In this episode of Block & Order, Kyle and Moish are joined by Steven Baum, Managing Director at CBIZ and co-leader of its Digital Assets & Blockchain practice, to unpack crypto auditing and financial reporting. Steven explains why blockchain assets may actually be easier to audit than cash and how crypto companies are maturing into IPO-ready businesses. The conversation covers regulatory uncertainty, stablecoins, DeFi infrastructure, digital asset treasuries, and the growing role of AI in compliance.

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Chapters:

00:00 — Welcome to Block & Order
03:26 — Introducing Steven Baum & CBIZ’s Crypto Audit Practice
06:30 — From Traditional Audits to Bitcoin, Blockchain & Grayscale
10:07 — Why Crypto Accounting Never Fit Traditional GAAP
14:24 — Regulatory Uncertainty, Bear Cycles & U.S. Innovation
17:36 — Advising Clients Without Clear Rules or Guidance
20:06 — IPOs, Exits & Why Audits Now Matter in Crypto
23:42 — Crypto Companies Becoming “Normal” Businesses
29:02 — Stablecoins, DeFi & On-Chain Financial Infrastructure
32:10 — Digital Asset Treasuries (DATs): Bitcoin vs. Altcoins
36:07 — Counterparty Risk, Custody & Lessons from 2022
38:08 — FTX: What Actually Failed (and What Didn’t)
43:12 — Why Crypto Is the Most Auditable Asset
49:30 — AI, Auditing & the Data Explosion Problem
55:05 — Closing Thoughts

 

Watch or listen to the podcast here:

   

Transcript:

**This transcript has been prepared automatically by AI and may contain inaccuracies**

Steven Baum [00:00:00]:
And that’s the thing about crypto. It makes it so awesome to audit is that it’s the most auditable asset that’s out there. You know, people talk about, oh, cash. The easiest cash is king. You can’t audit cash. Impossible,

Kyle Lawrence [00:00:21]:
Welcome to Block and Order, your one stop legal shop for all things digital assets. I’m your host, Kyle Lawrence, and with me as always, although he’s not actually here. He’s AI. Mr. Moish Peltz.

Moish Peltz [00:00:32]:
Hello. I am AI Moish. It’s nice to see you, Kyle.

Kyle Lawrence [00:00:35]:
How do I really know that you’re sitting there? I mean, if we’re being totally honest, I don’t know that for a fact.

Moish Peltz [00:00:40]:
It’s just my avatar. What’s the difference? Why does it matter, Kyle? Why should it matter? If it’s me or AI me, so long as I’m delivering the content our audience craves, then that should be enough.

Kyle Lawrence [00:00:51]:
It’s really true. The message is all that counts. I think for this episode, what we should do in the edit is rotoscope you. So you look like a Richard Linklater movie. But I just look like me. Can we do that?

Moish Peltz [00:01:05]:
Let’s. Let’s also, maybe we should rerecord that as me as an AI avatar.

Kyle Lawrence [00:01:10]:
Yeah, that’s really funny.

Moish Peltz [00:01:13]:
I could take that audio and run it.

Kyle Lawrence [00:01:15]:
Yeah, I’m sure it’s probably easier than we think it is. No, no more messing around, Moish. We have a very special guest coming up on Block and Order. We had Steven Baum. He’s a managing director over at CBIZ. He also heads up their blockchain and emerging technologies group. And we had a really very highly high level discussion with him about auditing and taxes and just what the future holds for crypto and blockchain from an accounting standpoint, which, you know, we’ve had accounts on before, but I don’t think we’ve had one on, you know, who, who just has the depth of expertise that Steve has.

Moish Peltz [00:01:49]:
Yeah, well, especially the focus on audit and, and what that means. And just the idea that, you know, he’s dealing with, with larger enterprises that are getting audit ready for, you know, sale or IPO or whatever it may be. It’s just a different kind of animal. And the amount and you can tell from talking to him. And we know Steve from, from, you know, client work and being in the industry that he’s, he’s super knowledgeable guy, one of the best in the industry, working on amazing, you know, audit work with, with, you know, some of the largest clients in the industry. So I think that definitely came through in the episode. And I think it’s, it’s, I don’t know if reassuring because I think at times scary, but it was certainly enlightening to hear about what’s on his mind.

Kyle Lawrence [00:02:38]:
What was reassuring to me and what warms my, my dark heart was that, you know, we always bemoan the plight of attorneys out there who are trying to figure out the best path forward for our clients. When there is no correct path, there’s only a best path. It’s like a classic law school exam thing. There’s no right answer. There’s only a best answer. But that’s what we face all the time. And he, unprompted, was openly talking about that very same thing. How do you advise clients? And in such a rapidly evolving regulatory landscape, really difficult.

Kyle Lawrence [00:03:10]:
But he seems to be, you know, the right guy for the job for that. So it’s fascinating stuff. When he was really delving into that and his approach, it really was analogous to what we go through. And I like that. So. Well, without any further ado, let’s kick it over to our conversation with Steve Baum over at CBIZ.

Moish Peltz [00:03:27]:
All right, I just want to also mention that as I’ve mentioned the past couple of episodes, we are doing our Weekly Docket on LinkedIn and Twitter. So please follow the block and order page on LinkedIn and you’ll get our favorite topics of the week. Breaking legal, AI technology, news that you can’t miss. All right, so see you there.

Kyle Lawrence [00:03:47]:
So before we jump into anything, I have to address the elephant in the room. I’m sorry I have to say it and I feel like I speak on behalf of all of Long island when I say this, but the CBIZ workplace challenge, it’s not working for me. Mark Place Markham Challenge. Guys, come on. This is like a no brainer.

Steven Baum [00:04:05]:
Yeah, yeah, I’ve actually never gone to that. I, I, I went to college in at Hofstra, so I, I lived in Long island for about four years, but I never actually went to the Markham Challenge, to be honest, or the Cebus Challenge. Right.

Kyle Lawrence [00:04:19]:
It’s totally different event now. It is a lot of fun. It’s like not, it’s a little more than a 5K and it’s always the biggest soul crushing thing ever. When you do do it, there’s three and a half miles and you go around the whole path and then you see the finish line. But right before the finish line, you have to go around the parking lot. It’s really terrible.

Steven Baum [00:04:38]:
Look, I think it’s good brand recognition that at least it’s making people aware of our name. So that, that’s. That’s good news.

Kyle Lawrence [00:04:44]:
I guess that’s true. Even a controversial decision is always better than, you know, no publicity at all. Well, thank you.

Moish Peltz [00:04:51]:
I. I have no idea what Kyle’s talking about.

Kyle Lawrence [00:04:53]:
It’s a Long island thing. You wouldn’t understand it.

Steven Baum [00:04:55]:
Yeah, it’s a long. It’s definitely a Long island thing.

Moish Peltz [00:04:57]:
Yeah, fine. I’ll agree to agree on that one.

Steven Baum [00:05:00]:
I think they just go out to Jones beach and, like, run around.

Kyle Lawrence [00:05:02]:
Yeah, exactly. That works.

Moish Peltz [00:05:04]:
Yeah.

Kyle Lawrence [00:05:05]:
Well, thank you very much for the diversion. With us today, we have Steven Baum. Steven is a managing director at CBIZ. Steve also serves as the digital assets and blockchain practice co leader at CBIZ. But we do note that today Steve is really appearing in his personal capacity. And anything that we talk about on today’s show is not meant to reflect those user policies of CBIZ and. Or Markham and. Or any of its affiliates.

Kyle Lawrence [00:05:31]:
So without any further ado, please give a very warm B O welcome to Steven Baum.

Steven Baum [00:05:37]:
Great. Thanks, Kyle. Appreciate being on today. And it’s four in the afternoon, so I needed about three coffees to make sure I was prepped up for this one. But excited to talk. I guess we’ll talk about some crypto. Like Kyle said, my role now is at CBIZ. Been through a couple of transactions.

