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To validate crypto transactions, there are two types of consensus mechanisms, proof of work and proof of stake. Proof of work can be resource demanding, accordingly, as an alternative, some platforms verify transactions through proof of stake. The proof of stake consensus mechanism provides holders of the crypto assets the ability to validate transactions based on their proportionate holdings in the asset.
Upon execution of a transaction utilizing crypto assets, reporting entities known as miners often perform a complex computation to create the hash necessary for the public ledger. In proof of work, miners provide computing power in order to participate in the block validation process. Each block is verified by a miner before its information is stored. When the block is added to the chain and consensus exists regarding the block, it is shared by all network nodes. This gives rise to a unique transaction history. For validating the transaction, the miner may receive a transaction fee from a participant in the transaction and/or a block reward. A block reward is the receipt of newly issued crypto assets issued to the miner for successfully validating the block of transactions.
If the miner receives a transaction fee from a participant in the transaction, the miner should consider whether the transaction is a contract with a customer in the scope of ASC 606, Revenue from Contracts with Customers. If so, the miner would generally recognize the transaction fee as revenue when it satisfies its performance obligation (i.e., validates a transaction on the distributed ledger).
If the miner receives a block reward under the consensus protocols of the crypto asset, the miner will need to assess whether the receipt of the block reward is a contract with a customer in the scope of ASC 606, which may require judgment.
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