Bitcoin Unit-of-Account: Establishing a Global Standard with Network Accountants
How Accountants in the Network State Can Pioneer Bitcoin’s Function as a Unit of Account
Bitcoin's pivotal monetary function as a Unit of Account (UoA) redefines how we measure, compare, and transact economic value, to create a consistent global standard.
Most people understand Bitcoin as a Store of Value (SoV, digital gold) or Means of Exchange (MoE, peer-to-peer e-cash), but its potential as a Unit of Account (UoA) deserves greater exploration.
In this article, I'll introduce an accountant's perspective of what it means for Bitcoin to serve as a Unit of Account, its significance for the global economy, and a potentially effective approach to implement. The Composite Fractionalized Money approach I propose is inspired by Dirac Delta, Adopting Bitcoin 2023, and the Stacks launch of sBTC protocol. This is my first draft of a vision and idea, to be built on with welcome feedback.
Understanding Bitcoin as a Unit of Account
A Unit of Account is one of the foundational functions of money, providing a standard for pricing goods, services, and contracts. It enables us to compare value consistently across transactions. Traditionally, currencies like the US dollar have fulfilled this role, offering stability and universal recognition. Bitcoin, with its fixed supply of 21 million coins, introduces an entirely new paradigm: everything of value—from commodities to services—can be priced and measured in satoshi denominations.
With 100 million satoshis in a single Bitcoin, Bitcoin's divisibility and fungibility make it uniquely suited to serve as a global UoA. Its fixed supply eliminates inflationary distortions, ensuring a consistent and transparent standard for value over time. Additionally, limitless denominations may be created upon each satoshi, offering flexibility for valuation, effectively achieved through Bitcoin-anchored layers and other methods.
Meanwhile, the 21 million Bitcoin cap ensures it can never be inflated. As a borderless, decentralized asset and the world’s most secure, decentralized and permissionless network, Bitcoin also offers global consistency and durability. As such, it transcends the limitations and inevitable obsolescence of fiat currencies in international trade and economic systems.
The Standard of Contract and Pricing in Bitcoin
William Jevons, in his 1875 analysis of money, outlined its four primary functions, where what we now call "Unit of Account" comprised both the measure and standard of value. Building on this, the "Standard of Contract" highlights money's role in solving the double coincidence of future wants problem, providing a stable benchmark for deferred payments and agreements.
Adopting Bitcoin as a UoA and "Standard of Contract" has profound implications for contracts and pricing. As a "Standard of Contract," Bitcoin provides a reliable and incorruptible reference for deferred payments and long-term agreements. A Standard of Contract establishes a stable and trustworthy reference point for pricing obligations, agreements, and deferred payments. This stability is essential for ensuring fair and consistent economic interactions, especially over long periods or in volatile environments.
For globally distributed Network State diasporas, as envisioned by Balaji Srinivasan, this role becomes even more significant. Bitcoin can enable consistent pricing and financial reporting across interconnected cloud-countries, establishing a parallel economy where economic value is measured in satoshis regardless of which currencies are used.
While businesses within these societies may convert to local currencies for Nation State reporting and tax obligations, appropriate crypto accounting software and exchanges can facilitate these conversions, ensuring compliance without compromising the integrity of Bitcoin as the foundational UoA.
Pricing goods and services globally in satoshis could simplify trade and create a universal economic language. Imagine a world where every product, from a loaf of bread to a luxury car, is denominated in satoshis. Businesses and consumers alike would benefit from a transparent and consistent pricing system, seeing the complexities and risks of fluctuating fiat exchange rates as abnormalities that should not persist in a borderless economy.
Implementing Bitcoin as a Unit of Account: Fractionalized Composite Money
To make Bitcoin's UoA function practical, the economic leaders of a Network State can implement a Fractionalized Composite Money system. Here’s how it may work:
Satoshi-Denominated Pricing: Suppliers globally price goods and services in satoshis, establishing Bitcoin as the universal standard for value measurement. This effectively makes Bitcoin our global reserve asset, replacing the historical roles of the USD or gold.
Flexible Payments: Customers make payments in any combination of digital currencies, stablecoins, or tokenized Bitcoin using the Stacks sBTC protocol, a trustless Bitcoin-pegged asset on the Stacks blockchain, enabling decentralized movement of BTC into and out of Bitcoin layers, while leveraging the Bitcoin network's security and transparency.
Smart Contracts and DEX Integration: A decentralized exchange (DEX) and liquidity provider to facilitate conversions between payment currencies and satoshi prices and to allow merchants to dynamically settle any currency back to BTC via a Bitcoin-anchored smart contract layer like Stacks. This approach should prioritize security while accommodating multichain, interoperable frameworks that interact effectively with global financial systems.
This is proposed as a practical solution for Bitcoin to function as a Unit of Account, by not being the Means of Exchange, while addressing the multi-currency reality of our economy.
It’s important for our solution to acknowledge that while fiat and other currencies fluctuate relative to Bitcoin's consistent value (1 btc = 1 btc), it is necessary to enable composite payments and automated conversions.
Fractionalized Composite Money also addresses a critical cash flow issue for merchants: reconciling the difference between the value of fiat or crypto currencies and Bitcoin at the time of invoicing versus payment. Our system could align compensation with the Bitcoin value established at the time of invoicing, by dynamically adjusting settlements to account for fluctuations in fiat or other currency values at the time of payment.
As Bitcoin adoption grows, fluctuations relative to fiat currencies are expected to diminish over time, aligning payments more closely with the Bitcoin value at pricing.
The Role of Public Accountants in the Bitcoin Era
The shift to Bitcoin as a UoA marks the next phase of the "internet of money." Money is technology. Accountants and money work together. All accountants become technologists.
Accountants of the Network State are uniquely positioned to explain and demonstrate what "1 BTC = 1 BTC" means in practice, guiding businesses and societies toward practical adoption of Bitcoin as a Unit of Account in global systems.
Public accountants around the world, as trusted advisors, are uniquely positioned to guide the majority of people and organizations through this transition. Just as accountants have helped their clients adapt to the digital age, accountants can help them adopt and adapt to Bitcoin-based systems.
By mastering Bitcoin concepts and related technologies, and aligning with the Network State vision, accountants can elevate their profession and support everyone in navigating the future of money.
Conclusion
Bitcoin as a Unit of Account redefines how value is measured and transacted globally. Using Fractionalized Composite Money systems, we can implement Bitcoin as the standard for pricing and reporting, while payments occur in various currencies reconciled to Bitcoin's consistent value. This is the next phase of the "internet of money," and public accountants will play a critical role in helping businesses adopt and adapt to these systems.
Now is the time for accountants to take the lead in helping the world understand Bitcoin's true purpose and demonstrate how it will be used as a Unit of Account in global financial systems.
Want to get involved? Send your ideas and feedback to Electra Frost at: mail@electrasignal.com