Steven Baum [00:05:55]:
Been in the digital asset space now for close to 10 years, overseeing the audit and consulting division of Friedman and then Markham and now CBIZ. My goal at CBIZ really is to nationalize the CBIZ crypto division and really provide great client service to individuals in the crypto sector that either need audits or other sort of accounting and consulting services.

Kyle Lawrence [00:06:17]:
Well, the people definitely need people like you to help them through the quagmire of tax reporting and crypto and everything in between. How did you, with your background, first get into crypto and digital assets?

Steven Baum [00:06:30]:
So I started my career in public accounting focusing on auditing of SEC clients, mainly emerging technology businesses that were going public. So we were, you know, doing a lot of those types of audits, really in like, I would say, like that small to mid market cap type of type of area. So companies with enterprise values from like 50 million up to, let’s say, like a billion. And we were really focusing in that area. And in 2015, we started to work with a specific client that wanted to go public with a bitcoin trust. Actually, it was grayscale, and we Started to work with them, and from there we really kind of started to get involved in digital assets and learning more about bitcoin and blockchain and all those different types of things. 2017 kind of hit, and it really exploded the need for compliance in the digital assets space as it relates to the ICO work and all these other companies starting to come out with new technologies. Me and my partner Bob, at that time, we identified kind of a niche in the marketplace that was under service, and we went after it, founded a crypto practice at Friedman, and ever since then been kind of operating in that space for pretty much 10 years now.

Moish Peltz [00:07:41]:
Yeah. So, I mean, what was your own personal interest in crypto? I mean, did you come to it purely from the professional or did you ever play around with yourself? At what point in your journey did you, you know, get there?

Steven Baum [00:07:54]:
I never, you know, we got into. I got into this industry in 2014, 15ish. And at that time, I really didn’t know much about bitcoin. And it was really because of the client that we started to work with. And I got interested and I started learning about it. At the time, I lived in the city. My roommate was like a software developer. And I would go home and be like, dude, you know anything about this bitcoin stuff? And he’s like, I don’t know.

Steven Baum [00:08:17]:
I used to mine litecoin in college, and we used to like, like kind of go back and forth and I started doing a ton of research, and then I started buying it personally, investing it, you know, playing around with it, moving from wallet to wallet. And then from there, really, like, my clients started to get into all these different kind of things that, you know, really got me more interested and I had to learn it to be able to work on it. You know, we were auditing these companies, right? So it’s not like we were just trying to give advice. We were trying to figure out how do we audit this information on a blockchain, how do we audit this information to put into financial statements? And in order to do that, you really have to gain a pretty strong understanding of the technology as well as how the technology interacts from an accounting perspective, a financial reporting perspective. So at the time, I want to say, you know, so like 14 kind of got interested, but 17 is really where we started to take off. And at the time I was at my firm called Friedman, and we had a division, I think it was called Cizen. They were like a cyber security group that we had purchased or bought or brought in. I don’t even remember how they came and got involved.

Steven Baum [00:09:23]:
There’s like, five guys. They were like cybersecurity guys. And we started to talk to them. They sat next to me. They were like. Their office was right next to mine. And I would go into their office every day, and we just. All of a sudden they were like, hey, we’ll help you build nodes.

Steven Baum [00:09:35]:
And we started running a bitcoin node. I’m pretty sure the one guy was mining bitcoin out of the office.

Moish Peltz [00:09:43]:
In the workplace.

Kyle Lawrence [00:09:44]:
Exactly.

Steven Baum [00:09:45]:
So we were working with them on, like, running nodes and kind of doing all these different things. So we started to get really technical. And those guys, you know, since then, I don’t think any of those people are still with us. But since then, we grew out our, like, what we call our specialist team and our technical division a little bit more. But that really gave us some deep understanding of how the technology work well.

Moish Peltz [00:10:07]:
So then give us a flavor of, like, how that’s changed from. From, like, you know, ragtag group of guys spinning up their own node to, you know, now the government’s, like, issuing regulations on what compliance should look like for crypto. I mean, what’s that journey been like, where I imagine that a lot of the earlier stage ideas were like, well, there’s not really guidance on how to report for this, so we got to make it up versus where we are today. And, like, kind of, where do you think we are in that journey?

Steven Baum [00:10:37]:
Well, let me tell you, there’s still definitely not guidance for a lot of this, because as crypto develops, new things come up. So all the historical stuff, I mean, we went from the most simplest concept in accounting of how do we value a digital asset on your balance sheet? And everyone made it so complicated. It was like, cost less impairment. And this whole. It was the most craziest. It was the craziest thing ever. And then finally, two years ago, you know, the FASB comes out with 2308 ASU, 2308, which allowed us to fair value it, you know, and just from my experience, from 2015, pretty much till 2020, when the ICPA released their white paper that said you had to cost less impairment, I just booked it at fair value because that made sense, you know, and then we, like, went to this cost less impairment, and then now we’re back at where I at fair value, which is what makes sense. So the, you know, the guidelines in.

Steven Baum [00:11:30]:
I would say accounting standards are just not meant to adhere to this type of technology. So I think a lot of those things, you Kind of consistently are going to be interpreting and using new things to make a decision on how do we account for stuff, especially in defi. As we start to see more defi rail staking and all these different types of things, they’re just not going to fall into the standards. So I think that’s one side of it, is the accounting standards, but I think the regulatory environment is where we’re seeing more of the shift right now. Now I think we’re always going to have this challenge in accounting because I think it’s going to take years to build out accounting standards and things like that that everyone’s going to say, okay, this is the transaction on defi. How is it accounted for? I just think we’re five to ten years away from that still. But I think when we start to talk about regulatory clarity, I think that’s where we’ve made major, major strides as it relates to some of the regulation that’s getting pushed out, as well as just the general tone at the SEC and the ability to allow these types of companies to operate in the U.S. we were.

Steven Baum [00:12:33]:
I mean, look, like I said, I’ve seen probably this, is this, this, I don’t know if we call this a bear cycle coming up now, but this would be like my fourth bear cycle at this point. So I’ve seen these cycles so many times where like, each time you see it, you just kind of get numbered to it and you’re just like, Bitcoin’s going down. Okay, whatever, it will come back up, you know. But like, I think in the last two cycles, you know, the last one after FTX was a really scary time to be in an environment where you were offering compliance because almost every client that I work with, they were either being threatened to be shut down or they were receiving, you know, notices from the government or from Congress. And it was a, it was a really, it was really a time of uncertainty, of saying, you know, how do we kind of get around this? Because a lot of these companies are trying to do the right thing. And it just was really hurting the innovation. A lot of people were leaving the U.S. people, you know, obviously weren’t going public or anything like that as it relates to a lot of these businesses.

Steven Baum [00:13:31]:
So I think now that regulatory clarity hopefully will come even more with some of these, you know, the market structure, Bill, and some of the other things they’re talking about. But I think that’s where we’re seeing the major strides is more on the regulation side and the government side and less on. I would Say, like the accounting standard side.

Kyle Lawrence [00:13:47]:
You’re definitely onto something when you talk about the regulatory advancements. It’s something that Moish and I have talked about a lot on this show, and we talk about it daily as part of our practice. I mean, how can you not. You talk about people going offshore. We’ve had that conversation hundreds of times with clients and prospective clients. And I do think that we’ve made tremendous strides. 2025 is a watershed moment for the industry and for the United States in terms of how it treats these assets. I do fear what lies ahead in 2026.

Kyle Lawrence [00:14:16]:
I mean, we’ve seen market str stall a little bit. And I saw there was another act. They just announced it today. And I have to read it because, I don’t know, I just don’t remember what it was offhand, but it was. I don’t even have it up here, but it was like the Safe Crypto Act. Government loves its acronyms and, and it was basically meant to combat fraud and schemes and, you know, pig butchering and all these kinds of things. But the problem with the bill was it mandated that one year from now, the task force has to submit its report to the Senate Banking Committee. A year from now, And a year from now is.

