Catax Co-founder Gaurav // Web3 Accountant Radio Ep19 Transcript
Gaurav Mehta has over 11 years of experience in cryptocurrency. He studied Digital Currency at the University of Nicosia back in 2015, before crypto was widely known. Since 2013, he’s been an active participant on BitcoinTalk with the handle BTCIndia. He became India’s first TEDx speaker in Bitcoin, and for the last 7 years, he’s been working as an expert in auditing, taxation, and investigations, collaborating with various state and central agencies. Drawing from his experience, he founded Catax, India’s first startup focused on Bitcoin auditing, bookkeeping, and taxation, supported by German venture capital firms.
In this conversation, we dive into:
1. How do you think blockchain technology is currently being used in accounting and taxation?
2. Identifying owners of crypto wallets by tax authorities?
3. What role does blockchain play in audit processes and can it replace traditional methods?
4. How does Defi impact accounting and taxation
5. Why did Gaurav decide to enter the Web3 space?
6. One key finance / compliance lesson from Gaurav
7. What is Gaurav looking forward to in the Web3 space?
And more!
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Connect with Gaurav & Catax👇
Linkedin: / gawravmehta/
Website: https://catax.app/
Email: [email protected]
Hi everyone, welcome to the Web3 Accountant Radio, the podcast where we dive into the fascinating world of Web3 finance and compliance. I’m today’s host Diana and my partner is Wei Xiang. Hello, Wei Xiang.
Hi, Diana. And today we have a guest called Gaurav Mehta. And Gaurav Mehta has over 11 years of experience in cryptocurrency.
He studied digital currency in the University of Nicosia back in 2015, before crypto was widely known. Since 2013, he’s been an active participant on Bitcoin Talks with the handle btcindian. He became India’s first TEDx speaker in Bitcoin, and for the last 7 years, he’s been working as an expert in auditing, taxation, and investigations, collaborating with various state and central agencies.
Drawing from his experience, he founded Catex, India’s first startup focused on Bitcoin auditing, bookkeeping, and taxation, supported by German venture capital firms. Welcome, Gaurav. Yeah, happy to be here.
Thank you, Gaurav. And thank you, Diana, for the introduction. Today, we are very lucky to have Gaurav all the way from India with deep expertise into blockchain investigation, accounting, and taxation.
And today we will talk about a cross and a mix between where this is heading. And today we are also very happy that as we are recording this, Bitcoin has reached an all-time high with the US elections heading in Trump’s way at the moment. $75,000 is just a start.
So let’s ride the bull strong to the moon. Yes, to the moon. Yes.
So, Gaurav, maybe we can start with how do you think blockchain technology is currently being used in accounting and taxation? What are some very promising use case that you have seen? Well, if you look fundamentally, then the blockchain itself is an accounting standard. And how people would use it, it becomes a complex question. It’s like you already have the bookkeeping available with you.
Why would you use it in somewhere else? But anyway, when you look at the core of blockchain, we had single bookkeeping entry, then we had double bookkeeping entry, which has become the standard of the world today. Thanks to the technology innovation, the blockchain ushered us into the era of third party bookkeeping or triple entry bookkeeping, wherein wherever any entry is done, whether it be debit or credit, it’s validated by the third party, unknown parties solely on the basis of the rules and regulations of the protocol. That too on the automated level.
That might sound like very much a technology or very much like, but on the fundamental level, imagine every transaction is a trusted. Every transaction itself is an audited on the machine level that takes us leap into the future of technology and also bookkeeping and accounting because everything is audited by default. That said, as of today, the penetration of the blockchain is gradually growing.
First, we saw its penetration in the domain of finance primarily and the currencies and gradually it is moving in the domain of trade finance and other use cases which are gradually coming in. So today the primarily bookkeeping, that is how blockchain is used in the domain of bookkeeping and accounting is to do itself the accounting of crypto transactions. So if I want to take a look at your books of crypto account, all I need to ask you is a wallet address and go to the blockchain and look at, okay, at what point of time you did the transaction? What was your debit? What was your credit? What is your current holding? So that is the preliminary level of information available.
I think that the most cool thing is as you share this, when as an accountant myself, when I speak to traditional Web2 accountants or customers, it will be, can you please provide to me all your bank statements? They might provide to me, you know, bank statements from three different banks and through the years and I hope they can find them. But now when I enter the Web3, like what you mentioned, it is just your wallet address.
