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Bitwave Looks to Bridge the Chasm Between Traditional ERP and Enterprise Cryptocurrency Accounting

Of the many barriers to blockchain adoption that enterprises must contend with, one of them has to do with basic record-keeping issues. If you've ever studied the details of just a single blockchain transaction, then you'd know that, from a financial point of view, such transactions look nothing like the sorts of transactions that are typically recorded into an organization's financial ledger or enterprise resource planning (ERP) system.

Blockchain transactions have multiple "ins" and "outs" and involve financial values that go up to eight decimal points or more. From one chain to the next, there are wildly different transaction fee structures involving multiple fee types, all of which have to be individually recorded and categorized. And then there are the compliance issues. The organizations that set the standards for how all transactions are recorded (blockchain or not) like the Financial Accounting Standards Board (FASB) are just now issuing their final guidance on how to comply with Generally Accepted Accounting Principles (GAAP).

Meanwhile, today's ERP and accounting systems are light years behind. Enter Bitwave; a solution provider that bridges the gap between the way transactions are recorded on dozens of different distributed ledgers and a multitude of existing enterprise financial solutions such as Oracle Netsuite.

To find out more while he was covering Consensus 2023 in Austin, TX, Blockchain Journal editor-in-chief David Berlind interviewed Bitwave co-founder and CEO Patrick White at the Enterprise Digital Assets Summit (a satellite event that took place the day before Consensus 2023 started).

Consensus

By David Berlind
Published:May 3, 2023

Audio-Only Podcast

David Berlind: Today is April 25th, 2023. This is the Blockchain Journal podcast. I'm your host, David Berlind. And I'm coming to you from the Consensus Conference in Austin, Texas where right now the Enterprise Digital Asset Summit is taking place. And I am standing with Patrick White. He is the co-founder and CEO of Bitwave, the producer of EDAS, which is the acronym for that summit. And we were talking off-camera for a little bit and I thought, "Okay, I better grab this guy for an interview", because you guys are deeply familiar with many of the challenges to adopting blockchain in the enterprise. So first of all, thanks for joining me on the show.

Patrick White: It is my pleasure. Thank you so much for having me.

Berlind: So, as we at Blockchain Journal, look at all the different barriers to adoption, one of the things that we saw was that the current supply of special systems to do all your accounting, your back office, SAP financials, Oracle financials, generally speaking, not very well tuned to the nuances of dealing with cryptocurrency. Whether those nuances are just the idea of looking at the fees you pay just to use a chain, or if you're accepting payments and cryptocurrency. None of these existing systems take into account all the challenges, for example, volatility. While we were talking, I learned that you guys work very closely with one of those systems, Netsuite, and you do something special to help overcome those weaknesses and the existing systems. So I'll stop there, Patrick, and let you take over and tell me a little bit about what Bitwave does.

White: Perfect. Bitwave is what is called, technically in the accounting world, a sub-ledger. So it is to say, is that we are a[n] accounting and tax sub-ledger for digital assets and cryptocurrency. We work with all the different big ERPs from Netsuite to QuickBooks to Xero, Sage, [and] Workday — up and down the stack like that. What makes crypto so hard to work with for traditional ERPs is that crypto is kind of the unholy child of both an inventory as well as a Forex. So it's a foreign currency in the sense that you pay people with it. I pay bills with it, I get paid with it, I pay my employees, my payments, all that kind of stuff. So in that sense, it feels like Euros or Great British Pound or anything like that. But it is treated like a[n] inventory item for tax purposes and accounting gap purposes, which is to say that you have to track lot by lot every single coin you ever get and you have to relieve it.

So in a traditional ERP like Netsuite, that's actually two different modules. You have an inventory module to do item-level tracking, and then a separate Forex module. Bringing those two together is just not possible in traditional ERPs. And it gets even harder. ETH has 18 decimal points. Bitcoin is (a) better because you get down to 18 decimal points on ETH and it doesn't matter anymore, that's 0.0001 cent. Bitcoin does matter. Six decimal points for Bitcoin is still material. So, that six decimal points for Bitcoin today is more than a hundred dollars. So that is actually real money that you are dealing with at that point.

Berlind: What did traditional ERP systems go to? 2?

White: 2, 3, some of them maybe get to four, but QuickBooks stops at two. So it's not designed for this kind of stuff. And then of course, none of them [are] designed to handle these really complex transactions. Crypto transactions are not bank transactions. [In] a bank transaction there's either it's a "to" or a "from," there's a single amount, there's a single ticker. That is not a crypto transaction. A crypto transaction is one transaction on the blockchain with a bunch of "ins", a bunch of "outs", a fee that gets paid. With this new 4337 protocol, someone else could pay a fee and you could use USDC to satisfy. A crypto transaction is crazy and incredibly hard to both bring into a register view like you'd be used to in assets. So that's what we do is we bridge the gap from all the new blockchain technology systems into the traditional finance world. And it is a blast.