Kyle Lawrence [00:14:50]:
I mean, that’s an eternity in crypto.

Steven Baum [00:14:51]:
Like, what do you.

Kyle Lawrence [00:14:52]:
By the time you get that report out, everything’s going to be stale. And I, and I fear that we’re going to fall back into that trap a little bit. So that’s a long winded way of me asking you. You know, us as lawyers, we encounter a lot of the same problems, which is we don’t have a square hole to fit this round peg in, you know, and so we have to work with what we have you as an accounting accounter in the same boat. We have the new broker reporting rules come out. How do you advise your clients with this backdrop of. We have some regulations, but not all of it. We don’t have the full picture, so we just kind of have to go with what we know, you know, buyer beware kind of thing.

Kyle Lawrence [00:15:28]:
Are your clients receptive to that? How do you approach that? Walk us through your process a little bit.

Steven Baum [00:15:34]:
Yeah, I, you know, it’s a great. It’s a great question. I think, you know, the thing with auditing and accounting is you get a crack at it every year, right? So it’s not like. It’s not like lawyers in the sense where you kind of. They come to you with maybe a legal position and you got one shot at the, the lawsuit or you have one shot at a position. You know, we audit clients, we do their tax returns and we do consulting. They need it every year. So if I do an audit one year and we come up with a position, and then next year there’s more information about that position.

Steven Baum [00:16:04]:
We change the position, we change it, right? We go into a situation and we say, hey, there’s more information available to make this better. And you know, the goal is to continuously make our clients financial information better every single year. And if there’s more information to do that, we will. But it’s an ever changing, you know, process with crypto. And our clients are doing different things every single year too. So it’s not always like one for one. What I would say is, is our best ability to be able to provide good advice is because we see so much of it, so we’re working with hundreds of clients. So, like, it’s not necessarily I’m sitting there and doing all this research on the side.

Steven Baum [00:16:43]:
I’m literally just talking to people, I’m talking to founders, I’m talking to executives, C suites about, hey, what are their challenges, how are they thinking about this? And a lot of time right now, it’s a very unique position because almost every single company in the crypto space is thinking, how do I go public, how do I exit? Where’s, where am I? How am I getting out? Most of these companies have been operating now, really since that 2017 bull run. So you’re seeing maybe some of them a little before, maybe some, a little bit after. But most of them are in that like kind of 8 to 10 year window of exit. And they’re sitting, the founders are sitting there saying, all right, I’m ready for my next project. You know, so we’re seeing a lot of this, like, hey, I want to go public, I want to sell, I want to merge. And a lot of the financial reporting, it’s really important to make sure that that information is consistent if they’re going to investors. Because if one company’s accounting for it this way and another company is accounting for completely different, and you’re the, you’re the odd goose there and you’re doing it different, all your investors are not going to understand your financials and they’re going to say, hey, I don’t get why you’re the same business, but you’re doing it completely different than this other guy. I don’t get that.

Steven Baum [00:17:46]:
So I think a lot of my job is to find consistency in the marketplace with the different Types of clients and different businesses to ensure that they’re all doing things the same way. And honestly, I think that’s the goal of the FASB and the icpa, because I work on a lot of different working groups with the FASB and the icpa, and, like, their goal isn’t to, like, necessarily create black and white standards all the time. Their goal is to provide consistency across the landscape of accounting to ensure that everybody’s kind of reporting for it in the same way, in the same manner so people can understand financial information consistently.

Moish Peltz [00:18:17]:
I, I, you, you mentioned IPOs. And, and I’m just thinking, well, this, this one, this wasn’t something we could have even thought about like, a year and a half ago. So that’s, that’s, like, encouraging. But then I’m wondering.

Steven Baum [00:18:29]:
It’s everybody, man. Like, everyone is coming to us. Ipo. I want to go public. I want to go public. And it’s just, it’s crazy, dude. Like, I mean, it’s, it’s insane because two years ago, it was like, nobody was touching anything near the sec.

Kyle Lawrence [00:18:41]:
You couldn’t, you couldn’t even if you wanted to, even if you had perfect books. They.

Steven Baum [00:18:45]:
Suicide mission.

Kyle Lawrence [00:18:46]:
Yeah.

Steven Baum [00:18:47]:
Why would you even do it?

Moish Peltz [00:18:48]:
Why bother? Of course.

Steven Baum [00:18:49]:
Right.

Moish Peltz [00:18:50]:
So I’m wondering, you know, what, you know, if, if you’re, you know, founder, C suite of a company right now thinking, okay, I got a couple of years now of a window to go public, but maybe, maybe, I don’t know from a books and records perspective what I need to do to position myself for that. You know, what should they be thinking? Like, how should they be strategizing and positioning themselves to get to that point or even, you know, beyond that timeline, assuming IPOs.

Steven Baum [00:19:21]:
Yeah. Look, I think everybody talks about going public, but I don’t necessarily know that that’s always the right exit for everybody.

Moish Peltz [00:19:29]:
Right.

Steven Baum [00:19:29]:
You know, so, so everybody wants to do that. And I think that, to be honest, I think that’s always the starting point because a lot of these founders start to talk to investment bankers and different, you know, people that want to create deals. And that’s kind of like the step one, and then from there, they’re trying to service. All right, does this make sense to do a merger? Or maybe there’s an acquisition opportunity. So it might not always be, you know, going public is the only opportunity for exit. It could be an acquisition. You know, you can get acquired by one of these large public companies and you can get shares, and those shares are just as liquid as cash, you know, so there’s, there’s a bunch of different opportunities, but I think consistently across the board, it’s, the audits are important. And I think that’s what we’re realizing is that there’s enough companies now in the crypto sector that are audited that if you’re not audited, it’s going to be harder to get a deal done.

Steven Baum [00:20:14]:
And I think that’s where, that is what we’re seeing. And that’s why we’re seeing so much demand specifically in our practice, because the compliance becomes really important to, because we’re not in this wild west environment anymore where nobody has audits. Most of these companies that are mature have audits. So, you know, if you’re the one without it, they’re asking why?

Kyle Lawrence [00:20:34]:
Which is not the worst thing in the world. They should be asking that question. For all the guff that we give the sec, there is still a function that they serve in this world and there’s still a lot of bad actors out there. So I’m, so, I’m on board with that.

Steven Baum [00:20:45]:
It’s funny, it’s not even necessarily like sec, like we’re getting so much demand right now for what, what’s called a dual standard audit. Okay. So you have, you have PCAOB standards, which is like the gold standard of an audit, which would go into a public filing. Then you have AICPA audit, which is your just traditional private company audit. Most of the companies that are coming to us now are saying, hey, we want dual standard because we want the ability to go public, but we’re not public. So we’re, we’re a private company still. And that’s a lot of the demand we’re certain. Really seeing right now.

Moish Peltz [00:21:16]:
Well, and you’re also seeing, right. Private companies, not just in the crypto space. I’m thinking of Stripe, for example, just continue to stay private for a long time. And, and they’re, and they have this institutional type investor on their cap table, but they’re just continuing to be a private company.

Steven Baum [00:21:30]:
Even, even those, even those, though, they’re, they’re, they’re already talking about when are we going? Like, they’re, they’re thinking about, you know, like, they’re not, they’re not just sitting back and being like, I’m going to be a private company forever. You know, the only ones that. Look, the only companies that typically stay private forever are closely held. You know, they’re owned by a family, they’re owned by two brothers. You know, something like that. But like, once you start to enter A significant amount of individuals on your cap table. Why did I invest? To exit.

Moish Peltz [00:21:59]:
Right.

Steven Baum [00:21:59]:
Like, you can’t just hold their money unless you’re like, you know, creating a dividend program or something. Maybe. But most corporations don’t do that. You know, that’s not really a corporate model unless it was some sort of, you know, partnership raise or something like that.