Everything is transparent on chain. And yeah, and we start working from there. Correct.
The question is contradictory, how the blockchain is used in the domain of accounting, because like I said, blockchain itself is an accounting standard. Itself is a bookkeeping standard. So yes, now the use cases are more explored.
Tomorrow, maybe we will see some kind of transactions associated with not only DEXs and DeFi, maybe some purchase, some cross-border data, cross-border transactions, some currency swap. All those is happening as of today on the blockchain, but it will get more formalized and will receive the due recognition of the accounting and the other bodies across the world. So, I mean, you mentioned cross-border swap and you talk about DeFi.
I would think this is very complicated for tax authorities. What are the current challenges that tax authorities are facing and do you think there is a solution for them currently? Well, if you look at it, the transfer of money on the international border is not at all complex. It’s just sending a few digital digits from here to there.
It’s same like sending the email. But today we have to go through the complex process of PayPal, Swift or any other modus available in the conventional ecosystem, which is fragmented, which is broken and which it needs to work in tandem with the regulators. They are at the mercy of the regulators.
There is what we call an opacity in terms of the transfers that are happening across the world. Today, let’s say I do a transaction for Europe. In Europe, they rely on IBAN and IBAN further passes the transaction to Swift and Swift passes the transaction to the banks and banks for their debits to the customer’s account.
Now, this is complex and this also creates a lot of opportunity for nefarious activity to be facilitated because neither the regulator, neither any monitoring agency does not have any clear idea about the beneficiary or we call it ultimate beneficiary. Because if I want to look at a certain transactions, I would need to ask to Swift or if I need to look at a national level transaction, I would need to ask to the banks. So that’s our conventional world today, which is like a breeding ground for money laundering, counter-terrorist funding, placement of the illicit funds and everything else.
Fast forward down a decade like when the cross-border transaction standards are agreed by the government, whether it be on CBDC, whether it be on cryptocurrency. At that point of time, it would be very much transparent ecosystem where the regulators or the enforcement entities would have better insights on what kind of money transfers are being done and therefore fight the illicit activities that are happening in the space. So that’s one of the aspects from the regulatory point of view.
Why this is important is because like I said that the transfer of money is only the transfer of digital numbers, which should ideally not cost anything. But the whole cost of international or the cross-border data transfer is high is because of such kind of a regulation. When the transparency and the comfort is there, the regulation would come down, that would result into a lower cost of transfer and more efficiency in the faster settlements, thanks to the blockchain for enabling such kind of transactions.
But Gaurav, the other one is, you know, you mentioned when I transfer money from Europe on IBAN to SWIFT and etc, whether is it payment service provider or is it a bank itself, we have a account holder name. But today if I transfer it across wallets, you know, there isn’t an account holder name. And sometimes even on unhosted wallets is even worse, you know, today if they are with CEX itself, Binance, OK, as of today, I think they would have done proper KYC already, maybe not in the past.
But, you know, today when it goes across unhosted wallets, especially in huge amount, how are the tax authorities going to identify such challenges? There are two aspects of it. As we know today that the wallets are anonymous, but there is what we call the name, name resolution, gaurav.eth or dina.eth coming in. So maybe that would become the standard tomorrow because people wouldn’t like to use new and new wallet every time.
That’s first thing. Second thing, let’s say even if the new wallets are used for the transactions, it’s not about identifying who the person is doing transaction. It’s always about identifying whether the funds are being used for the illicit purpose or not.
So that is the ultimate goal. When we look at the blockchain anonymity, that’s definitely an advantage. And as we move forward, the coordination between the various regulatory agencies are coming in place.
And today the machine analytics has reached out to such level that it does not matter whatever be your transaction habit, you will try to hop your transaction, like send again, then send again, then send again and send again and ultimately send it to some ultimate beneficiary. Those kind of placement or those kind of logic are also not working out for the criminals primarily. In a way, it is a good thing that the ledger is available.
The analytics has reached to a maturity stage and anybody is free to do such kind of analytics. We have chain analysis that is identifying wallets that are indulged with some kind of criminal activity. So that space is only going to grow.
For me, it does not worry whether that is a known wallet or unknown wallet. I see. Thanks.
Thanks a lot. Yes, I agree with you that, you know, although we might be facing such challenges at the start, but as we move along, many of them will prefer new wallets because no one’s like to change their wallet every day. I mean, no legal person would like to do that.
