Accounting for Crypto Mining Costs

There are two major accounting issues for crypto miners. The first is how to deal with the costs
of the operation. If a crypto miner uses cloud mining, this means the miner is renting space on
someone else’s computers, which are called rigs. The rental cost of the rig is charged to expense
in the period incurred. In this situation, the miner doesn’t have to invest in any computers or
software, so there’s really nothing to capitalize.

Or, you might buy the equipment and choose to run your own mining operation in-house. If so,
the computers and software are capitalized and depreciated over their useful lives. There’s also
going to be a massive monthly charge for electricity, which gets charged to expense in the
period incurred. Do not capitalize the cost of the electricity.

Accounting for Crypto Mining Currency

The second major accounting issue is how to deal with the resulting crypto currency. When
mining activity results in the creation of currency, you can recognize it at once as revenue –
there’s no need to sell it to someone else first. The amount you recognize as revenue is the fair
market value of the currency on the date when it’s created.

If you then sell the crypto currency and convert it to cash, then there’s no further accounting to
worry about. However, some miners want to hold onto their cryptocurrency for an extended
period of time, to see if it appreciates in value. If so, just remember that cryptocurrency is
classified as an intangible asset, not currency.

That means you have to reduce the value of the asset if the market value of the currency later
declines. And, because generally accepted accounting principles mandate that you can’t write
up the value of an intangible asset to a higher amount, you cannot do the reverse. In short, the
accounting for cryptocurrency is a one-way street – you can only write its value down, not up.

The only way to record a gain on the value of your crypto currency is to actually sell it for a
higher price.