Moish Peltz [00:22:12]:
Well, these are now, you know, private crypto companies starting to act like normal private companies. Right.

Steven Baum [00:22:18]:
So the most interesting ones to me right now are, I would say, like these labs companies. You know, they’re all privately held. A lot of them had very similar structures with the foreign foundations that issued the tokens and then the labs businesses service the entities. A lot of them did this kind of call them quasi equity token raise, where they raised equity with warrant kickers. And they’re very, you know, so a lot of it’s. It’s very weird to see it because it’s kind of like, what do you do with this company now?

Kyle Lawrence [00:22:49]:
Right?

Steven Baum [00:22:49]:
Like, what’s the ip? What’s the intellectual property that sits there? What’s the future look like? How do they make money? You know, I don’t know. I mean, you know, those to me are. Are still. What. What are those going to do? And maybe the market structure Bill helps some of those. We’ll see.

Kyle Lawrence [00:23:05]:
I think it should. I also think that a lot of the drive for these IPOs are, you know, as I mentioned before, we are possibly facing a new administration or a new congressional administration, which means new folks at the SEC and just sort of a different regulatory paradigm. And I imagine that a lot of people in the space, you know, us and our clients included, are sort of shuddering at that prospect. You have a very friendly environment. Is that going to last forever? I mean, probably not. You have to assume that it’s not.

Steven Baum [00:23:32]:
You know, yeah, it’s not going to last forever. But I think this is a situation where the, the, the cat’s out of the bag. I mean, like, once it’s out, it’s out. And I also, like, you know, everybody says this all the time, and I, this is a kind of a quote that I say. It’s like people are like, why do we need blockchain? Or why do we need this? It’s like the answer is you don’t, but it’s. It’s just better than the technology we have. So it’s kind of like upgrading from a, like a cd. Like, we used to all walk around with Walkmans and CDs, and now you just have it on Your phone.

Steven Baum [00:24:02]:
Like, is the quality of the music better on your phone? Probably not, but it’s better technology.

Kyle Lawrence [00:24:09]:
Definitely not, right?

Steven Baum [00:24:11]:
So it’s like, I don’t need this.

Kyle Lawrence [00:24:13]:
Yeti mug, like, but it’s great, right? So I’m taking it.

Steven Baum [00:24:19]:
So, you know, those are the things where it’s like this technology, it just, you need, it needs to have real adoption. And I think that we’re going to start to see that now because these companies actually could start to build. And the more honestly, I’m seeing companies that over the last, I would say three to five years weren’t getting major traction as it relates to, like, enterprise contracts. Now, over the last six months, we’re seeing some of these, like, companies getting enterprise contracts where they’re, they’re getting real business contracts. They’re not just like, hey, we signed this, like, little thing for like a hundred grand. It’s like, no, we just signed like a multimillion dollar 10, 10 year or, you know, 10 year, $10 million a year deal or something like that. And it’s like, you know, crypto infrastructure. That, to me is where it’s more important is that’s where the SEC and the regulation is going to help.

Steven Baum [00:25:10]:
Because I think historically, under the last administration, the SEC’s administration with Gensler, you couldn’t do anything. You couldn’t, you couldn’t innovate, right? Like, you, you look at companies that are out there that are trying to innovate with different technologies, whether it was smart contract technologies on DeFi, whether it was even custodial technologies. You know, they’re just sending out letters like, security, security, security. It’s like, it’s like, all right, so now instead of trying to build a product, you got your founders and your CEOs literally spending 90% of their time talking to lawyers and dealing with compliance matters instead of building technology. So, and that’s, that’s literally what happened, right? And some of these guys were prosecuted to the point of getting debanked, getting criminally investigated. You know, so it’s like, you’re looking at that and you’re saying, you know, that’s not a good focus of these really brilliant people. That’s a terrible focus of their time. Now we’re in an environment where they’re saying, hey, don’t worry about that.

Steven Baum [00:26:07]:
Go build. Go build technology and build it in the US And I think Trump’s done an amazing job with this. I really do. I think he’s really focused on how do we, as America become the leader in a new Innovative technology. And clearly he’s doing it because everybody wants to be in the US Right now.

Kyle Lawrence [00:26:24]:
Well, that, that’s true. And that’s a sea change from where we were. And it actually goes beyond what you were talking about. Not just that unfriendly environment.

Steven Baum [00:26:31]:
They were.

Kyle Lawrence [00:26:32]:
I don’t want to use the word misleading, but the SEC and Gensler famously, you know, come on in and talk to us. We’ll help you figure it out. And if you walked, if you walked in there, you’re not walking out of that building, you know, without an armed escort, there’s no chance. And we had Hester Purse on the show about maybe a year ago or so, and we, we talked about that very thing, and she says, well, I hope that’s not the case. We don’t want people to think that. But now under the new administration, and we know people who have gone in, and the SEC has actually worked with them and said, well, this is, this is what you’re doing. And we think you can, if you just change this and tweak that and, you know, do this and that, and you can fit into this exemption. So.

Moish Peltz [00:27:05]:
And we have four or five no action letters that have issued over the past few months as well. Right.

Steven Baum [00:27:09]:
So, yeah, there’s a list on their task force. They have, they show every person that’s gone in there with an agenda.

Kyle Lawrence [00:27:14]:
It’s pretty cool, which is terrific. And I hope that the innovation exemptions that are hopefully coming out soon just clear up a lot of the gaps in what we do, you know, for a living. It’s similar to what you have. It’s just, it’s an imperfect system, but we’re, you know, we’re working on it.

Steven Baum [00:27:28]:
Yeah, I mean, it’s, it’s really crazy to see the difference. But, you know, like I said, like I said, like, it’s like every couple years this happens and like, the demand explodes for crypto and then it settles, you know, and everyone cools off. I, I do think, look, 25 has been a ridiculous year for demand on, you know, compliance. I’m sure from a legal perspective on your side, you’ve had so much demand on client needs, and, you know, I could see 26 continuing to be a little bit like that, and then we’ll cool, you know, and then it just becomes regular again. You know, it’s like, oh, it’s just another technology company. Yeah, it’s just a tech company. I mean, that’s the truth. Right.

Steven Baum [00:28:04]:
A lot of these are just tech companies. So, I mean, if there’s you know, the token. I think the defi stuff is really where the next level of innovation is going to come of. How do we integrate, you know, decentralized finance? Rails. Yeah. Specifically staking into financial product.

Kyle Lawrence [00:28:25]:
Well, getting stablecoins, you know, through the genius act and the adoption of stablecoins by institutions, by governments, that is a sort of foundational step for what you’re talking about. It’s a Natural segue into DeFi from.

Steven Baum [00:28:38]:
There you need it. You need it, right? Because you need a payment, you need something that represents money that could be used on a blockchain that allows you to create some stability on those financial transactions. So I think clearly stable coins, you can’t do it. You know, historically when you looked at, you know, most defi, like look at uniswap, like the primary basis is eth on that you need those stable coins. You can’t be operating in a variable non cash consideration instrument because you’re never going to be able to settle in a consistent manner with the volatility that’s out there. So now with stablecoins integrating into defi, it’s going to make it a lot easier. It’s funny too because you know, you know, we do audited financial statements and if you ever look at a cash flow of a company that operates in crypto, like let’s say a staking business or a mining business, there’s no cash. You know, it’s like, you know, like I was reviewing a cash flow the other day and I’m like, I’m like, there’s literally no cash.

Steven Baum [00:29:39]:
Like, like the company has like, like 10 grand in cash, you know. So like you’re looking at this thing and you’re just like, the cash flow is meaningless. There’s no cash. Because stable coins right now are not considered cash. Now the FASB is working on that to consider stable coins a cash equivalent, cash equivalence. Yeah, yeah. So if that’s the case now, okay, now payments made in, in stable coins can be cash flow items because they’re technically cash. But right now it’s like, you look at that and it’s like every item’s a reconciling item to your cash because nothing’s in cash.

