Bitcoin Myths · #20 of 20

Bitcoin Cannot Be a Unit of Account

What a Unit of Account Is and Why It Comes Last

A unit of account is the yardstick prices are quoted in. It is the money that contracts, wages, and shelf tags are written with. Economists count it as one of money’s three functions, alongside store of value^{An asset that holds its purchasing power over time.} and medium of exchange^{Money used to buy and sell things, rather than to store value or price them. One of the classic functions of money.}, and the critics are right that it is the most demanding of the three. Pricing a whole economy in something requires that thing to hold still. Source: Federal Reserve Education, functions of money

Here is what the demand leaves out. No money in recorded history began as a unit of account. The sequence, traced in Myth #19: Who Accepts Bitcoin?, runs collectible, then store of value, then medium of exchange, and only at the end, unit of account. Gold was treasure long before it was coinage, and coinage long before ledgers were kept in it. The US dollar spent its first century defined as a fixed weight of precious metal and needed another one before the world quoted oil in it. The yardstick role is not an entrance exam a money has to pass before it is allowed to exist. It is the last promotion in a long career of being trusted. Sources: Ammous, The Bitcoin Standard · Alden, Broken Money

So the final myth in this series does something odd. It points at the last stage of monetization. It observes that a seventeen-year-old money has not completed it. And it calls the race lost. By that standard, gold was a failure for centuries, and the dollar was a failure until just a few generations ago, since the world did not price oil and trade in it until the twentieth century. The interesting questions are different ones. Is anything already priced in Bitcoin? And what, exactly, stands between here and the shelf tags?

The Bitcoin Unit of Account Already Exists

Start with the strictest possible test. Is there an economy anywhere whose prices are set in Bitcoin? There is, and it is Bitcoin. The protocol’s native unit is the satoshi^{The smallest unit of Bitcoin, one hundred-millionth of a bitcoin (0.00000001 BTC). Named after Bitcoin’s pseudonymous creator.}, one hundred-millionth of a bitcoin, a point this series covered back in the myth that you need to buy a whole Bitcoin. Every transaction fee on the network is a bid denominated in satoshis per unit of block space, and block space is finite, since each block holds only so many transactions and users compete to get in. Every mining reward, the entire revenue of a global industrial sector, pays out in bitcoin. Every payment on the Lightning Network^{A payment layer built on top of Bitcoin that settles small transactions almost instantly and at very low cost.} and every routing fee settles in sats, written into the protocol’s own specification. Block space is scarce, demand for it fluctuates, and a real market prices it around the clock without a dollar appearing anywhere in the stack. Sources: Bitcoin developer documentation · Lightning Network specifications (BOLTs)

Beyond the protocol, the distinction that matters is between paying in Bitcoin and pricing in it. Most so-called Bitcoin salaries are dollar amounts converted to Bitcoin at the moment of payment, which uses Bitcoin only to move the money while the dollar still sets the price. Genuine pricing in Bitcoin, where the amount is fixed in a set quantity of bitcoin and the dollar never enters the calculation, is far rarer. Outside Bitcoin’s own economy it shows up mostly where the local currency has failed, the subject of the next section, and the scattered cases of someone fixing a wage or a contract in bitcoin by choice are still anecdotes rather than a trend. That is what you would expect this early, because pricing in a money is the last habit to form, not the first.

Then there are the places where the choice is not ideological. Alex Gladstein of the Human Rights Foundation calls Bitcoin a global monetary language and documents what that means in practice. Teachers in Afghanistan had their labor denominated and paid in Bitcoin when no bank could reach them. Aid for thousands of families in Gaza was measured and delivered in it. And market traders in Malawi kept their savings in it after the kwacha^{The kwacha is Malawi’s national currency. In November 2023 its central bank devalued it 44 percent overnight.} lost nearly half its value overnight. Sources: Alex Gladstein · Human Rights Foundation, Financial Freedom For these users the unit-of-account question is not theory. The official yardstick broke, and they reached for one that cannot be shortened.

The Yardstick Problem

Now turn the test around, because the unit of account we already use is failing it. The whole point of a yardstick is that it does not change length. Prices are information. They tell producers what to make, savers what things cost, and investors where capital belongs. When the unit they are quoted in shrinks every year, the information is corrupted at the source, a problem the economist Saifedean Ammous puts at the center of his case for hard money.