Berlind: It's a blast. How many enterprises are taking a look at Bitwave and who are some of your customers that you're helping to figure out how to bridge this gap? Because there aren't a lot of enterprises generally speaking that have embraced crypto yet, but there are certainly a handful of early adopters.

White: So, we have over 300 clients, which is incredible. I'd say about a quarter of those are Fortune 50, Fortune 500, those types of customers, companies like GameStop, companies like Nike, companies like OpenSea, Magic Eden, and those are more crypto native companies, marketplaces for NFTs. But boy, they feel like enterprises because they're large companies doing millions of dollars a year in transactions. In some cases 250 million transactions a year. So this is where you start to also diverge from traditional ERPs. [In a] traditional ERP[s] like Netsuite, the first quote they give you will probably have a thousand transactions a month on it.

I don't think we have a client that does a thousand transactions a month in crypto and we have clients doing 50 million, 100 million, 250 million transactions a year easily. We're working with some right now who is 2 billion transactions a year. So the volume of what you actually have to do in this is, it's unprecedented in the accounting world. The people who deal with this are Walmart, and Walmart has a full sub-ledger. They have a bunch of technology. They probably have a thousand-person finance team that does this. When we talk to someone like Magic Eden, they've got a three-person finance team, like three brave warriors with a shield dealing with 250 million transactions a year. It is a totally different ballgame out here.

Berlind: And some of the things we've seen so far here at your event with the speakers on stage is they're talking about how complex many of those transactions are or tracking. What I'm really getting at is that there's no standard for how any individual chain handles the accounting on the chain itself. And because of that, you have to from Avalanche to Ethereum to any one of them that they're all so different that you have to somehow bridge the gap between these and the traditional ERP systems. That means you have to come up with essentially a separate API for all of them?

White: Every single one of them. We integrate with over 50 chains and each one of them is difficult to integrate with. Each one of them has their own challenges. It's integrating with hundreds of banks that all have a different way of working, a different notion of money. It's not just a hundred banks all have one transaction, one amount, one dollar sign. It's like everyone has a different way it works. Sub-transactions, meta-transactions, different types of staking and withdrawals, DeFi. It is really really crazy. And we're getting closer to standards. The big news that we talked about — we had a big session this morning that was all about this thing, we call it the FASB update. FASB is one of the accounting regulatory boards that cover(s) US gap accounting.

They recently released a... it's not a final guidance yet, but it's approaching that, that was all about how to account for digital assets. We're getting there. It wasn't perfect. It left a lot of stuff out. It's going to, in the short term, add more complexity before the complexity of ratchets back down. But we're slowly getting to something that's very usable. But then the other part that was great about the show is we've been seeing a lot of really cool tech like the streaming payment stuff was incredible. Did you get a chance to look at that?

Berlind: I did see the streaming payments tech. I didn't quite understand where enterprises would appreciate it. I saw where other entities, or let me say that where non-crypto native enterprises might appreciate it. For example, I don't think you see a lot of enterprises getting into staking. They're probably doing other things like they're making NFTs for customer engagement or they're accepting crypto payments or making crypto payments. But it seemed like that was one of the primary applications there, but maybe I got it wrong.

White: So the streaming payments is a long-time use case that we've all been hoping is going to come to crypto because... there's this great story that it's never let the facts get the way of a good story. There's this great story that the first car that ever got invented, they put a stuffed horse's head on the front of it and the idea was it would make the other horses more comfortable. It would make you as a user of this car understand what you were doing. You're riding the thing. I think it's been totally disproved. That's not a real story, but I love it anyways. And I feel like we're in that "horses' head with crypto" phase with crypto right now where we're trying to take current processes like ARP, which is how bills and invoices get paid at big enterprises and we're trying to adapt them to a crypto world.

And it's better. It's not an order of magnitude better. It's a little bit better. So right now, I can send a wire, it takes a call to my bank, it takes a data to settle. There's some complexity. I get hard questions like, "Have you talked to these people on the phone?" and, "Tell me your social security number." But it works. So we're saying that, "Well, hey, crypto can let me settle that instantly." I click a button and suddenly a million dollars moves from my account to that account instantaneously. That's [an] instant settlement. That's really exciting. So businesses already like that idea. Streaming is taking the next site, which is to say the traditional way that invoicing works at enterprises is you come up with some sort of number, like let's say Net 30, Net 15 that says, "You have to pay me this bill within 15 days receiving the invoice."

And that means that you will, on average, you're probably going to get it at day 15, but you'll on average get it at day seven. Something in that range. Streaming says, "Hey, I'm going to open up a channel between my company and your company and we're going to stream money." So you're going to send me a bill and the first day that I'm using your service, you are going to get one day's worth of money streamed into your account. On average it's the same. You're going to have, all of it will be delivered by Net 15. It will average out to be delivered by Net 7, but you're actually getting immediate access to it and I'm holding onto my funds longer. So I'm actually holding my funds until the very last minute and you're earning interest on and things like that.

Berlind: It's the utility model. It turns everybody, all businesses into a utility, pays you go. But why can't a smart contract just do all of that?

