BLOG
Bitcoin makes a historic leap as Próspera becomes the first jurisdiction to adopt it as a unit of account, paving the way for a new era in global transactions. This shift offers new opportunities for Bitcoin-focused companies.
It’s official, Bitcoin entered its unit of account era. The special economic zone of Próspera became the world’s first jurisdiction to adopt Bitcoin as such. In the grand scheme of things it might seem like a small development, but this is a giant leap for mankind. The possibility of using Bitcoin as a unit of account opens up a whole new world for Bitcoin-focused companies. It also presents new challenges, which we will explore in the following paragraphs.
To help us understand the situation, Blink interviewed Kgothatso from Machankura and Dusan Matuska from AmityAge, two companies that already started using Bitcoin as a unit of account. They come in on the second part of the article, let us set everything up first.
Let’s start from the top. The theoretical functions of money are store of value, medium of exchange, and unit of account - As a side note, Dirac Delta presented a fourth function at the Adopting Bitcoin conference, but that’s neither here nor there.
Historically, Bitcoin has mostly been used to preserve capital. It’s been and continues to function as a safe haven against rampant money printing and the inflation it generates. A store of value, if you will.
At the same time, but with significantly less volume, it was also used for economic transactions, both online or under the table. That was until the emergence of the Lightning Network gave rise to the Bitcoin as a medium of exchange era. This coincided with El Salvador’s historic move to adopt Bitcoin as legal tender. When that happened, Bitcoin became an official government-sanctioned medium of exchange.
However, with everything El Salvador represents in the Bitcoin story, the US Dollar is still the unit of account in the country. Businesses and regular people who accept Bitcoin pay taxes in Dollars and have to keep two sets of accounting books. Alternatively, they could immediately exchange their Bitcoin for Dollars. Or Stablesats, if they’re smart and use Blink.
In Próspera, on the other hand, Sats are the standard. Both the taxes and the accounting can now occur directly in Bitcoin, making it the first jurisdiction to function fully on the Bitcoin standard.
Recently, BullBitcoin CEO Francis Pouliot predicted that in the future "nearly every transaction will be performed using Bitcoin as the medium of exchange and unit of account.” With Próspera’s new legislation, the world is one step closer to that reality.
The Próspera ZEDE is in the Republic of Honduras, specifically on the Island of Roatán. ZEDE stands for “Zona de Empleo y Desarrollo Económico,” which means Employment and Economic Development Zone. In a phenomenal transmission, the Global Bitcoin Fest gathered Próspera’s protagonists to explore the Bitcoin-as-a-unit-of-account idea.
One of their guests was Jorge Colindres, Próspera’s Technical Secretary and Tax commissioner. He was THE person responsible for approving Bitcoin as a unit of account in their jurisdiction. As a history lesson, he stated that Honduras amended the constitution in 2013 to allow the creation of a “local government that enjoys a great degree of legal, economic, administrative, and political autonomy.”
The ZEDE’s objective is to “emulate in Honduras the economic success of other autonomous special economic zones” like Hong Kong and Dubai. More importantly, he explained the formal characteristics of the new legislation.
According to Jorge Colindres, a company that sets up shop in Próspera would have to have a “substantial presence related to the income generating activity” within the ZEDE to be subject to their tax system. If a company is set up in Próspera but its operations take place elsewhere, that company is probably subject to another jurisdiction’s tax authority. “It’s convenient to set up at least part of the operation here because then you can apply to the tax benefits,” Colindres recommends.
Besides that, these are the rules:
Two other guests of the Global Bitcoin Fest transmission were Kgothatso from Machankura and Dusan Matuska from AmityAge; Blink contacted them to help us explain how to register a company in Prospéra. Kgothatso told us that the process “is quite straightforward and can be completed from start to finish on ePróspera.”
About ePróspera, Dusan explained:
“This is the eGovernment platform that you use to manage everything business or tax-related in Próspera. Once you register, you first need to set up a residency for yourself. A simple eResidency will allow you to set up a business in Próspera. It costs $130 per year and you can pay in bitcoin. It takes about 2 days to confirm from Próspera’s side and then you can set up a business.”
Kgothatso elaborated further, “most of the KYC is done on the eResidency application. Once you have your eResidency you can then incorporate a for-profit company, a non-profit company, or a foreign entity for a minimum of $130 (payable in Bitcoin) depending on which options you take.”
As for the complexity of the process, Dusan claimed, “I have honestly never encountered a simpler process to become an eResident or set up a company. This should be the benchmark for any eGovernment services anywhere.”
Ideally, a company would set up the “dollar part” of its business in another jurisdiction to deal with fiat transactions. Additionally, they would set up the Bitcoin as a unit of account entity in Próspera, where they wouldn’t even need a bank account. As for other benefits, Dusan explained “the ease of doing accounting”:
“In a regular setup, you should note down the Bitcoin exchange rate to your chosen fiat currency whenever you receive a Bitcoin transaction. Then, in the future, if you send your Bitcoin out of the company, you should also calculate the current exchange rate and see if you made some profit or loss. It can be a headache if you have a lot of transactions.”
To that, Kgothatso added, “without the option to use Bitcoin as a unit of account most companies end up holding Dollars/ Dollar equivalents up until the point where they need to send out the Bitcoin payment.” On the other hand, “using Bitcoin as a unit of account allows an entity to allocate a medium to long-term Bitcoin budget and easily account for how it's spent in Bitcoin.” In other words, it allows companies to operate under a Bitcoin standard.
To drive the point home Dusan explained, “When you choose to use Bitcoin as a unit of account, you only write satoshis in your accounting books. No fiat exchange rate anymore.” To that, Kgothatso adds another element by claiming this is done “without the headache that comes with accounting for capital gains taxes.” That’s right, when you spend your Bitcoin in a Bitcoin as a unit of account situation, then there is naturally no tax issue because the Bitcoin is not sold "at a fiat profit."
It’s also worth noting that for international businesses operating across multiple countries like Machankura, Bitcoin as a unit of account provides a single and simple way to keep all the accounting in the same book. And in the same currency.
So, you decided to use Bitcoin as a unit of account… Kgothatso has some advice for you, “I would highly recommend incorporating in Próspera to any company that either receives or sends Bitcoin in its day-to-day operations and would like to simplify their medium to long-term accounting practices for those Satoshis without having to convert them to Dollars.”
For his part, Dusan, whose company operates from a Roatán villa, ends this piece with a passionate speech that should ignite the fire in your heart:
“Don’t just coldly set up a company from abroad without ever visiting Próspera in person. Come first and meet the hardworking team behind Próspera and experience the beauty of Roatán. The island might amaze you just like it amazed me, and you might even spend part of your year or even life here and help us build a vibrant Bitcoin community.
Don’t trust, verify! Do your own research here and verify that you’re investing energy in a place with huge potential. It’s great to see what is happening on the ground and how the free city is being built. An important part of the success of Próspera is building a community of entrepreneurs, families, and passionate change-makers.
If Próspera has only online companies and nobody is willing to come and build a city, it would not fulfill one of its main purposes. Help us build a Citadel.”
To learn more about Amity Age check out its Bitcoin Center and Educators Academy. Plus, don’t forget to find out everything Machankura can do for you while in Africa. And of course, research Próspera, the world’s first jurisdiction to adopt Bitcoin as a unit of account.