Steven Baum [00:30:09]:
So it’s fun.

Kyle Lawrence [00:30:11]:
I don’t know why this, it makes me think of this and this is a total segue and I’m sorry, and I’m not an accountant nor am I a tax attorney, but when you say that I do a lot of M and A work, it’s, you know what I am by Trade and we do these earn out calculations and the reconciliations and they all talk about adjusted ebitda and I’m like, oh, so your numbers are just, and they’re like, well, no, it’s adjusted. I was like, yeah, you adjusted it to, to fit what you want. That’s not even. And they all snicker at me, but it’s true.

Moish Peltz [00:30:36]:
Yeah.

Kyle Lawrence [00:30:39]:
Sorry.

Steven Baum [00:30:39]:
Anyway, yeah, no, I, I get it. I mean, I get it. It’s, it’s financial engineering, you know, like you look at, hey, where do you want it to land? And things like that, you know, I, I, I, I mean you definitely could do that, especially when you have statements that don’t have clear rules on how the companies are operating.

Moish Peltz [00:30:56]:
So speaking of like, well, we’re going to have those kinds of defi, maybe is going to lead the technology side, I’m wondering, on the digital asset treasuries, the dats. I know that’s something that you work on as well, what that looks like in terms of. All right, we’re going to have ordinary businesses now that have crypto on their balance sheet and what that looks like and what kind of are these just ordinary businesses, they just have a lot of crypto on their balance sheet and they’re easy to audit for that reason or, or do they raise unique issues that are maybe unique to those kinds of companies.

Steven Baum [00:31:33]:
So I think the dats, like, I mean most of the bigger dats, there’s not necessarily like a clear operating business associated with it today. So I mean, I think you have MicroStrategy, which obviously has their like historical business of software and whatever they do. But you know, most of them don’t have that. Okay, what agency.

Moish Peltz [00:31:54]:
Start quizzing people, what strategies actually operating business.

Steven Baum [00:31:58]:
Like, let’s not, it’s like software security or something.

Moish Peltz [00:32:02]:
It’s a software as a service. Like what does the software do? Like, that’s the question.

Steven Baum [00:32:04]:
Yeah, so I don’t know, but like, no, it’s a big business there. But I mean I think what Most of these DATs are going to realize is that you have to have, I think you could have successful DATs. I don’t, I don’t, I don’t, I’m not like completely anti dad. I just think that, well, first off there’s bitcoin dats which are different in my opinion than all the other ones. Right. So you have the bitcoin dats, which are clearly trying to mimic the Michael Saylor play of saying accumulate as much bitcoin as you can to create financial product and by having so much bitcoin, you can create credit from that Bitcoin, you can create other, you can create financial instruments off of that asset. So that, that’s a, that’s a very unique thing. And I think that’s going to work.

Steven Baum [00:32:46]:
I do, I think ultimately it works, but it’s very focused on the price of bitcoin. Bitcoin’s got to go up and then you have to be able to engineer those financial instruments based on what you have on your balance sheet. And you got to be really under. You got to understand debt really well. You got really understand how to do that, which some of that’s very complicated, right? And, and I think it’s not always an easy thing to do. But then there’s the other ones with all these altcoins, let’s call them altcoins, right? If, you know, there’s, there’s ones that have layer, layer, layer one coins, there’s ones that don’t, that have ERC20 type tokens on them. And I think they’re all a little different, but I think it’s very, very important to have an operating business adjacent to that. Now, what we’ve seen with the dats today is most of the operating businesses are pharmaceutical, okay.

Steven Baum [00:33:31]:
And the reason why a lot of them are pharmaceutical is because the nature of how biotech works in the public markets. You know, biotech companies always are very capital, need a significant amount of capital allocation to do research, et cetera. And then they have high level of turnover because they either run out of money or they, you know, don’t clear their FDA approvals or anything like that. So, you know, those are typically the ripest companies for takeover, which is what we saw a lot of these DATs go into in either reverse mergers or direct offerings or, you know, a variety of different ways. And now a lot of these companies have the DATs and then they have these biotechs they’re going to continue to see out for the most part. But, you know, if those things don’t go anywhere, then what’s the next stage? Like, what do they do to create operating cash flow? Because you can’t just sit on a bag of Solana or something, just be like, hey, I hope it goes up. You know, I mean, look, I think you’re going to stake, right? A lot of them are going to do staking. They’re all, you know, they’re all going to delegate and they’re all going to earn that yield, you know, but I don’t know if that’s like the real answer for operating cash flow.

Moish Peltz [00:34:33]:
Yeah. Is that, is that enough of an operating business, which is to manage the staking and yield earning of the bag of money?

Steven Baum [00:34:41]:
Yeah, but it’s, it’s, it’s, it’s, it’s interesting what’s going on with the. That’s because a lot of these DATs, they’re actually going to manage service providers. So Galaxy is a big, you know, Galaxy’s trying to do this. There’s a lot, a couple of, there’s a lot of firms popping up now that are trying to do the managed service. So they’re basically just saying, all right, you’re sitting on a billion dollars of E, like, just give it to me and I’ll try to create a yield product for you. So to me, this is where it starts to get scary because you start to enter in multiple levels of counterparty risk. And now it’s like, all right, well, all right, you’re giving it to Galaxy, Galaxy’s giving it to Coinbase, Coinbase is giving it to this person. Where is it? You know, and I think a lot of it is all right, you know, it’s on chain, so you can still track it, but they’re entering into DeFi contracts.

Steven Baum [00:35:25]:
So you start to get really complex with this. And that’s my bigger concern with the dats is who are they working with? What’s the counterparty risk? But I think they could be successful if they have a good management team and they really understand it themselves.

Moish Peltz [00:35:39]:
Yeah, I think we learned a lot of those lessons the hard way in that, you know, 2022, 2023 cycle with, you know, FTX and the unwinding of Voyager and Celsius and all these other companies, right?

Steven Baum [00:35:51]:
It was, it was a domino. I mean, that thing was a domo, man. I mean that, that was just one fell and the next fell and it was all, it was just all integrated. But you don’t, I mean, come on, it’s all the same still, right? They’re all, everything’s still integrated. I will say now, though, it’s more of. It’s on chain, which is good, right? So, so we’re moving, but that is the answer. You have to get on chain. You can’t allow centralized processing to continue to occur.

Steven Baum [00:36:17]:
I mean, that was the whole reason FTX failed, is that, you know, everyone’s like, you know, I read all the, all the filings about ftx, all the bankruptcy filings, all of the, they ended up, the SEC actually had an enforcement action against, against Prager Matis, which was publicly out there. I read that whole thing, and at the end of the day, the audit, everyone’s like, would you have caught it? You know, the failure in the audit was that they relied on a bad receivable. You know, there was literally just like a receivable from a related party that they basically were just like, okay, Sam says he’s got the money. Like, that was pretty much what it was.

Moish Peltz [00:36:54]:
You know, so Alameda said, they’ve got the money. And then, I mean, that was it.

Steven Baum [00:36:58]:
Right?

Moish Peltz [00:36:58]:
That was it. So.

Steven Baum [00:36:59]:
And look, I get it. Like, you can get caught up that as an auditor of, like, hey, there’s this other entity that has money. And like, how do you determine the collectibility of that? So I’m not saying it’s all the auditor’s fault, but, like, those are the types of things where that’s not crypto. That’s a receivable. That’s an IOU note.

Kyle Lawrence [00:37:15]:
Yes, that’s exactly the conversation that we have with a lot of people who, when they lose their shirt, whether it’s in a fraud or they invest in a company and it goes belly up. And it’s like, oh, crypto is a scam. Crypto’s not a scam. You gave your money to somebody that you shouldn’t have or you made a bad investment or whatever it is.