White: That's a smart contract doing that. So this is who we brought on stage here was a company called Superfluid, they've built a suite of smart contracts to do this work. So it's the first time that we're really seeing rubber meets [the] road on this use case. And then that of course then brings a lot of complexity around accounting that we have to deal with, which is how do you account for it? Because you obviously can't pick up a transaction every second. Your accountant will come after you with the hatchet, The Shining style. So you have to find some other mechanism to account for it, whether that be rolling up hourly, daily, weekly, [or] whatever it is.

Berlind: And so Superfluid is providing a standard way for enterprises to start behaving in this way as opposed to writing their own smart contracts, which by itself is very problematic.

White: And that's one of the big issues in this. So we include in this part of life the infrastructure here because at the end of the day, that smart contract is really hard to write and it's really hard to write securely. So we don't want every business writing that. Like, let's take — Nike's a good example. You don't want Nike writing that contract because, like, Nike's really good at branding, they're good at shoes, they're good at apparel, they're not good at writing smart... or maybe they have something there that's amazing. I'm not going to disparage them. But the idea is that let's take people who are really good at this and I'm going to start building these protocol layers that anyone can use.

And that's what we're talking about here. You have companies like Superfluid doing the streaming side request is doing more traditional invoicing. You have everybody up and down the stack that's working on this and it's all about how do we enable enterprises to adopt digital assets, and what are the hooks that are going to get them excited? Is the hook, "Hey, we can suddenly have a smaller AR department because all of this is just these streams back and forth?" Is the hook that, "Hey, we have more confidence in our accounting because it's all on-chain?" There's different hooks for different businesses, but it's really exciting to see it coming together.

Berlind: Going back to what you said about all the steps you normally have to take, you have to wire, you have to check, get social security number, whatever it may be. I'm reminded of the saying that the fastest way to send a million dollars to somebody in Europe is to actually fly it over there.

White: It's always [the] fastest. It's in some cases [the] cheapest as well. I still remember the first time I sent something to India. I mean, I didn't even think about it and I got a $500, $600 fee tacked on the other side of it accidentally. These current financial systems are ... Crypto, it's a living, breathing entity that everyone has different opinions about. And you can look at something like FTX and say, "Oh, it's all fraud." You can look at something like what we're doing and say it's all enterprise. It's obviously a mix of all of these, but at the end of the day, it really is about in some ways attacking that middleman. It's taking that middle man, whether it be banking, whatever it is, and going after them saying, "We don't really need this anymore. We don't need someone settling a payment", which all they're doing is flipping a bit in a database.

"I don't need you to flip that bit in the database. I can flip a bit in this database over here just fine." So that's one of the things that's so exciting about crypto and so revolutionary about [it] in general, if you separate all the noise about NFTs, all the noise about everything else, this is a way of doing peer-to-peer value transfer that we've never really had in the same way that then enables use cases like these streaming payment systems, all of these different use cases that we get excited about.

Berlind: You mentioned Nike. What specifically are you doing for Nike?

White: We help them with their accounting. So they get revenue from selling NFTs and doing airdrops. Like just yesterday, they actually did a[n] airdrop of virtual sneakers. They get a bunch of revenue from that that they have to do revenue recognition for tokens. So as you're getting the tokens, you actually have to recognize the revenue, get it onto your books, categorize it, all that kind of stuff. So it's a large, tricky project to handle at scale.

Berlind: Now why haven't the traditional ERP systems like SAP or Oracle, why haven't they just updated their systems to do what it is you're doing as sort of a middleman? You talked about [the] middleman, but now you're the middle guy in between these enterprises and those ERP systems, it seems like they would get hip to all of this and update their systems.

White: They might at some point. And we talked about decimal points, we talked a little bit about this idea that it bridges two modules and there's the old principle, what is it, Conway's Law where you tend to ship your organization. If you get into organizational theory, there's an organizational theory reason, which is that you have a Forex group at an ERP company and then you have a[n] inventory group and suddenly you have a turf folder deciding who actually has to pick up [the] blockchain. And so are you going to give the VP of the company who you like the best, the opportunity to go work on his own little project? Well then, both those teams are going to be resistant to you actually bringing that in. There's complexity that gets into this in doing this in big companies, I don't tend to worry about big companies that way from that side.

But then the other way is that the blockchains are incredibly difficult to integrate with. So the same question could be asked of why they didn't build their own banking integrations. So almost all the big ERPs, use someone like Plaid that actually has built out all the banking integrations. And that's because doing banking integrations is very difficult. Doing blockchain exchange, [and] custodian integrations is incredibly difficult. So you are basically having to deal with hundreds of APIs that are poorly documented. They're complex in all sides and it's tough. So we think we sit in that middle area really well. We don't try to do anything that the ERPs do. We don't have a P&L report because that's what the ERP does. We just help bridge the gap between them.

Berlind: Great. Well, Patrick White, co-founder, CEO of Bitwave, the producer of this event here, Enterprise Digital Asset Summit. Thank you very much for joining us on the Blockchain Journal podcast.

White: It was my absolute pleasure. Thank you for having me.

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