In traditional accounting, we measure profit against the benchmark of holding money—considered “zero risk.” But this approach has a fundamental flaw: it ignores the reality of purchasing power and opportunity cost. We call this measure a “unit of account”.
The unit of account we choose should reflect our true financial goals. For many, that goal is increased purchasing power, not simply more fiat currency. This is why I adopted gold for my personal accounting before Bitcoin existed—it better represented real purchasing power. I can’t plan future when I don’t know what the price increase will be in the future.
Bitcoin introduces a paradigm shift in how we think about accounting. Consider these scenarios:
- Making 10% annually in fiat while Bitcoin appreciates more rapidly
- Earning 3% in Bitcoin terms
Using fiat for accounting obscures your actual purchasing power and completely masks the opportunity cost of not holding Bitcoin. CPI adjustments fail to capture this reality too, because it is just an average price increase among average people (an “archetypal normie”), it does not reflect what we demand.
For a growing number of individuals and businesses, Bitcoin has already become the de facto unit of account. This transition isn’t without challenges, however. Generating Bitcoin-denominated returns through entrepreneurial activity is exceptionally difficult. The benchmark is demanding.
I am not saying Bitcoin as a unit of account will represent stable purchasing power – there is no such thing as stable representation of purchasing power, because prices change all the time, that’s what they are for. I am saying that if you are choosing between investing into Bitcoin and doing something else, you need a measure how well you are doing that something else vs. if you just bought Bitcoin.
Example: You have a VC fund that promises returns. You need to convince investors to invest in your VC fund and not in Bitcoin (because that’s the sanest investment, especially in tech). The way to do it is to do accounting in Bitcoin and show that you will do better than if they just bought Bitcoin.
For many, this reality after switching to Bitcoin as a unit of account translates to:
- Preserving societal resources (“hodling”)
- Prioritizing free time
- Focusing on activities that convert time into money rather than requiring capital
- Strategically shorting fiat using Bitcoin as a collateral to invest elsewhere and convert any profits to Bitcoin (or repaying the loans)
Any entrepreneur not considering Bitcoin in their financial calculations is missing crucial context. This doesn’t mean everyone should switch the accounting methods immediately, but it does require that people (and especially entrepreneurs) are aware of the tradeoffs involved. And again, the tradeoffs are brutal.
For many entrepreneurs, this will be a cold shower. Am I really giving society more through my entrepreneurial activity than if I simply did nothing and just didn’t waste society’s resources and HODLed?