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Overview and Walkthrough

On-chain Accounting

Bitcoin orchestration and Native Bitcoin Vaults address a critical need of managing direct-custody, multisignature bitcoin transactions. For accurate accounting (and likely regulatory compliance), more than a list of UTXOs is required.

For example, organizations must produce income statements and balance sheets, meaning that the on-chain transaction must be categorized as Income or Expense, and assigned to a sub-account, such as Expenses:Netflix. The on-chain transaction is also assigned to an Asset account, which is the generally the inverse of the balancing component.

The transaction information from the chain plus additional information comprise the elements of a journal entry, the core structure of the triple entry accounting protocol.

As an example, if we received 1.5 BTC to a Cold vault for a consulting gig we completed for Alice, the journal entry would look like this:

2021-10-10 Received from Alice for Invoice 23    ; 05af3b675ef6dffb20587de089a2a57292c20ff0068bf6a7b5954e64842861c1
    Assets:Bitcoin Vaults:Cold           BTC 1.5 ; bc1qdjcuvjpj2e7d0s47lmcej5yhyr72fmqjm7xe4w
    Income:Consulting

All of the data, except for off-setting Income and Expense accounts, can be derived from Native Bitcoin Vaults.

The accounting protocol adds additional functionality to achieve the outcome:

  • Assign and store the off-setting categories (accounts)
  • Export journal format to corresponding accounting tools (e.g. hledger, beancount, or others listed here.
  • Share journals (encrypted text files) among collaborators using the Confidential Documents protocol

Fictional Organization Walkthrough (with hledger)​

Follow along by cloning the repo with: git clone https://github.com/hashed-io/docs.hashed.network.git && cd docs.hashed.network

There are many transactions in the sample file. Take a look at the first few transactions.

head -n 18 docs/journals/hashed-vaults.journal
commodity 1,000.0000 BTC

2021-10-10 Received from Alice for Invoice 23    ; 05af3b675ef6dffb20587de089a2a57292c20ff0068bf6a7b5954e64842861c1
    Assets:Bitcoin Vaults:Cold           BTC 1.5 ; bc1qdjcuvjpj2e7d0s47lmcej5yhyr72fmqjm7xe4w
    Income:Consulting

2021-10-11 Sent to Bob - Deposit                   ; 6595a1894cc976937ddeff4d111df9edf603040008e49d41cedbbc6081f08592
    Assets:Bitcoin Vaults:Hot     BTC -0.10954338  ; bc1qjymg5ggxetpcu9sl2ugdmvkple86n2cqfanhde
    Expenses:Marketing

2021-10-13 Sent to Bob - Project Kickoff                 ; e8db07fba6dcf5d33dae093930f7504035ce7ad35473fbf7efc74fe5c4612246
    Assets:Bitcoin Vaults:Hot           BTC -2.94966474  ; bc1qjymg5ggxetpcu9sl2ugdmvkple86n2cqfanhde
    Expenses:Marketing

2021-10-14 Sent to Charlie to pay Invoice 992               ; d4b977ec4a522e648ddd2e4735a4f4bff32209fa0d2175a8ac5cb20d43bafa28
    Assets:Bitcoin Vaults:Hot           BTC -0.13835373     ; 19Ne2oXRWtWJcKPu8dbbBwDqJqjCJUqpPQ
    Expenses:Development

The first line for commodity configures the output format of the BTC commodity.

Balance Sheet​

Run a balance sheet to view the total BTC across all vaults.

To run the examples, install hledger. We also have docs for integrating with Beancount and MoneScript. Find more apps, libraries, and GUIs that read the journal format at plaintextaccounting.org.

hledger -f docs/journals/hashed-vaults.journal balancesheet
Balance Sheet 2021-12-26

                            || 2021-12-26 
============================++============
 Assets                     ||            
----------------------------++------------
 Assets:Bitcoin Vaults:Cold || 2.6207 BTC 
 Assets:Bitcoin Vaults:Hot  || 0.3384 BTC 
 Assets:Bitcoin Vaults:Warm || 5.6031 BTC 
----------------------------++------------
                            || 8.5622 BTC 
============================++============
 Liabilities                ||            
----------------------------++------------
----------------------------++------------
                            ||            
============================++============
 Net:                       || 8.5622 BTC

Income Statement​

An income statement shows the revenues and expenses for the journal. It shows precisely how much BTC came in through the 3 revenue sources of block rewards, consulting, and staking rewards.

hledger -f docs/journals/hashed-vaults.journal incomestatement
Income Statement 2021-10-01..2021-12-26

                        || 2021-10-01..2021-12-26 
========================++========================
 Revenues               ||                        
------------------------++------------------------
 Income:Block Rewards   ||             5.3477 BTC 
 Income:Consulting      ||            20.2083 BTC 
 Income:Staking Rewards ||             5.3104 BTC 
------------------------++------------------------
                        ||            30.8665 BTC 
========================++========================
 Expenses               ||                        
------------------------++------------------------
 Expenses:Consulting    ||            11.4110 BTC 
 Expenses:Development   ||             4.3034 BTC 
 Expenses:Marketing     ||             6.5898 BTC 
------------------------++------------------------
                        ||            22.3042 BTC 
========================++========================
 Net:                   ||             8.5622 BTC

This command adds -M to show the break-out by month, and -S to sort the accounts. There are many configurable options and display types once the data is in the journal format.

hledger -f docs/journals/hashed-vaults.journal incomestatement -S -M
Income Statement 2021-10-01..2021-12-26

                        ||        Oct          Nov          Dec 
========================++======================================
 Revenues               ||                                      
------------------------++--------------------------------------
 Income:Consulting      || 3.0555 BTC   6.6350 BTC  10.5178 BTC 
 Income:Block Rewards   || 2.1477 BTC   0.9048 BTC   2.2953 BTC 
 Income:Staking Rewards || 2.0026 BTC   1.1026 BTC   2.2052 BTC 
------------------------++--------------------------------------
                        || 7.2058 BTC   8.6424 BTC  15.0183 BTC 
========================++======================================
 Expenses               ||                                      
------------------------++--------------------------------------
 Expenses:Consulting    || 3.1402 BTC   6.1305 BTC   2.1402 BTC 
 Expenses:Marketing     || 3.0592 BTC   2.4304 BTC   1.1002 BTC 
 Expenses:Development   || 0.1384 BTC   3.0267 BTC   1.1384 BTC 
------------------------++--------------------------------------
                        || 6.3378 BTC  11.5876 BTC   4.3788 BTC 
========================++======================================
 Net:                   || 0.8680 BTC  -2.9453 BTC  10.6395 BTC

Protocol Vision​

Together with bitcoin orchestration, the triple entry accounting protocol integrates multiple operational planes into the same user context.

  • Execution layer - transfer-of-value occurs directly on the bitcoin blockchain; scripting and orchestration of signatures via Substrate
  • Governance layer - owners and administrators can control which roles or members within an organization or group should have authority
  • Accounting layer - users and accountants can construct and share ledgers end-to-end encrypted with audit trail

Businesses adopting the protocol will maintain secure direct-custody, eliminate friction, reduce costs, and improve return on assets.