The illegal one, of course, they like to change it every day. Yeah. So next is what role does blockchain play in enhancing audit processes? And could it eventually replace traditional audit methods? That is a very interesting question.
I mean, I cannot give a conclusive answer, but I can give you just kind of thoughts around it. When we look at the bookkeeping, bookkeeping is about your structured transaction. That’s what we call it in a simple way, bookkeeping.
When we talk about accounting, accounting is about inferencing or gathering the details from such transactions, whether that is a debit or credit or what is the state of any individual at this point of time, some kind of accounting like plus minus debit credit. But when we talk about auditing, auditing is about scrutinizing the transaction in the context of the case. I might look at the same transaction and I’ll see, oh, this is a bad transaction.
But when you look at the transaction, you will see, oh, this is nothing but a normal transaction. So when we talk about the auditing, auditing is based on context. It can be like forensic auditing.
It can be corporate auditing. It can be fraud auditing. It can be statutory auditing.
It can be anything else based on what are the requirements. So here I believe that the Web3 accountant or formally the accountant with the Web3 competencies come into the play because you can never replace the human auditors. Why? Because it’s not about some logic.
It’s about understanding the context of a transaction, doing a very complex processing in the mind and trying to reach to some conclusion. And that is only possible when you have a mastery of your domain, when you have worked hard and when you have a lot of experience, then only you would be able to do auditing. It’s about asking questions.
Hey, it seems like you have received one Ethereum from someone. Who was that entity? Let’s say the customer says, okay, it was my employer who gave me. Who was the employer that gave you? When we talk about the auditing, auditing is specifically human activity.
It does not matter whether that is going to happen on the blockchain or your conventional ledger. It would always be an expertise of individual. Correct.
And that’s where the opportunities for the web3 accountant is emerging into the market. As we see today, the accounting or CPA or call it charted accountant, all those education are lacking in the web3 domain. They have a limited understanding of crypto.
They have limited understanding of DEXs, CEX and let alone the blockchain transactions. Someone who is aspiring web3 accountant or who wishes to expand their competency in the web3 domain, especially the young students who have recently finished their education, who have an affinity for the technology. This is a perfect opportunity for them to build up the practice and give competition to the large established players.
Yeah. Yeah. I’ve been seeing a lot of business in this area because if you talk about financial services or you talk about oil and gas or trading or factories or manufacturing, you would have some accountants with like 15 or 20 years experience.
And as a young accountant, there is no benefit in choosing you against them. But today, if we start in the web3 world, you talk about DeFi, DEXs. Yes, a young accountant after studying and spending 24 hours a day reading up would stand a chance to compete against the more traditional accountants.
Since we are on a topic on DeFi, the other one is to dig your brains is how does DeFi impact traditional tax and accounting practice? Again, that’s a tough one. Because from the outside, DeFi is nothing but an infrastructure or the institution that is based on the blockchain and that is automated. Right.
When we look at the Uniswap, Uniswap is based on the blockchain. When you look at Bank of New York Mellon, that is based on some servers based out of New York maybe. Both does the transaction, both does the currency swaps.
Only difference is in order to interact with the Bank of New York Mellon, you need to have an account, you need to be a citizen, you need to have a lot of free checks. But on the Uniswap example, DeFi, you just need to have a wallet and you can enable or interact with the transaction, doing a transaction with an exchange. Now, when we look at the impacts of the DeFi in the taxation, the question arises from which point of view? From the customer’s point of view, the taxation are anyway calculable because the transactions are there on the blockchain.
One would be able to fetch the historical price or the current price and calculate whether there’s a profit or loss on that. That’s part one. Now, at Catax, we enable such ability for the individual.
All you have to do is just enter your wallet address and we identify which DeFi you have interacted with. So that is already done by the Catax anyway. But the more complex scenario arises for the institution like Uniswap, which is not only active in the US, but also in Singapore, Nigeria, Laos, Cambodia.
We don’t know from where the customer is interacting. So they would have also a liability, a compliance or taxation liability in a particular country. They are serving a particular citizen.
So still the regulations are not formulated. But once those are formulated, I believe the DeFi would have to register in a specific geographies. They will have to do compliance based on the guidelines of a specific countries that includes taxes, compliance, some kind of a value added tax or goods and service tax or any other thing.
Till then, DeFi are ghost. And once the regulation is there, they will become institution. Yes, actually, I would agree with you.