Steven Baum [00:37:30]:
Like, FTX failure had nothing to do with crypto. Correct.

Kyle Lawrence [00:37:33]:
And what. And what’s really interesting, what’s interesting is that I. I think it’s going to be a fascinating case study years from now. And we have all of the information about it, and we all look into how the failure materialized. If you ever listen to the show Acquired, and they talk about how Costco, you know, was born and how it lives and how it successes, and their whole mantra is, you can’t replicate exactly what this company did. And similarly, I don’t think you can replicate a failure. You know, what is it? Failure as a. As a thousand mother Victory is a thousand mothers, but failure is an orphan kind of thing.

Kyle Lawrence [00:38:05]:
But, like, that’s not true here. And we see it on the legal side. Something analogous would be if you’re doing a deal and the deal falls apart, and there’s a problem in the document that nobody saw, and Jones Day is on the other side. Not that we do this, but it’s easy to be like, well, Jones Day was on the other side and they missed it. How are we supposed to catch it? Kind of thing. And you get a lot of that finger pointing. I feel like yeah, in situations like FTX too.

Moish Peltz [00:38:29]:
Yeah. So yeah, I like the acquired shout out and what’s up to the acquired folks if, if they listen in. They, they just released Google AI episode.

Steven Baum [00:38:39]:
Oh, they did.

Moish Peltz [00:38:40]:
Which is like four and a half hours.

Kyle Lawrence [00:38:41]:
It’s the best podcast out there. Second best after blocking order.

Moish Peltz [00:38:45]:
Like the most interesting thing I’ve listened to on AI in like a long time. But then I, I was gonna ask you, Steve. All right, so the, the lessons of 2022, 2023, FTX famously was like running this like multi billion dollar business on QuickBooks and right. And so I’m wondering like, well, is that like from a. I don’t know, like what is like have we learned like, all right, their tech stack was wrong. Perhaps their, their, their accounting audit stack was wrong. Are there like low hanging fruit there of like knowing what we know now, if we’re doing it again a similar story, business should do like X, Y and Z. Like what, what would those things be?

Steven Baum [00:39:26]:
Yeah, I mean look at the end of the day, I mean I don’t knock QuickBooks. QuickBooks can account for stuff. I mean it’s not a sophisticated ERP system, but yeah, it doesn’t matter. I mean this is a simple failure. They didn’t have the assets. It’s not. So here’s the thing. The, the FTX system didn’t fail.

Steven Baum [00:39:45]:
They knew what the liabilities were. Right. It’s not, it’s not like they like came out and like had no idea what anybody was owed. And everyone’s like, I had 100 Bitcoin. Everybody knew the liabilities. Right? What?

Moish Peltz [00:39:57]:
Sam is still tweeting that they had the liquidity or they had the.

Steven Baum [00:40:01]:
Well, no, they didn’t have, they had the assets. They didn’t have the liquidity. I think that, okay, the assets were there, but he, he was investing. And I know this because we were auditing a lot of the companies in 22. They were on every cap table, dude. I mean they were, they were on everything. So like, you know you’re talking about this guy’s getting money and he’s just. Alameda is just, just buying shares of everything.

Steven Baum [00:40:23]:
So dude, they probably, I mean that, that Alameda company is probably got a.

Moish Peltz [00:40:27]:
Ton of actually anthropic stake was worth more than the.

Steven Baum [00:40:31]:
I think they had to sell a lot. I think they had to get rid.

Moish Peltz [00:40:33]:
Of a lot of the liquidator. Sold all.

Steven Baum [00:40:35]:
Yeah, they sold bankruptcy. Yeah, yeah. So they got rid of a lot of it. But, but, but like the thing is, is that he had the assets, technically, right, they just weren’t liquid, but they weren’t in crypto. So the whole point was that he was supposed to be backing your assets one to one, and they just weren’t. That’s it. So like, it’s not like there was like everyone’s talking about, oh, it’s joking about the QuickBooks, who cares? It doesn’t matter. Like first off, QuickBooks was the accounting system.

Steven Baum [00:41:02]:
Okay. They had a general system, a database, I don’t know what their database was called, but every like their exchange platform, which was their order book, it was a database like that wasn’t in QuickBooks. They had a very sophisticated database that was probably backed up by AWS servers. And who. I don’t know. I don’t know. I don’t know what their information looked like. But that database, I guarantee there was some level of controls on that database or some level of logging on that database where you could see, yeah, maybe there was a backdoor where he could have went in and done something.

Steven Baum [00:41:32]:
But for the most part on any of these large companies, they’re super user access. I mean there just is, you know, it’s very hard. Am I cutting out? Okay, all right. It says trying to connect here, but yeah, so usually on their super user access, you know, so it’s hard to say that they like completely failed and his database was bad and that their system sucked, you know, and like, who cares that he used QuickBooks? That doesn’t matter. Their liabilities were right, their trades were right. It’s not like people are going and being like, oh, my trades were wrong that were on ftx and I didn’t get my, you know, I didn’t. They took too much money off from me. Nobody was complaining that their account balances were wrong.

Steven Baum [00:42:13]:
You know, what it came down to is they just didn’t have the crypto. That was it.

Moish Peltz [00:42:17]:
It’s just that simple.

Steven Baum [00:42:20]:
And that’s something where like an experienced auditor would have been able to identify that and say, hey, like, you short, you’re short. You don’t have it, you know, like this receivable for, you know, $3 billion is not crypto.

Kyle Lawrence [00:42:34]:
So you’re probably the first person I’ve heard who’s sort of defended that piece of, of the FDX because the, the common refrain was always, you’re $25 billion under management. How do you, how are you operating on QuickBooks? And I’m not an accountant.

Moish Peltz [00:42:46]:
You know, the trial, I think the prosecutors like were like, that was part of their story.

Steven Baum [00:42:51]:
Yeah, but the QuickBooks.

Moish Peltz [00:42:53]:
No, I know, I know. They’re like stretching it to make for somebody.

Steven Baum [00:42:56]:
Right. For somebody who does this and is audited exchanges for a long time, the QuickBooks is literally a debit and credit journal entry item. Like, I don’t care. You don’t have to Keep anything in QuickBooks. All your information could be in a sub ledger. Right. Like, if your sub ledger is the most sophisticated sub ledger ever, who cares that you book a journal entry in QuickBooks? It doesn’t matter because you’re not relying on QuickBooks. Like, as an auditor, I wouldn’t rely on QuickBooks.

Steven Baum [00:43:22]:
I’m not going in and being like anything in QuickBooks. Check. I don’t use that as a source of information. My source of information is the underlying database and the blockchain. Right. So it’s like. And that’s the thing about crypto, it makes it so awesome to audit, is that it’s the most auditable asset that’s out there. You know, people talk about, oh, cash, the easiest cash is king.

Steven Baum [00:43:40]:
You can’t audit cash.

Moish Peltz [00:43:41]:
Impossible.

Steven Baum [00:43:42]:
Nobody has it. Doesn’t exist. I go to a bank, hey, you have $5 million. You’re literally just hoping the bank has it. They don’t. I don’t think they do anymore. I don’t think they don’t.

Kyle Lawrence [00:43:51]:
They don’t have that kind of cash on them.

Steven Baum [00:43:52]:
Yeah, it’s a piece of paper. Yeah. This is one of the most interesting things that we’ve started to talk about a lot. And I don’t know how the SEC views this, but obviously, you know, you guys saw over the past weekend, you know, you had the five companies that got the OCC charters. Yep. So these are, these are now considered federal oversight banks. I mean, they’re not, they’re not like the same as like a Federal Reserve bank or something like that, but they’re banks. They’re basically considered banks under the FCC.

