MAUREEN DINGUS: Welcome to Leading Forward, the Virginia Society of CPAs’ podcast where we focus on innovation, leadership and the CPA profession. I'm your host, Maureen Dingus. I invite thought leaders for short, casual conversations on topics and trends important to the CPA profession. On this episode, we're going to talk to VSCPA member Louise Reed. She is a sole proprietor in Richmond, and we are going to talk about Louise's journey into the world of blockchain. So Louise, thank you for joining us today.
LOUISE REED: Glad to be here.
MAUREEN: So let's just start right off the bat with what sparked your interest in blockchain.
LOUISE: Two years ago, I went to the CCH/Wolters Kluwer conference, national conference, and they had a talk in the technology track called “What is the blockchain?” and I had no idea what the title even meant. My experience with those conferences are that they are usually innovative topics, so I went. I was pretty sure the only CPA there. There were about six other attendees that were technology, that were supporting CPA firms with technology. And I just heard the speaker speak and it struck a chord with me, the power of it, and as they say, I've gone down the rabbit hole.
MAUREEN: So at that time, two years ago, people were just hearing the term blockchain , and even now, I feel like, folks are still trying to grapple with even just the basics of what is blockchain. So what is your explanation of what is the blockchain?
LOUISE: Two days ago, I was on a flight coming back from another CCH conference and sat next to a man who was traveling because he was on the board of a number of publicly traded companies and private companies, and he asked me what the innovations were in accounting and what I've learned at my conference. And I asked him, “Well, have you heard of blockchain?” And he said, “No, what is blockchain?” So if I'm speaking to a board member of a publicly traded company in this day and age who’s never heard about blockchain.
I say, and I told him this, I said, right now, imagine SunTrust has a computer system that is keeping track of the fact that I have $100 in my bank account and you have $200 in your bank account. And we both know that there isn't really dollar bills and some shoebox with our name on it, but that's really on a computer somewhere, which account has how much money. And imagine the number of staff they probably have whose only task is to make sure that hackers from China, North Korea, anywhere around the world, are trying to constantly hack into that computer system to just move money around into a different account with their name on it. I don't know how many staff there are in a bank, but I suspect it's quite a large number protecting that centralized accounting system. Now imagine an algorithm that keeps track of who has how much in their bank account. It's been in existence for 10 years without a single person controlling, not a single person needing to secure the security of that information, and that information is around the globe in a very hostile environment, and it's never been hacked. They don't have one staff person keeping the bad actors, as you would say, away from changing who has what amount of money in their bank account. And that's a powerful situation.
MAUREEN: What was his reaction to that?
LOUISE: His reaction was, “Why have I never heard of this?”
MAUREEN: That’s what I was wondering.
LOUISE: He asked me that question. “Why have I never heard of this?” And I said, “Well, that's interesting.” Because I can promise you the banks know about it, and at the enterprise level, at publicly traded companies, I think they're so big they don't know how to implement this or what it means to them yet. I'm so is probably not getting board attention. I can promise you that Goldman Sachs and the investment world knows all about it. I can promise you that a lot of people are threatened by it at the enterprise level, but how to incorporate it in their systems that already exist is probably a mystery, and so it seems to be taking off more in the startup world, where there's more flexibility and an ability to start from scratch on processes.
MAUREEN: Well that does sound like it could be very disruptive, and there is a lot of opportunity at that startup level. So is that what you're seeing from folks in the entrepreneurial world? Are they really latching on to this?
LOUISE: Definitely. There are some big companies that are — I think what's really happening is a lot of these big companies are behind-the-scenes sort of trying to ramp up and figure out how to implement it. It's — apparently Walmart, by September of 2019, is mandating that anyone selling them lettuce needs to put their lettuce on a Walmart blockchain. and Starbucks, I thought, was coming up with something about November. I haven't heard any details about that. I think a lot of these companies know about it, they are keeping it close to their chest, and a lot of us in this space are looking at regulations. There's a lot of uncertainty about the SEC, and no one wants to be not in compliance. Everyone wants to be in compliance.
MAUREEN: In your example you were giving to your new friend that you met on the plane, you mentioned a lot of staff being displaced and it just makes me think about how this might impact the CPA profession. I think that there are lots of opportunities for higher-level value and doing things in a different way, but when you think about blockchain technologies in the CPA profession, how are you approaching it? What would be the impact
LOUISE: Well, to me, the idea of triple-entry accounting helped me see the world a little differently in the blockchain world with accounting. Double-entry accounting, we have debits and credits under one company structure. The idea of triple-entry accounting is that the third entry is tied to the third party involved in the transaction. So no longer, one day, it is conceivable — I don't know for sure this will happen, but it is very technologically conceivable to me that in our QuickBooks file, instead of it being self-contained of only our company, will have an extra entry that ties on a blockchain to someone else's QuickBooks file so that the bill that I paid is there and come and it's tied and it's the same amount and we both acknowledge that that money went from me to you. So I see a lot more interconnectedness. I see a lot more, I see a lot more transactions that don't need to be audited.