Gaurav, are you familiar with FATCA and CIS reporting? No, I’m not aware. Yeah. So, you know, like in today’s world, the financial institutions that actually deal with US citizens like your JP Morgan or your Goldman Sachs around the world, any US citizens that actually do a trade through them and earn any amount of money through them, they would have to report it to the US tax authorities.
This is called FATCA. And the other one is called CRS. The Common Reporting Standards is where any financial institutions holding assets would have to report it to the tax institutions.
This is the part that I think Uniswap or other huge DeFi platforms are currently, they do not need to comply with this as they call themselves technology service providers. But it is what it is today. But like, I think I agree with you, this might change in the future.
Yeah. So DeFi is more like a marketing term. Why I would say those are, I would argue that those are nothing but institutions same as JP Morgan.
Why? When you look at Uniswap, it is a smart contract which facilitates the transaction. Now, who has access to the smart contract? I as a private key holder, I can go and change the contract, maybe four of my board of directors, or maybe my C’s would people have multiple keys and together we change the code of the Uniswap, right? So technically we four people are having authority over that logic or that smart contract, which is facilitating the transaction for whole world. From outside, it might seem like a DeFi.
Yes, it’s definitely a DeFi for the individual. But you see, when you see from the backend or from organization, the regulator points of view, it’s nothing but four people handling some smart contract, which is facilitating the transaction. They can blacklist someone, they can whitelist someone, they can say no to shitcoin, they can say yes to shitcoin.
All that is controllable by that four or five people who holds the access to that key. It’s only a matter of time that the regulators would come up with their iron hand and say, hey, you are the regulated institute as well, you have to comply because the volume has been staggering. It has been like trillion dollar volume on the Uniswap and it won’t go unnoticed for a long time.
Yes, thank you, Gaurav, for sharing so much with us today. But on this podcast today, other than the professional knowledge, we would like to hear a little bit about you, the friendlier side about you that we have not been able to hear elsewhere. Diana, over to you.
OK, so let’s move to the free talk session in today’s podcast. In today’s free talk session, I have a few questions that the inspiration that you enter the Web3. The first question is, why did you decide to enter the Web3 space? It’s almost a decade when I got into the Web3.
By that time, the word Web3 wasn’t even coined. It was primarily the cryptocurrency on blockchain, to be precise. What I saw was a disruption that was happening right in front of my eyes.
Once you see something you cannot unsee. For me, it was not a decision. OK, I need to get into the Web3.
It was a realization. Oh, my God, I’m already into the Web3. So that’s the basic difference, right? Once you find very exciting thing that is going to change the world and when you have a conviction about it, there is no turning back.
OK, so I believe that you are in a very early period that you have entered the Web3 space. In this period, can you maybe share one key experience or lesson that you have learned in this area? Right. I’m definitely going to share the lesson.
But prior to that, my journey would resonate with a lot of people. One day I came across Bitcoin, whether that is bubble or asset. It was around $300 something.
And I said, what is Bitcoin? What is cryptocurrency? I started researching in the morning. I remember Saturday was the day when I used to research all Internet things. From morning to evening, I was studying it nonstop.
And by evening, my mind was blown. I said that this asset is going to be not less than $500,000 in next two decades. I need to get into it.
And that’s why I started looking into the opportunities, what can be built and how it can be built. So that was my starting point of how I got sucked up into the cryptocurrency, blockchain or Web3 to be precise. Now, what is my learning to be precise is that all innovation starts with the idealism, like we will change the world, we will become big, we will do this, we will do that.
And ultimately, it has to create a balance with the existing world. I very well remember cryptocurrency, especially Bitcoin, came with a promise of being anonymous currency. It came with a promise of micropayments.
It came with a promise of be your own bank. What my learning today is none of them is true. Everyone is not their own bank.
They are having accounts with third party exchanges or metamask, which can be confiscated or which can be sealed at any point of time. I’m talking about majority of the people, not 1% of highly technological people who have their own wallet. Micropayments on the Bitcoin is still a dream, thanks to the gas fees.
And every transaction on the blockchain today are being processed by intelligence agencies to ensure that it is not used for the ill-set funds. And it is pretty easy to identify individual on the blockchain. If I drop you one NFT, you convert that NFT into maybe T-shirt or some goods, bingo, I have your address.
