It’s not every day when a business loses $66 million dollars into thin air. Yet that’s exactly what happened to Polkadot, a company focused inter-chain blockchain protocols in 2017. [Note, that cash figure is based on the price as of writing of this article, it would have been more when the hack took place]. Polkadot is sadly not alone in this. Many companies as well as individuals have suffered losses from hackers or the mistaken press of a button. While there are examples of similar situations in the traditional finance world, these are extreme aberrations.
Companies that hold cryptocurrencies should know that the possibility of mistakenly transferring a cryptocurrency, or worse of having an exchange or wallet account hacked, is the sometimes the cost of doing business.
There are unfortunately very few protections for users who lose their assets or are victims of hackers. If your assets are lost in a hack by an exchange, the best thing you can do is file a claim with the exchange and be vigilant about following up on it. Many exchanges have restored lost funds out of their own pocket, yet sadly many have not. Choosing an exchange that you feel comfortable with you data and assets in is an important choice to make. If recompense from an exchange is not an option then here are a few immediate steps to take:
- Thoroughly document the events of the occurrence.
- Calculate gains or losses payable for taxes. If the asset has increased in value, you are unfortunately liable for the capital gains obligation. In order to avoid this, the company must enlist the help of a third party to conduct a forensic examination proving that you are no longer in possession of the asset.
- Check your insurance policy. It is possible that since cryptocurrencies are currently considered capital assets, some policies may cover the loss or theft.
- If there is a capital loss, there is an available deduction of $3,000 per year, netted against capital gains.
- For financial statements, unfortunately this requires a footnote explaining the write down of the asset.
If you have questions about this article, or your company is looking for a cryptocurrency accounting solution, please reach out to us here.