MAUREEN: Right, right. So that takes me too, jumping a little bit, to your projects. You've really been on fire about blockchain at least for the past two years, and now you've taken it to a reality, so not just thinking about it and being theoretical, but really seeing how you can apply it and pursuing this with a bunch of folks in the Richmond area and beyond. So I'd love to hear you talk about your journey and your experiences.
LOUISE: When you follow the world of blockchain and cryptocurrency and you get this energy and vision of how the world is changing, there seems to be a natural tendency to then want to be involved in one of these projects, and so I can feel this little excitement sort of spurring, but I couldn't capture it with the project and I didn't want to force a solution. On April 10th of this past tax season, my friend, my longtime friend since growing up, approached me and said, “Louise, I have a half million worth of tax credits — Virginia transferable land preservation tax credits — that I'd like to sell. Do you have any clients that would like to buy them?” And as soon as she said that, I was so excited. I could save my clients the money because they would theoretically be buying tax credits at a discount, I was helping my friend, and that looks like the hero on all sides of the equation.
As I got deeper into helping this exchange happen, I quickly learned that none of my clients wanted to be revealed in name or identity, to my friend, which is fair enough. I also realized that I was in a little bit of a loyalty bind — I mean, I represent my clients, and absolutely that's my first priority. I also don't want to totally take advantage of my friends, and I didn't like being in that space. I didn't think it was my place to figure out what price was fair. Because of this anonymity issue, I kept sort of finding myself in the middle of something I didn't want to be in the middle of. I also realized that there were personalities that were a play in trying to make this exchange happen in an efficient way, because of some clients, well my friend, had a list and I told her, “Well, yes, you should expect a call from one of my clients maybe within the week. He seemed to be excited.” So about 10 days later, my friend calls me back and says “Um, we never heard from that client. What's going on?” I was like, “Well, his personality is a little more artistic, he's a little more eccentric, but when it's time to make a deal, he'll make a deal.” So here I was, some sort of mediator caught in the middle of personalities and money, and so this great superhero vision just dissipated really quickly.
I also found, when I looked at my client base and sorted them by state tax liability to figure out who were the best candidates that I needed to find a taxpayer that had enough tax liability to be worth my time, both in terms of my billable time and also the emotional, logistical distraction. I couldn't go that deep into my client list. Once I weeded out those people who had moved to Florida and may not have had the cash resources to buy these, and I thought to myself, “Too bad that I'm in the middle of something I don't want to be in the middle of, and this is a perfect use case for a smart contract on the blockchain.” That's exactly what it's designed for, to have buyers and sellers interact directly with each other on a secure, transparent method, and to have something algorithmically allow this transaction to happen without the friction of CPAs and lawyers in the middle. I had the concept, it wasn't — I think the combination of the Leadership Summit, I was invited to that by the Virginia Society of CPAs, and I was asked to be on the Innovation Committee of the Virginia Society of CPAs, and prove that my fellow committee members with that me and said I think you have a calling and I realize they were right, and the combination of the support just launched me to just jump off.
MAUREEN: So you had an “A-ha” moment, and then you had some push, I guess, or just maybe an emotional push of this could really happen, and then you started. So what were some of the steps that you had to take to move this idea to something real?
LOUISE: Well, first, I needed programmers. I need programmers that understood how to program on the Ethereum blockchain and the Ethereum blockchain hasn't even been around for that long, so this is not your run-of-the-mill job description.
MAUREEN: How did you find those programmers?
LOUISE: Well, it took me a while. I jumped up levels of sophistication. I started out just trying to network at blockchain meet-ups, and I ended up finding econ technologies through the person, just the network of blockchain enthusiasts and cryptocurrency enthusiasts with in Richmond. I ended up with Ippon Technologies. They have been building the whole stack, all the different layers. The foundational layer is on the Ethereum network, but then of course the web operation is not, and there's a number of layers in between. So they are working on pulling that all together.
MAUREEN: And then, I knew that you had other people involved, whether it's the legal help...who are other people on your team?
LOUISE: Alex Mejia has been incredibly invaluable. He is a lawyer and works for himself and also has another full-time job as a technology lawyer. He has been acted as my lawyer and also project manager and facilitator of communication between the detail oriented thinking of the programmers and my broader strokes on this project, and translating also the legal and accounting aspects of this project through the programmers, who don't always think in terms of forms and contracts. I also had the help. I learned quickly that really to be successful the end-user experience needs to be really streamlined and easy, and so I ended up hiring a company called Builder, BLDR, and they were wonderful and Innovative and trying to help me see this project through the lens of an average taxpayer who is trying to buy tax credits at a discount. And those are my three main —
MAUREEN: That’s your team.
MAUREEN: Where are you in the process? You said from April 10th to — here we are at the end of October. What's the status?