Steven Baum [00:44:17]:
Auditing standards allow us to rely on confirmations from banks, banks. Because there’s no other way to not. Like, if I go to a bank and I ask them if you have $5 million of, of your money, and they say, yes, I have to rely on that. I can’t audit the bank. Right. Because the bank doesn’t have the cash, number one, you know, they’re not going to allow me to go in and audit them. So you rely on that bank offer. Historically, for crypto, we don’t rely on confirmations unless there’s a sock.

Steven Baum [00:44:46]:
What they call a sock report. Right. So a service Organization report. So unless they have a service organization report which has been audited by a different auditor and that auditor is applying to the control environment of that entity, we are not allowed to rely on the confirmation from that entity. Okay? However, now these entities are considered banks. So if. If Bitgo, who’s a bank, and it’s under the Bitgo Trust charter, they confirm with me, hey, I’m holding, you know, a billion dollars. This company’s Bitcoin.

Moish Peltz [00:45:15]:
Okay.

Steven Baum [00:45:15]:
Do I have to do, as an auditor? Do I have to do anything else? They’re a bank. They told me they have it. So, you know, so it’s a really interesting thing. So, like, historically, what would I have done? If Bitgo tells me, hey, I’m holding a billion dollars of Bitcoin, I’d say, okay, yeah, okay, send me a confirmation, give me the addresses. My team’s going to query those addresses on chain. I’m going to make sure they exist on chain. And then, you know, maybe I rely. Either I review their SOC report to ensure that they have private key management controls.

Moish Peltz [00:45:41]:
Is.

Steven Baum [00:45:41]:
I want to make sure that they’re holding those keys. Right? I want to make sure that they have rights to. To this stuff. So either I have control testing that I could rely on for rights testing, or I have to move the crypto. Meaning, hey, I’m going to target a couple of random wallets. I’m going to make sure you can move it, and then that can prove access to it. But if it’s. If it’s in a bank, I don’t.

Kyle Lawrence [00:46:04]:
Know what could possibly go wrong.

Steven Baum [00:46:06]:
I mean, we rely on banks for everything else.

Kyle Lawrence [00:46:09]:
That’s what I mean.

Steven Baum [00:46:11]:
Yeah. So it’s an interesting thing. We’re gonna. I don’t know how. I mean, you know, look, 25 audits are coming up. We have a lot of clients who use these five vendors. I mean, we’re not necessarily gonna just rely on it blindly, but I think it’s going to be a conversation that starts to come up more with the sec. I mean, we’ll.

Steven Baum [00:46:27]:
We’ll talk to them about it. I mean, we talk to the PCOB every single year. They come in and they look at us. So, you know, this is a conversation. We’ll have it. They won’t answer us. I know how they operate. They’ll be like, oh, it’s not our decision.

Steven Baum [00:46:36]:
You decide, and we just tell you if you’re wrong.

Kyle Lawrence [00:46:39]:
The peekaboo folks are my favorite. Yeah, they’re always good.

Moish Peltz [00:46:43]:
I mean, it’s just on that road to Institutionalization. Right. These things that happen with normal banks, you don’t really even question or. Well, maybe some crypto businesses that are now banks should operate that way too.

Steven Baum [00:46:54]:
I mean, they’re going to be over. They’re technically, their oversight is the occ and I don’t know, I mean, they’re required to be audited and things like that. You know, a lot of these companies that got these charters are actually public companies are trying to go public. So it’s not even just like it’s an SEC audit and you know, things like that.

Moish Peltz [00:47:13]:
So.

Steven Baum [00:47:14]:
But again, these are the, the entities that actually got the charters. They’re a, like a subsidiary. So it’s not like Coinbase as a whole has, it has a banking charter. It’s, it’s Coinbase Trust Company, you know, which is based out of whatever and I don’t know where that one’s based on, in Wyoming or South Dakota or something like that, but you know, that’s the entity. So like they don’t necessarily carve that out in your, in your SEC filing.

Moish Peltz [00:47:38]:
So.

Steven Baum [00:47:39]:
But I’m sure for the occ, they’ll have to carve that. They’ll have to look at that as a separate, you know, trust company audit, I think.

Kyle Lawrence [00:47:48]:
Yeah, I don’t see how they would do it otherwise. They would, they would have. Yeah, that’s a good point. I never knew that they could rely on it. It’s really interesting.

Moish Peltz [00:47:56]:
Wow.

Steven Baum [00:47:57]:
Yeah. Yeah. But I mean, up to date, most banks hold cash, you know. Right. So I mean, but, but I mean, I guess you have banks that do hold securities. Right. So I think there’s, there’s a certain aspect of that. But, but I, I would, I would say if a bank had something in a, in a safety deposit box, I probably would rely on that.

Steven Baum [00:48:16]:
You know, maybe other countries is different. By the way, if you’re auditing, if you’re auditing like entity in China, like you might have to go to the bank and like confirm with like an individual. Like there’s different, different things you do in different places.

Kyle Lawrence [00:48:33]:
It’s a. Opening up a huge can of worms by, by examining other countries banking auditing standards, especially China.

Steven Baum [00:48:39]:
Yeah, but look, Bitcoin, Bitcoin’s the easiest thing to audit, you know.

Kyle Lawrence [00:48:44]:
Yeah.

Steven Baum [00:48:44]:
You talk about an on chain asset and you know, you’ll, you know, it’s either there or it’s not.

Moish Peltz [00:48:50]:
Right, right.

Kyle Lawrence [00:48:51]:
That’s the beauty of tokenization.

Steven Baum [00:48:52]:
Yeah. Yeah.

Moish Peltz [00:48:53]:
I’m thinking a lot about in, in our practice the way AI is changing what it means to be a lawyer, how we do our jobs, how it might make certain things more efficient. And I’m wondering how you think about that in the context of like these, you know, you mentioned, like, right, these big repeatable annual things where you’re constantly trying to improve. There’s so much data. How are you thinking about the adoption, implementation of AI into your work stream and the kind of work that you do?

Steven Baum [00:49:26]:
So it’s funny, right? Public accounting firms, everyone’s using the buzzwords of AI. AI is going to change it. We’re going to lose our jobs, we’re not going to need staff, all this stuff, right? I’m kind of. Look, I absolutely think AI is going to be a huge, huge over overhaul of what we do. But I actually don’t think it’s going to necessarily make things cheaper or more efficient. I just think it’s going to be a shift in how we operate. So I think it just changes how we do it. Because here’s my biggest problem with AI from an audit perspective.

Steven Baum [00:50:01]:
Okay. This is like a major issue in my opinion, is that it creates more garbage. So, so, so like right now, as an auditor, we are required and trained to evaluate all relevant and available information. So you know, back in the day when, even when I started auditing, close to 15 years ago, it was like right when we shifted to computer file rooms, like, like electronic file rooms. So like literally a couple years before I started, they were still doing like paper binders, paper notebooks. And it’s crazy because I feel like everyone was like, oh, the electronic file rooms are gonna make it so much cheaper. And it was the opposite. It made it harder because it was more information.

Steven Baum [00:50:42]:
Like, because what would happen, right? Somebody would go to a client, they’d go to like a file room and it would be like a first year staff. And what do they do? They spend two weeks in there just scanning papers. They just scan everything in. They’re just like at the copier, just scan and scan and scan and labeling, scanning, scanning. So like, all right now, great. This is all in electronic form now. Someone’s got to read all that shit. Yeah, right.

Steven Baum [00:51:06]:
And it’s almost worse because it’s an electronic form and it’s in your system. It’s like a discoverable document. Okay? So I mean, your lawyers, you understand that, right? As opposed to what did you do before that? You would go to a client site, you would literally grab what you needed while you were there, you’d scan the one paper you needed and then you.

Moish Peltz [00:51:24]:
Just put it in Your file.