Now, not only I have your identity, I have your lot of transaction detail. I know your friends who have transacted with you. I can see on which exchanges you are transacting.
I see blockchain with bringing the transparency has made the privacy worse for the individual, especially as an investigator, I can assure you that. So yeah, that’s my learning. I mean, ideal promise in the world today, a lot has changed.
No, I think I like your phrase or innovation start with idealism. If you don’t have the idealism, you’re not going anywhere. But that doesn’t mean that the innovation will come true, but it has to start from there.
Correct. But as of today is the same status, right? You cannot the process payment. People are dying because of the gas fees, right? They are burdened with the gas fees.
There are n number of blockchain. It used to be a Bitcoin came with the promise of being world currency. Today we have more than 20,000 currencies.
Today we have shit coin, we have good coins. There are a lot of things that has changed down the line, but like you rightly said, the innovation is a journey. It’s not a destination.
Okay, so along with the technological development, so the blockchain has come to this world and it changed a lot of ways we pay the money. What are you looking forward to in the compliance or in the compliance? Yeah, maybe you can share that. What role do you think that the technology will play in the future of the crypto tech compliance? I believe in last 10 years, the industry had innovated for the businesses and for primarily for individuals.
Now the regulations are formed across the world. As of today, MICA has been enforced. Europe is looking at the regulation.
India has a regulation in coming in place, indirect regulation. The next five years are going to be opportunity for GovTech, what I call government technology, wherein regulation technology, compliance, automatic tax calculation, building the infrastructure to help government get a comfort in the crypto ecosystem. Because if that comfort won’t be there, the government is going to strangle the crypto ecosystem and make our life worse.
So as a business or as a Web3 enthusiast, our responsibility is now trying to understand the pain point of the governments and try to solve in the domain of accounting, taxation, compliance, monitoring, so that all the bad participants of the ecosystem, somebody who’s evading taxes, someone who’s using the funds for placement or all those things needs to be strangled. Then only the Web3 would become a multi trillion dollar economy. Otherwise, it would remain some kind of a technology dream.
Gaurav, before we end today, I think there’s one question that I must ask you. With the rise in the blockchain to the all time high price, what have you been busy with for the last two weeks? Are you running Catax? Are you running Concur? Because I see a mixture on your LinkedIn profile itself. So primarily taxation, we had been doing for almost seven years now.
It’s only we created the customer product, the product where the individual can plug their wallet, exchange account and calculate their taxes. So that has already been done. We are looking at a great traction here.
Now, what we are waiting for the government is to enforce it with a stricter infrastructure, to enforce it with a more iron hand, because then only it would translate into the business. While the business is growing steadily, we found another opportunity that we are working on, especially in business to business compliance, helping DeFi formulate how they can do the compliance on the automated level, because you cannot go into the blockchain and do the manual bookkeeping. How we can do the embedded taxation on the blockchain itself, wherein whenever the transaction is happening, you will be able to provide information to the customer that is interacting.
Those are kind of innovation we are doing. Imagine from tomorrow, let’s say the Singapore government says that whenever you are transacting with an exchange or doing a currency swap, you have to pay taxes because it’s a liquidation event. Now, how Uniswap is going to do that or how you are going to do that, maybe on the automated level.
Taking space and time that is available, we are further innovating because we have a clear understanding how the ecosystem is supposed to evolve. Betting on that, fingers crossed and moving forward. Thank you.
I think that is very exciting. And I think the B2B will definitely require such help. One more is, you know, you’ve mentioned that about CATAX and the taxes that it helps.
Which jurisdiction do you currently cover? Because, you know, tax is very jurisdiction based. For Catax, which jurisdiction do you cover? Our 80% customers are primarily from India. And it’s only recently we have expanded to Germany and Belgium.
In the next six to eight months, our target is to cover the Euro because MICA is already there and the taxation is being enforced on the proper basis. So that’s what the market we are looking at. US and Canada, it’s already saturated.
There are multiple players and emerging opportunities like Argentina and Brazil, Vietnam, Indonesia, something that we are observing carefully in order to plan our expansion strategy. Thank you, Gaurav. Thank you, Wei.
Thank you, Diana. It was a pleasure speaking to you. Look forward to speaking to you guys again and to the moon.
Yes, to the moon. Any last words from you, Diana? Thank you very much for sharing your insights and experience with us and to our listeners. Thank you for tuning in to the Web3 Accountant Radio.
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