A Brief Analysis of the Economic Model in the Privacy Computing Network PlatON from the Perspective of Accounting

This article is sourced from PlatON.

Introduction

Accounting is an essential component (essence) of economic management activities. It aims to improve economic efficiency, uses currency as the primary measurement unit, and employs specialized methods to account for and supervise the economic activities of entities, enterprises, and institutions (basic functions).

Among them, accounting involves comprehensively, continuously, and systematically recording and reflecting the economic transactions that occur or are completed by enterprises and institutions. Supervision refers to the review and inspection of the legality, compliance, and effectiveness of the accounted economic transactions.

Similarly, we will analyze PlatON's economic model from an accounting perspective, comprehensively, continuously, and systematically recording and reflecting the relevant economic activities within the system. This article is the first in a series, and subsequent articles will modularly interpret the accounting subjects in PlatON based on an overview.

PlatON Economic Model

One of the core issues in economic research is the rational allocation of scarce resources. As an open, free, and participatory distributed system, a well-designed economic model can ensure the rational allocation of public chain resources while maximizing participants' interests. It aligns the interests of all participants with the overall interests of the public chain, allowing them to contribute to the entire blockchain network while pursuing their own economic benefits, ensuring the network's long-term stable development.

In PlatON's economic plan, from an accounting perspective, the economic activities primarily include: initial issuance, additional issuance, rewards, penalties, transaction fees, miner fees, and other major economic activities. Each economic activity involves the transfer of Tokens (in the public chain, Tokens are the primary currency measurement unit).

Similarly, from the perspective of the accounting equation, in the PlatON network, no economic transaction will alter the balance of the accounting equation. By using the accounting equation combined with the accounting method (double-entry bookkeeping), the various economic activities in PlatON can be intuitively represented.

Enterprise Economic Activities:

Economic Activities on PlatON:

From the comparison of the above images, we can see that if we consider the entire PlatON system as a large commercial company, its economic model governs various economic activities. All entities participating in this system will experience changes in Tokens while interacting with the system, which corresponds to the occurrence of economic activities.

Accounting in PlatON

In accounting bookkeeping, corresponding accounts need to be set up before recording. The establishment of accounts must be defined in conjunction with accounting elements. In accounting, accounting elements are a simple classification of accounting objects, mainly including: assets, liabilities, owner's equity, income, expenses, and profits.

• Assets: Resources that are expected to bring economic benefits to the enterprise, formed by past transactions or events, and owned or controlled by the enterprise. In PlatON, assets mainly refer to the Tokens held by each entity.

• Liabilities: Debts that the enterprise is obligated to pay, which can be measured in monetary terms and need to be settled with assets or labor. In PlatON, the Tokens to be issued are defined as liabilities.

• Owner's Equity: The residual interest in the assets of the enterprise after deducting liabilities, or the claim of investors on the net assets of the enterprise.

• Income: The total inflow of economic benefits generated from the enterprise's daily activities such as selling goods and providing services. In PlatON, the block rewards obtained by miner nodes from their daily activities are part of the miners' income.

• Expenses: The outflow of economic benefits incurred by the enterprise for daily economic activities such as selling products and providing services. In PlatON, the transaction fees incurred by entities when sending transactions are considered expenses.

• Profit: The success achieved by the enterprise in its operations over a certain period. In PlatON, the staking rewards generated by validator nodes providing services are the profits of the entities, and the income generated from user delegation is also profit.

A rule known to every accountant is the accounting equation:

Expenses + Assets = Liabilities + Owner's Equity + Income

Through accounting elements, we can see that the economic activities in PlatON, analyzed from the basic theories of accounting, have striking similarities as well as slight differences. In conventional accounting practices, the economic entity typically refers to an enterprise, whereas in PlatON, there are multiple economic entities (including enterprises) that generate economic activities among themselves.

To clearly record and track the economic activities of each entity in PlatON, verify the correctness of the economic model, ensure system stability, data accuracy, and improve economic efficiency, we will set up accounting subjects based on different entities, introducing the principle of the accounting equation into the PlatON economic model.

Here, the basic functions of accounting—accounting and supervision—are flexibly utilized. The occurrence of any economic transaction will not change the balance of the accounting equation. Based on this principle, the entire economic model system of PlatON can be monitored and verified. By integrating relevant accounting knowledge, a comprehensive verification of the PlatON system can be achieved, further strengthening the assurance of the entire system's economic model.

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