting thing about what Facebook is doing here is that they are identifying the parts of their business model that hold value (the network of users on their platforms) and incentivizing these users through tokenization of their business. They know that likes, posts, videos and pictures are all part of the game of keeping a user base active and if Libra tokens are being exchanged to help incentivize this kind of activity, they will benefit from a more engaged audience and therefore will be able to more easily monetize these users (the more active a user is, the more easily that user can be monetized).

Not only does Facebook benefit from increased revenue potential due to a more engaged audience, but they also gain a more loyal user base by locking users into an ecosystem. If I have 100 Libra tokens on the platform, and those tokens represent something I like, why would I ever join another social media platform where those tokens won’t be able to be used?

On top of that, due to the ease of being able to exchange cryptographically backed tokens in a peer-to-peer fashion, those that aren’t already in Facebook’s ecosystem may receive Libra tokens from a friend in a variety of ways and then join the platform in order to use them. So it may also be an interesting customer acquisition strategy as well.

Another example? The popular messaging platform, Kik, just recently went down this route as well (albeit with some legal issues, watch out for those in a market that still doesn’t have regulatory clarity!). Kik will essentially issue Kin token to users who help create value on its platform which can then be redeemed for a variety of different things such as exclusive content, certain (yet to be named) experiences, services and more.

The interesting thing to note is that tokens appear like they’ll be automatically rewarded to users based on certain events occurring. Post a pic that gets 100 likes? Get a token. Message 10 times a day in the platform? Get a token. This automated distribution of tokens is exceptionally well handled by blockchain.

While these are just 2 early stage examples of businesses issuing their own branded tokens, with the way things are trending, it’s feasible to imagine that most companies will have branded tokens down the road, hence Accounting Firm Coin (ie. a generic name for your branded firm’s token), Deloitte Coin, Big 4 Coin or whatever you want to call it.

The How & The Why of Accounting Firm Coin

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Let me preface this by saying that there are many technical matters to work out and far more mainstream adoption of blockchain required before I think something like Accounting Firm Coin could take off. But if Facebook is able to take some of the intangible interactions happening on their platform and turn them into a token, why can’t accounting firms do the same?

Ultimately the goal surrounding tokenization is the same in both an accounting firm’s and in Facebook’s case, which is:

To tokenize aspects of the business in order to incentivize users (in a firm’s case, users = clients) to join & stay within your ecosystem (ie. your firm), to increase cross-selling of services among those users and/or to help increase profitability through efficiency gains.

Before a firm can realize this goal though, there needs to be a process in place that identifies how tokens should be distributed to its users, which could happen in one of two ways:

First, you would need to understand your current business model and how value is derived from it. From there, you would distribute tokens in an automated fashion based on certain events occurring to those that can help magnify this area of the business and thus help increase its value. Facebook understood that an active user base translates into more advertising revenues and, down the road, when/if Libra actually succeeds, there are rumblings of how they’ll be able to cross-sell other services to their user base through their new currency. A firm should therefore go through the same exercise to establish where the model derives value and reward clients that are magnifying these areas with Accounting Firm Coin.

The second way to look at tokenizing your firm would be to identify processes or areas of the firm that are inefficient and reward those users who can help eliminate some of the friction in your model, thereby helping you improve profitability.

One big point of inefficiency is with firms not getting the information that they require on a timely basis to perform their duties. Let’s look at bookkeeping for example. It requires lots of source documents to be sent over. If you are missing documents, you have to pester your clients, sometimes repeatedly, in order to retrieve what you need. However, let’s say you rewarded your clients with units of Accounting Firm Coin if they provide you with 90%+ of the source documents you require each month to perform your task, surely that may incentivize them.

How would this even work?

Well, Receipt Bank (an app that allows your clients to send in their receipts and then you push to Xero or QBO to match against credit card & bank transactions) already has a dashboard in their app which shows all receipts sent in that match to bank transactions in your accounting system, so it would be feasible to know the percentage of receipts missing each month if the data was presented in a slightly different way. And since most of these apps have relatively sophisticated API’s, in theory, you should be able to retrieve this data on-demand where your firm could issue units of Accounting Firm Coin to your clients automatically based on them hitting certain ratios.

The client has an incentive to receive these tokens for good behaviour whereas the firm reaps the rewards of further entrenching clients into their ecosystem along with efficiency gains of not having to chase for missing documents. Thus, tokens can represent a bit of grease to the engine.

Again, in order to automate the distribution process, you would need to tie the distribution of these tokens to specific events or triggers taking place. We are not going to build a distribution process around manually verifying these ratios for each individual client. It simply would not be scalable.

Another important point to consider is the valuation of these tokens. You could set their value based on some kind of redemption schedule (ex: 100 x Accounting Firm Coin = free business check-up with a CPA, etc), you could peg their value to something stable, as we are seeing with many tokens at the moment such as Libra. Or you could allow them the value to be completely controlled by supply & demand, which is obviously risky and may expose you to liability in a number of areas, but could also be the highest reward if your firm is aiming for the stars.

Diving Into The Benefits

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As noted above, a firm can create a token for the purpose of increasing revenues & increasing profits which can come in a number of ways:

1. Reducing user churn

If the program is setup properly, users will see the value of the tokens they receive and therefore will help create customer loyalty by locking them into an ecosystem, making it harder for them to want to leave for a competitor.

2. Increasing user acquisition

One of the interesting things about tokenization is that it can help bring users in easily, something that traditional point programs, like Air Miles, can’t do as well without a relatively involved sign-up process. That’s because blockchain is a great way to be able to exchange value with little friction. So if a client of yours and wants a friend to try your firm out, perhaps your client sends them 50 Accounting Firm Coins for which they could redeem for a preferable rate at your firm (or for whatever your redemption schedule offers).

This concept is interesting because with smart marketing, you could increase the virality of your business. All you would need is some kind of crypto wallet, which are becoming increasingly popular, and something I would expect the majority of people to have down the road.

3. Increasing the value of each user through up-sell & cross-sell

There are a variety of ways in which this could work and how you could play this, but a simple example would be that you’ll be able to easily identify your best & most engaged customers, which are the ones with the most tokens. From there, you can roll out premium services and features to these clients. Perhaps clients that have 1000 Accounting Firm Coins will be able to take advantage of 1 hour response time service levels or weekly CPA check-ins. These sorts of features will likely help identify up-selling and cross-selling opportunities amongst your most engaged group.

Done right, the use of tokens can be an interesting way of increasing your revenues per client.

4. Improving business efficiency

As noted above with the Receipt Bank example, tokens can be provided to users who help grease the machine and render the business more efficient. If you can find areas of the business where customers are making things time-consuming or inefficient, automatically rewarding them with tokens based on certain events can be a way to curb their behaviour and therefore an effective method of decreasing costs associated with wasted time. This can be especially interesting in a service-based business that relies on good customer behaviour for the smooth running of the firm.

Can Accounting Firm Coin Work?

There are a lot of things I am skipping over in this short piece. This isn’t meant to be an incredibly in-depth technical post about the ins and outs of a potential Accounting Firm Coin, but simply a piece to shed some light on what appears to be a trend of companies tokenizing parts of their business to maximize loyalty & incentivize customers to help boost revenues & profits, something which I think could ultimately apply to accounting firms as well. Tokenization is certainly a trend worth following for accounting firms.

What do you think? Can Accounting Firm Coin actually work for accounting firms? Use the comments section below to chime in if there’s something on your mind!