A Note on the Unit of Fixed Denominator
This document introduces a simple correction to how prices are measured.
Most discussions about inflation, cost of living and price instability focus on policies, incentives or behavior. This work approaches the problem from a more basic angle: measurement.
Prices are ratios. When the denominator of a ratio changes continuously, the measurement becomes unreliable. This paper shows that many phenomena attributed to inflation are, in practice, consequences of using a unit of account whose denominator is not fixed.
The Unit of Fixed Denominator (UFD) separates price measurement from payment settlement. It does not introduce a new currency, require monetary reform or ask for behavioral change. It only restores a basic property that every other measurement system already respects: a fixed denominator.
The paper includes a formal definition, operational implications and a minimal protocol that can be implemented immediately in a retail environment using existing infrastructure.
This is not a proposal or an advocacy piece. It describes an operational consequence of correcting the unit of account.
Once the denominator is fixed, the rest follows mechanically.
A Unit of Fixed Denominator
A Practical Correction to Price Measurement
Abstract
Most economic instability attributed to inflation is not caused by changes in goods, labor or productivity, but by a failure of measurement. Modern pricing systems use units whose denominators are continuously altered, forcing constant repricing and destroying the informational content of prices.
This paper introduces the concept of a Unit of Fixed Denominator (UFD): a unit of account whose denominator cannot change. We show that a unit of account does not need to be a medium of exchange to function correctly and that separating measurement from settlement restores price stability, clarity and operational coherence.
UFD is a universal unit of account with a fixed denominator, used exclusively for price measurement, independent of the payment method.
We further demonstrate that a UFD can be implemented immediately using existing infrastructure, without monetary reform, political coordination or behavioral persuasion.
1. The Measurement Problem
Prices are measurements.
Like all measurements, they are ratios: a quantity expressed relative to a denominator. In physics, if the denominator of a measurement changes arbitrarily, the measurement becomes meaningless. The same applies to prices.
In modern economies, prices are measured using monetary units whose denominators are continuously altered through issuance and credit expansion. As a result, prices drift even when underlying goods do not change.
This forces businesses to constantly reprice, obscures real cost signals and creates the widespread perception that “everything is getting more expensive” even when productivity is increasing.
This is not a market failure. It is a measurement failure.
2. Unit of Account vs. Settlement
A unit of account and a medium of exchange serve different functions.
A unit of account measures exchange value. A medium of exchange settles transactions.
Conflating these roles is a historical accident of modern monetary systems, not a logical necessity.
A unit of account does not need to be used for settlement in order to function correctly. It only needs a fixed denominator.
As long as the following conditions are met, a unit of account is logically consistent:
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the denominator is immutable
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the conversion method to settlement currencies is public and verifiable
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no authority can create additional units directly or indirectly
Under these conditions, prices regain their informational role.
3. Definition of a Unit of Fixed Denominator (UFD)
A Unit of Fixed Denominator is a unit of account defined by a denominator that cannot change.
The UFD itself is not a currency. It is not a payment system. It is a measuring scale.
In this implementation, the denominator is fixed by definition.
For practical and verifiable reference, it is aligned with a known finite quantity: the total possible number of units corresponding to Bitcoin’s total supply, expressed as satoshis: 2,100,000,000,000,000 satoshis (2.1 quadrillion).
Bitcoin serves here as a publicly observable and non-arbitrary reference for a fixed denominator. The unit of account itself remains conceptually independent. Mapping UFD one-to-one to satoshis is an implementation choice that leverages an existing, verifiable counting system, not the source of the unit’s definition.
Prices are measured in UFD. Settlement may occur in any currency.
The settlement currency becomes a contingent layer. The unit of account becomes mathematically valid.
4. Settlement as a Secondary Layer
Once prices are measured in a fixed unit, settlement becomes an implementation detail.
Different customers may settle the same UFD price using different media of exchange. Each settlement simply answers the operational question:
“How many units of this payment medium correspond, at this moment, to the same fixed fraction measured by the price?”
In practice, this correspondence is computed using the current exchange rate between the settlement currency and Bitcoin, which serves as the public reference for the fixed denominator.
If the settlement currency degrades, more units are required. If it does not, fewer are required.
In all cases, the measured price remains unchanged.
This separation restores a clear hierarchy:
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measurement is primary
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settlement is contingent
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currency quality becomes visible
5. Operational Consequences
5.1 Pricing
With UFD, prices change only when something real changes: supplier cost, logistics, scale, technology or margin strategy.
Businesses no longer reprice in response to monetary drift. Repricing frequency collapses.
5.2 Inventory
Inventory stops being distorted by inflation expectations. Decisions return to logistics and demand rather than monetary defense.
5.3 Margins
Nominal growth no longer masks real loss. Margins become visible and deliberate instead of accidental.
5.4 Suppliers and Wages
Supplier negotiations become clearer, separating real cost changes from monetary noise. Wages can be measured in the same unit as goods, making purchasing power changes explicit without requiring changes in payment rails.
6. Example
Assume a product is priced at 2,000 UFD.
That number represents the price measurement.
At a given moment, 2,000 UFD correspond to a certain amount of the settlement currency. A customer paying in Bitcoin settles with the corresponding number of satoshis. A customer paying in fiat settles with the fiat equivalent at that moment.
No arbitrage exists between payment methods at the same point in time.
If the settlement currency deteriorates, the fiat amount increases. The UFD price does not. The good did not become more expensive; the settlement currency became less capable of representing the same fraction of value.
As productivity improves, costs may fall. When that occurs, prices in UFD can be lowered deliberately and transparently. Price changes occur in steps triggered by real changes, not by monetary drift.
7. Temporal Consistency and Price Evolution
A fixed denominator does not imply static prices across time. It implies honest prices at each moment.
As productivity increases, capital allocation improves and technology advances, many goods become cheaper to produce. Under a fixed unit of account, these gains appear naturally as lower prices.
This is not instability. It is information.
Price changes occur only when underlying conditions change, not because the measuring unit drifts. Over time, this results in fewer price updates, not more.
8. Implementation Without Transition Risk
Importantly, adopting a fixed unit of account does not require monetary transition.
No new currency is introduced. No payment rail is replaced. No behavior is forced.
Businesses can continue accepting existing currencies while simply changing how prices are measured and presented.
This makes the system immediately deployable and incrementally adoptable, without coordination or permission.
Conclusion
Inflation is widely treated as a monetary or political problem. In practice, it is a measurement problem.
Fixing the denominator restores the informational content of prices, reduces operational noise and allows markets to coordinate naturally.
A Unit of Fixed Denominator does not force adoption. It simply measures correctly.
When the measure is mathematically correct, behavior adjusts on its own.
Status
This document is intended as a working paper and implementation reference. It describes an operational consequence of correcting the unit of account.
Appendix A - Practical Implementation of a Unit of Fixed Denominator (UFD)
Appendix B - Visual and Operational Examples
Appendix C - UFD Pricing Protocol (One-Page)
Appendix D - Transitional Behavior and System Robustness
Appendix E - Historical evidence for the separation between unit of account and means of payment
Original article: https://bitcoinawareness.substack.com/p/ufd-unit-of-fixed-denominator