Technical Copywriter, Blockchain and DeFi advocate. Open to joining a promising Web3 startup.
I wouldn’t spend my bitcoins on a Pizza or a cup of hot coffee, not even a Tesla. What then? A freshly roasted plantain, and I’ll pay double the market rate with my precious bitcoins.
Now that you know let’s get straight to business.
Eleven years ago, Laszlo Hanyecz paid 10,000 bitcoins for two slices of pizza after 48 hours of posting on the popular Bitcointalk Forum that he is willing to part with that amount for two Pizzas. That singular transaction is now what we celebrate as Bitcoin Pizza Day. But aside the celebration that now comes with marking this date, Laszlo’s action has notable significance to how bitcoin is perceived today.
First, one of the phrases that keep flying around in crypto circles is
“I’m never selling my bitcoins for anything.”
And when extreme volatility sets in, as we saw recently with over 30% bitcoin plunge in price within a day, you hear
Surely, these are nice to hear until you decide to dissect the concept of trust and money; at least, that’s what the advent of Bitcoin and cryptocurrencies have injected into the global conversation.
A crucial question, though:
If no one spends bitcoin, how then can it have value?
When you decide to hobnob down memory lane to see how money has evolved over the centuries, in the pre-industrial revolution era, you realise coinage (the act of minting money through precious metals for economic transactions like barter) was an arduously tedious process. It was labour intensive.
From melting, refining, hammering, and cutting for easy carriage and exchange, the function demanded a disproportionate effort.
The mint masters always preferred to create larger coin denominations; after all, it took just as much effort to hammer out a small coin as it did a big one.
But when it became evident that the mint masters’ (most of whose activities were controlled by the state) compromises were not serving the interest of tax authorities, or fractional payment of the church back then, the state would then introduce seigniorage.
Seigniorage is the profit made by a government when it issues currency or simply the difference in the value of the currency versus the cost of producing it. In this case, mints reduced the relative quantity of silver in smaller denominations to offset production costs.
Even though this addressed the immediate needs of both the state and mint masters, long to be propounded, Gresham’s Law soon set into play.
Debtors, upon realising that smaller denominations were debased in terms of intrinsic value, began repaying creditors with lesser value coins than what they borrowed with. In other words, bad monies were driving out good money.
To mitigate this trend, copper and lead served as suitable replacement materials for silver and gold – the mint material for the smaller liquid coins.
This was possible for the local economy but not for international trade. Local dealers trusted the lead coins but not the international merchants.
In a typical world like ours, trust remains the biggest transaction cost.
Early attempts at cryptocurrency, whether from Smart Cards for solving Netherland’s petrol station thefts or David Chaum’s DigiCash, Nick Szabo’s Bit Gold, or even Adam Back’s Hashcash, all progressively tried to solve this monetary trust problem until Bitcoin. Today, we have a cryptocurrency that abstracted the flaws of earlier shots at digital currencies and built upon their strengths to give us a trustless alternative.
Imagine for a second why it took 48 hours before Laszlo could land a deal for his two big-sized Papa John’s Pizza. Why didn’t he just sell the 10,000 bitcoins for $41 like one of those guys in his thread suggested?
Laszlo needed to prove a point; bitcoin can be inherently exchanged for goods, the hardcore attribute of anything that seeks to act as a medium of exchange.
- Common and obtainable (an attribute Laszlo was actively evangelising for, with his singular action, Pompliano just launched Bitcoin Pizza
- Low preservation cost (it’s digital 010101010)
- Recognizable (Laszlo would be proud today; even the biggest hedge funds are scrambling for a piece of the pie now)
- Transportable (it doesn’t matter how much bitcoins you need, just have it all transferred into your wallet and never lose your private keys)
- Consistent (how many forks of bitcoin do we have today? Well, all we know is that there’s only one Bitcoin, the rest are fads, they’ll all die a natural death in the end)
- Divisible (you don’t even need a single bitcoin to buy a Pizza today, just some satoshis, and you can much away)
- Resistance to falsification (you never have to worry about a double-spending problem, bitcoin by design is immune to 51% attack)
- Large market value (bitcoin reached the $1T market cap just recently)
But if bitcoin price keeps increasing or more people start using it than we have today, the issue of scalability is not just going to disappear. How many people really want to spend their bitcoins knowing fully well it would keep increasing.
Imagine if Laszlo Hanyecz had travelled into the future to see that the price of one bitcoin would hit $61,683.86 eleven years later. Would he have exchanged his 10,000 bitcoins for just two pizzas that just a few satoshis would buy today? A store of value is what many people like to refer to bitcoin as today. If you don’t spend it and I don’t, then how will bitcoin serve its original purpose as a means of exchange?
The demand for bitcoin will undoubtedly continue to grow with the shrinking supply intricately woven into the Bitcoin network design. Clearly, financial instruments like ETF give more people access to the scarce bitcoins without owning them.
However, it still doesn’t change the fact that for you to be able to exchange your holdings for real assets or mainstream services, you need the real bitcoin. Ultimately, some need to sell for others to be able to buy this scarce resource. Several other factors like the cost of mining it, regulations, internal governance policies etc., give bitcoin a strong impetus for a further price increase.
Lightning Network makes Laszlo’s more than a decade old transaction and Satoshi Nakamoto’s original dream of bitcoin as a Peer-to-Peer Electronic Cash System relevant today. I live in the temperate continent of Africa and wouldn’t mind some freshly roasted plantain for lunch, but not when I have to pay a network fee that costs even more than my roasted plantain.
Surely, I need an intervention; the coffee drinking guy in Italy does too, even the Bitcoin network will be glad for living the dream of its creator. Elon Musk is now openly rooting for Lightning Network after bashing the Bitcoin network earlier.
Truly, the concept of moving microtransactions off-chain and settling batches of transactions on-chain will be the ultimate killer application for bitcoin. Eleven years after Laszlo’s historic pizza purchase, we need more of that kind of utility for bitcoin and Lightning Network should help make this our everyday reality.
To Satoshi, Laszlo, my soon to meet roasted plantain seller, and everyone who keeps believing in and working towards a world of endless possibilities through bitcoin and cryptocurrencies at large, I say:
Happy Bitcoin Pizza Day!
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