Steven Baum [00:51:25]:
And that was the only thing that would be discoverable because that was the only thing that was in the file. Okay. So it made it more like you did the audit based on the relevant information and what was there was relevant, and you’d be able to conclude based on that. Then you started to do electronic information, and it became all this excess data. Now we’re going to AI, where not only do we have AI data, AI is creating more data, right? Like, people are like, creating memos based on, like, ChatGPT and like, and now you’re just getting all this information, and then it’s this problem of, well, what information is even real and. Right. And then the second thing is now, how is you as an auditor go through all that and make conclusions based on that? So to me, I’m not sure how much it’s really gonna. I think it’s gonna make it harder to do audits.

Kyle Lawrence [00:52:10]:
It’s kind of similar because we deal with clients who use chat GPT to comment on documents we send them. And it’ll ask for things that are just completely out of, out of left field. And I’ll say to them, well, that’s just. No, legally you’d want to do it this way. It’s like, well, I disagree. And it’s like, all right, well, yeah, then don’t pay me pay Chat GPT.

Moish Peltz [00:52:29]:
Then AI this way. Why degree and you have to start arguing with their AI about how this is the proper way to do something.

Kyle Lawrence [00:52:36]:
It’s the next evolution of, you know, my law degree trumps your Google search kind of thing.

Steven Baum [00:52:41]:
That’s the problem that we have too, right? Like, we’re being paid. Like I’m. I’m specifically being paid to sign an appeal opinion. So I have to make that opinion. Nobody else. So I could leverage AI to provide me information. Okay, but if that information is. Is the same or not, like, if it’s better information, fine, maybe it gets me to my conclusion better.

Steven Baum [00:53:05]:
But I still have to audit that information. So, you know, it’s not like I could just rely on a system to conclude. I still have to conclude, and I still have to go. Go through that process. So if it’s creating more variables for me, does that make it easier for me to decide or harder to decide? I don’t know. I think that’s the challenge right now is like, does this create more data points that’s going to make it harder for me to make an opinion or will it be easier?

Moish Peltz [00:53:31]:
Yeah, I think that gets down to, you know, because we have the same question, right. It’s like, well, if, if the AI can do all the drafting and legal work that a junior attorney could do, well then you know, do I just do more work or so I think it. But I. Your point, which I agree with, is it gets down to the experienced people that view it as more of an art and judgment than just science and just what’s the available data. It’s like it plays to their strengths.

Steven Baum [00:53:58]:
But it is judgment. A lot of what we do, it is right.

Moish Peltz [00:54:01]:
It’s like it’s well, this is what the rule is. But when reality, this is the way that you need to have it done and this is the way you need to communicate with your client or a regulator or someone else as to here’s why what’s, what’s happening is wrong and that’s why they’re humans in the loop and doing that thing. So I think it’ll make, especially in what you’re saying and describing just the trove of data now that is both at your fingertips and the way of making an informed decision. Yeah, it’s crazy.

Steven Baum [00:54:28]:
It’s so crazy how much information they go through to get these projects done now. It’s like the, I would say like the first 70% in an audit is just cleansing. Cleansing data. 70. The only 30% is like concluding. It’s literally like the first two, three months of anything is just cleansing.

Kyle Lawrence [00:54:49]:
Wow, how inefficient.

Steven Baum [00:54:53]:
But I’m telling you, I don’t know if the AI is going to help because it might just create more information to cleanse.

Kyle Lawrence [00:54:59]:
It’s going to make people think that they’re smarter than they are, you know.

Steven Baum [00:55:02]:
Or it gets to a situation where you’re relying on systems more, where you literally are just like taking a file out of a system and. But then again, if that’s what I’m doing, I’m shifting away from like this like detailed auditing and moving more on the control based auditing. And it’s going to require entities to have more controls around the inputs to that system. And we would have to test that as the auditor. The problem is, is that that’s fine for established businesses, but when you’re, when you’re, talking about a startup company who has like three people in their accounting division, they’re not going to have segregation of duties to oversee the system that they’re using for their AI system, they’re using for inputs. So, okay, now you don’t have segregation of duties and it’s one guy who’s overseeing that input Well, I can’t rely on that. I have to still go to the source data now. So, you know, it’s this black box problem.

Moish Peltz [00:55:53]:
It’s like, no, but the AI said these are the numbers. Just take them, Steve.

Steven Baum [00:55:57]:
I mean, that’s what’s going to happen, right? And I’m going to say, I don’t know about that. I got to kind of go. But that’s why blockchain helps, right? Because at least on the blockchain, you can’t lie, right?

Moish Peltz [00:56:06]:
Yeah. So maybe that’s the solution, right?

Steven Baum [00:56:09]:
Oh, it’s definitely for auditing. AI won’t work without blockchain. It won’t. You just. There’s no ability to verify the decision making of the AI. So if, if you could use AI in a model that is correlated with blockchain, where every decision the AI makes is. Is documented on a blockchain. Auditable.

Steven Baum [00:56:30]:
Easy, right? Because now I could look at the blockchain and say what every. I could see every decision that the AI made on a blockchain, and then I could look at that blockchain to say, okay, is there relevance, reliability associated with that chain? But right now, if that’s all in a closed end system and like, there’s one guy who potentially could delete a log or do something like that, well, then you can’t rely on that.

Moish Peltz [00:56:52]:
All right, so blockchain is going to solve AI. I love it.

Steven Baum [00:56:56]:
Well, for auditing, I mean, I think there’s a lot of. I think in general, I do in general think that though, because I don’t see how we could allow AI to just run free without like logging its decisions.

Moish Peltz [00:57:09]:
I think that’s right. I think when there’s so much data out there, it’s how do you know what’s real and how do you know how you got from point A to point B? And you need a defensible audit trail, which is what the blockchain is designed to do.

Kyle Lawrence [00:57:22]:
Well, as we, as we whittle down on time, Steve, we really appreciate you spending an afternoon with us here on B and O. Tell the people what’s up next in store for you and where they can find you.

Steven Baum [00:57:32]:
Yeah, I mean, you know, right now we’re getting into year end here, so, you know, for me, really working on a bunch of clients and trying to make sure all the crypto is there.

Kyle Lawrence [00:57:43]:
So I love it.

Steven Baum [00:57:45]:
That’s what’s in store for me. You can find me on LinkedIn. Steve Baum. I don’t know what the actual tag is, but if you search me, you could find me. Yeah, I mean, that’s really it. But no, it’s been a pleasure talking about this, you know, and hopefully in the new year, we’ll have some more better news on the crypto prices.

Kyle Lawrence [00:58:07]:
Yeah, exactly. From your lips to God’s ears. And this time next year, when there’s new regs in place, we’ll have you back on and we can have the same discussion again with AI doing the whole episode for us.

Steven Baum [00:58:17]:
Yeah, yeah, we don’t have to be here. I keep. I keep seeing these memes where it’s like you made it when you realize you’re on a call and everyone else’s. AI.

Kyle Lawrence [00:58:25]:
Oh, God. Well, Steve, we thank you very much for your time and, you know, happy holidays and Happy New Year to you and Happy New Year to you. And we’ll see you soon.

Steven Baum [00:58:33]:
All right, talk soon.

Moish Peltz [00:58:35]:
Thanks so much.

Kyle Lawrence [00:58:36]:
Well, that wraps up this episode of Block and Order. A very special thank you to Steve Baum for offering up his time during a very busy day season. Don’t forget to like and subscribe and follow us on all all of our socials. The links are down below in the show notes, please. Also, don’t forget to smash that like button. Leave us a comment. We do love the spirited discussion from all our our viewers. Please don’t forget that nothing on Block and Order is intended to be construed as legal and or financial advice.

Kyle Lawrence [00:58:59]:
Please consult your own representatives and attorneys if you’re going to take the plunge. No. Assets that we discussed here on Block and Order are meant to be meant to be construed as an endorsement of such assets if you’re going to buy them, buyer beware. Very special thank you to producer Abby, the OG producer. Without her, this show would not be possible. So on behalf of Moish Pelts, I’m Kyle Lawrence. Keep fighting the good fight, everybody.

Moish Peltz [00:59:20]:
See you next time.