[Analysis] The Bitcoin Lightning Network adds a new set of accounting challenges - Michael Sasson and Jeremy Nau

The Lightning Network is a promising scaling solution for faster, cheaper payments for blockchain protocols like Bitcoin. But Michael Sasson and Jeremy Nau, marketing and accounting professionals, argue that:

"Just when it seemed like accountants, auditors and tax professionals were beginning to understand the base layers of the Bitcoin network, the implementation of the Lightning Network unleashed an entirely new set of unresolved accounting, audit and tax challenges."

The unanswered questions raised by Lightning Network payments are numerous, and Sasson and Nau share a few. Discussing Lightning transactions, they ask:

"However, how should these be accounted for in a company’s books? Should the funds in a payment channel be treated like escrowed funds in a “restricted cash” account? Should the bitcoin in a payment channel be complemented with a liability because the funds could seem as “encumbered” by the two-of-two multi-sig? These questions remain unanswered and are bound to exacerbate in the coming years."

Ultimately, these questions will find answers, and the Lightning Network presents as many opportunities as questions. But for now, accountants are left scratching their heads.

Learn more about Lightning Network here.