Ledgers of Catan
The future of accounting is commodity accounting.
Double-entry accounting is still unchartered territory.
On the one hand, it’s ancient technology, older than the concept of negative numbers. But the expectations of what a ledger needs to do are more ambitious; what was OK to do monthly now needs to be done daily, or in real time.
Ledgers have outgrown their medieval assumptions.
It is clear that one of those assumptions is the necessity to consolidate all money movements into a single currency of reference. Traditionalists have extended the old model by layering ledgers: a single system gets partitioned into a USD subledger, a EUR subledger, and so on.
The expectation is that transactions between two of those layers is rare, and manual reconciliation between the two is a necessary evil to keep each layer simple.
That assumption is also breaking down, quickly:
Even startups and small businesses have the same problems as multinationals now, but needing far less scale and therefore much more granularity.
Being remote means now being global. Clients are everywhere, and so are providers and employees.
Banking apps not only handle deposits, but also investments in stocks, payments when we travel abroad, crypto, even angel investing.
To the extent that the USD is no longer the only reserve currency, businesses that operate globally need cash stored in more than just dollars, all fluctuating against each other.
In some sense, this article is the practical follow up to the point I made at TigerBeetle’s Stablecoin Mistake: a 1000x faster ledger is something great to have, but the real deal is the business on top.
This week, I’m going to push the boundaries of what can be done with modern accounting. What can I do when I have unlimited processing power?
And in order to do that, I’m going to play The Settlers of Catan.
In Catan, players represent settlers establishing on a fictional, hex-split island, and build settlements, cities and roads by spending resources (wool, grain, lumber, brick, and ore). They obtain these resources on each player’s turn, when they roll a two six-sided dice to determine which hexes produce resources.
If you have a settlement or a city on one of those hexes’ corners, you get resources. If not, you don’t.
There’s also the chance that you roll a 7, and you get to place a burglar on one of those hexes, steal another player’s card and “blocking” that hex, which will no longer produce resources until the robber is moved again.
It’s the kind of game where you win by pissing off everybody else.
So why on Earth is Catan accounting even worth it?
Because there’s no money. All you can do is barter. It’s the perfect scenario to test modern accounting, in a familiar setting.
And see where it breaks.
I’m Alvaro Duran, and this is The Payments Engineer Playbook. You’re already subscribed to free newsletters that “teach” you how to get a job as a software engineer.
But you don’t want to get a job; you already have one. What you want is to learn how to get promoted. Especially as a payments engineer, where stakes are sky high, and the margin for errors is razor thin.
In The Payments Engineer Playbook, we investigate the technology that transfers money. All to help you become a smarter, more skillful and more successful payments engineer. And we do that by cutting off one sliver of it and extracting tactics from it.
In this article, we’re going to play Catan, ledger in hand. I’ll walk you through most of the operations in the game (minus the special cards), which will help us see:
How to balance wool and lumber, and the perils of fair value accounting.
Contra-accounts and off-balance-sheet derivatives (yes, really).
What it all means for multi-currency ledgers.
Enough intro, let’s dive in.