The distortion is measurable. In 1971, the year the dollar’s last link to gold was cut, the median American house sold for $25,225. Today the figure is about $420,000, a sixteen-fold rise in the unit the house is measured with, and general inflation accounts for only about half of it. Sources: Federal Reserve · BLS inflation calculator Housing has real drivers of its own, from land and zoning to demographics and interest rates, and they explain part of the climb, but not all of it. The house is the same thing it was in 1971, walls, a roof, somewhere to live. A large part of what changed is the ruler. This Bitcoin Myths series has addressed these consequences before. The shrinking ruler is how real estate became a savings account, and it is why the intrinsic value test condemns the dollar itself when applied evenly.

And the dollar is at least familiar. The world prices things in roughly 180 national currencies, all fluctuating against one another every day. Source: ISO 4217 Imagine measuring a room with a tape measure that changed length every time you used it. Then imagine the crew next door using a different tape, one that changes on its own schedule, and 178 more crews after that. Global commerce works like that every day, a mild form of barter wearing modern clothes. Against that backdrop, the proposition of a single unit with a supply fixed at 21 million, verifiable by anyone, alterable by no one, is not an eccentric fantasy. It is the first candidate yardstick in half a century that cannot be shortened by policy. What it lacks today is not integrity. It is stability.

The Stability Threshold

Stability is the real heart of this myth, and the critics deserve an honest answer. Nobody prices a grocery store in an asset that moves several percent in a week. The question is whether that volatility is a permanent property or a passing condition, and the answer comes from arithmetic rather than advocacy. Bitcoin’s market capitalization^{The total value of all the bitcoin in existence, found by multiplying the price of one bitcoin by the number in circulation.} is roughly $1.3 trillion. Gold’s is more than $30 trillion. Sources: World Gold Council · Companies Market Cap Think of a tide pool sitting beside an ocean. The wave the ocean never notices sloshes the tide pool wall to wall. Money moving between gold and Bitcoin works the same way. A flow too small to register in the gold market moves Bitcoin’s price sharply. Volatility at this stage is what monetization looks like from the inside, because trillions of dollars of wealth cannot migrate into a young asset without violent price discovery along the way.

The trajectory, though, is the part the myth has to ignore. Bitcoin’s volatility has declined with every market cycle as the market has deepened, exactly what the arithmetic predicts. The same pattern played out in transformative companies like Amazon and Apple, which whipsawed violently for years before settling into the furniture of the economy. And the deeper the store-of-value phase runs, the more the famous spending disincentive fades. The reason nobody wants to be the man who paid 10,000 BTC for two pizzas is that the asset was still climbing. An asset that has finished climbing is an asset people will happily quote prices in. For gold and the dollar, the stages came in a fixed order, store of value first, then medium of exchange, then unit of account, a sequence Vijay Boyapati maps in The Bullish Case for Bitcoin. Whether Bitcoin follows the same order turns on whether the stability arrives, which is a question of market depth, not of destiny.

The Final Myth Is the Whole Series

Which brings the skeptic’s observation full circle. Nothing on the shelf is priced in Bitcoin, and the reason is not that Bitcoin failed the test. The test sits at the end of a sequence Bitcoin is seventeen years into, at a stage where every previous money was also unpriceable, still pooling in vaults and ledgers while the old unit did the quoting. The dollar pricing Bitcoin today is not evidence against Bitcoin. It is what the handover always looks like from the middle. The older money always measures the new one rising up beneath it, the way the dollar once measured gold while gold sat under the whole system.

Step back far enough and this last myth turns out to be the whole series in miniature. Bitcoin uses too much energy, compared to nothing. Criminals use it, measured against no baseline. It is a Ponzi, under a definition that does not fit. No one accepts it, judged from the places that need it least. It cannot be a unit of account, tested against the final stage while standing in the middle one. Twenty claims, and underneath them the same three errors every time, the wrong comparison, the wrong definition, or the wrong stage.

So the question this series leaves behind is not really whether Bitcoin can pass money’s last test, because that one only time can answer. The sharper question is the one worth asking of the 180 elastic rulers. What happens to a world that prices everything in shrinking units if a fixed one ever holds still long enough to measure with? If that day comes, it will not arrive as a headline. It will arrive the way every monetary stage before it has, quietly, in the ledgers first and on the shelves last.

This article completes the Bitcoin Myths series. To explore the full Bitcoin Myths series, start with the hub page where 20 common myths are mapped and linked.

Everything on this site is for educational purposes only. It is not financial, investment, tax, or legal advice. Bitcoin carries real risk. Prices move. Do your own research, think for yourself, and speak with a qualified professional before acting on anything you read here.