LOUISE: Well, as I told the team in July and August and September, I said, “How valuable is a Santa Claus suit on January 15th?” I mean a perfect Santa Claus suit on January 15th? And they were like, “Nothing,” and I said, “Exactly. Now how good is a pretty good Santa Claus suit on December 10th?” A lot more valuable. So I said, “We do not have time.”
The tax season for buying these credits is at the end of the year, and so we are working as fast as we can to make the site functional and to have an alpha rollout, hopefully by the end of November, if not sooner. We have the website layer, a lot of that functional, and the smart contract later on the Ethereum network pretty functional. Linking them together is where we are so that we can actually do a test and roll it out in an alpha state.
MAUREEN: So this is going to be for Virginia historic tax credits?
LOUISE: Virginia historic tax credits, according to the Department of Taxation, technically are not legally transferable, so they're being transferred right now through entities. So we're not doing historic tax credits in Virginia. We are targeting land preservation tax credits in Virginia, because that's where there's the most volume of tax credits. We are also targeting Wisconsin historic preservation tax credits because the Department of Revenue in Wisconsin seems to be more open to the possibility of receiving emails and approving of transactions on our website, and that will add a lot to demonstrate how this process can add security and reduce the time delay in getting these transfers approved and solidified. But it's Virginia because I'm in Virginia and I love Virginia, so we started in Virginia.
MAUREEN: So you had to interact with any of the state departments of tax? Who have you had to work with on the regulatory level, if any?
LOUISE: Right now, our plan is to follow the rules and not try to change anything. If my dream happens -
MAUREEN: So you can work within the current structure right now.
LOUISE: The current structure, I think, from the technology perspective is not near as powerful as if the state of Virginia were to participate. The security would ramp up. But that's okay. We're just taking one step at a time and trying to introduce a new way of trying to tokenize land preservation tax credits.
MAUREEN: So do you already have your next idea?
LOUISE: (laughs) Right now I just want to roll it out to all the different states. I mean to me, Virginia is just the tip of the iceberg. Yes, I've spoken — one of the legislators in the state of Virginia is interested in making film credits transferable, and I definitely tried to encourage him on that. That would be fun.
MAUREEN: Sounds like the possibilities are endless, and I can kind of see it in your eye that this isn’t it. What have you learned along the way, just in this past not even full year of this journey?
LOUISE: I love it. I love being in the innovative space. I love the types of people it attracts. I love the challenges. The programming is so new that it's not like you can find a CPA who's been doing tax returns for 15 years and can do it in their sleep. The programming — there's a learning curve. There's a learning curve for these programmers. The space moves so, so quickly. Therefore, communication needs to be paramount, and that's both a challenge — that’s a fun challenge.
MAUREEN: Just to wrap up, just your fellow CPAs, what do they need to have their eye on for the next year, whether it's an innovation or just in the profession? What do you just want to shake them and say, “Hey, pay attention to this”?
LOUISE: I would like to suggest that I've heard some people say that blockchain is a fad, and I thought about this morning, and I thought to myself, leg warmers are a fad. Legwarmers come in and they go out. Is it a fad when the car comes along and just replaces the horse-drawn carriage? Well, it might have been a fad because it's a new innovation, but it's no longer a fad to drive a car because we all have cars. So, in my mind, blockchain is — the technology of blockchain is inevitable. Even if regulations in the United States aren’t supportive, this technology is so efficient in global markets that if the United States doesn't catch up, we will be left behind, and that's already happening to some degree. So I would just like to suggest that that this technology is here to stay and I would also like to suggest that it doesn't need to be associated with the black market and things that are scary. That there are a lot of use cases, and there are a lot of really exciting use cases, and for those of you who want to explore and adventurous, it's a really fun space. But those CPAs to get a little more scared of chaos, because it is kind of a chaotic space, right now, I would like to suggest that to look for the structure of this new space, that there is structure — it doesn't have to feel like chaos — and just keep an open mind, because it's super fun if you can find a space in your brain to receive it.
MAUREEN: That sounds like a great tip. Don't be afraid if it does freak you out, because look at it another way. It doesn't have to be scary and evil.
Well, Louise, when you're not thinking about what chain and helping your clients, what do you do for fun? Have you been reading anything interesting? Any music, movies?
LOUISE: Oh my gosh, my life has become blockchain! I really enjoy Seal Team physical training in the morning, really early, with a great group of people and actually, ironically or not ironically, it's one of the only times in my day that I can be among 80 people and no technology. No one's on an iPhone, no one's at a computer, no one's at a phone, and it's really fun to connect with people without technology, as much as I love technology. And I appreciate that group for teaching me about teamwork, and that has also been a nice support system for trying to develop a team around my project, Afloat.
MAUREEN: I love that. That's brilliant. No technology, but you have the team. I love it. Louis, anything you'd like to plug today?
LOUISE: My website!
MAUREEN: How would we find that?
LOUISE: So the company is afloat, and You can find us at stayafloat.io.
MAUREEN: Alright, I’ll have to check it out. Thank you! All right, well Louise, thank you so much for spending some time with us, and find us next time on Leading Forward.