Bitcoin and the $2.6 million pizzas

Written by Chris Parsons.

Fact File:
- Bitcoin is an electronic alternative currency created in 2009
- There’s no fixed exchange rate so its value fluctates rapidly
- One bitcoin equalled a peak value of $266 in April
- Bitcoin exists entirely outside the standard banking system
- The first ever formal bitcoin transaction was to buy two pizzas
- Now bitcoins can be used to buy anything – absolutely anything

Everybody loves pizza, right? Where’s your favourite takeaway? How about a fine establishment like Hotwell Road’s The Red Pizza Company, or The Sportsman on Nevil Road which, oh look, both just happen to accept payment using the fabulous £B TXT2PAY system. Awesome.

What toppings do you like? Black olives. Green peppers. Anchovies? No way, gross. How about pepperoni? OK, cool. How about getting two, they’re always amazing cold for breakfast aren’t they? Don’t lie, I’ve seen you do it!

Now just dial your order through. Thank you sir, that’ll be $2.6 million please. Er… what?

That may be how much two pizzas cost Laszlo Hanyecz exactly three years ago today. But on May 21st 2010, Hanyecz was doing something extraordinary and groundbreaking – he was making the very first real world transaction in bitcoin.

What is bitcoin?

Bitcoin is a digital currency created out of nothing. Bear with me, I’ll try to make this as painless as I can.

In 2009, an unknown developer built the digital infrastructure that gave anybody with a computer the ability to find and own bitcoins. The idea is that bitcoins are created by computer servers joining into a network and solving complex mathematical puzzles in a process called mining. Whichever server solves the puzzle first is rewarded in bitcoins.

But before you rush out and buy 1,000 high-powered computers to make your e-fortune, note this: bitcoin has a finite money supply discovered at a pre-determined rate. The more machines there are mining, the harder the puzzles get to solve, so that a set number of bitcoins are created every ten minutes. Take that, quantitative easing.

For the first 18 months, bitcoin mining was, well, for a handful of geeks (don’t take that the wrong way, everyone knows geeks are cool nowadays). Unlike the Bristol Pound, there’s no fixed exchange rate against another currency; a bitcoin is worth whatever someone thinks its worth, and for a year or so nobody thought it was worth very much.

Hanyecz’s proposition

The bitcoin pizzas – all $2.6 million of them

Which brings us back to Laszlo Hanyecz, who’d been mining bitcoins from his Florida home and acquired a reasonable enough stash that he idly posted the below note on a forum:

I’ll pay 10,000 bitcoins for a couple of pizzas.. like maybe 2 large ones so I have some left over for the next day. I like having left over pizza to nibble on later. You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I’m aiming for is getting food delivered in exchange for bitcoins where I don’t have to order or prepare it myself, kind of like ordering a ‘breakfast platter’ at a hotel or something, they just bring you something to eat and you’re happy! …

If you’re interested please let me know and we can work out a deal.

Thanks,
Laszlo

Hanyecz agreed a deal and transferred 10,000 bitcoins to a recipient in the UK who then phoned through an order for a Floridian store to deliver two pizzas to Hanyecz’s house.

At that point in time, one bitcoin was worth about one cent, meaning Hanyecz paid around $100 for his pizzas. That’s quite a lot for a pizza, I hope he enjoyed them. Since then however, interest and speculation in bitcoin has increased and the exchange rate  skyrocketed, reaching a peak last month of a staggering $266 to one bitcoin.

So had Hanyecz held onto his 10,000 stash for three more years, he could have cashed them in for over $2.6 million (£1.7 million).

How much do you like your pizza now, Laszlo?

In truth, it was Hanyecz’s pizza transaction (which is now so much a part of monetary folklore, today’s notional exchange rate is constantly available at the Bitcoin Pizza Index) that kick-started the rapid rise in popularity of bitcoin.

The currency’s principle is based around a very different model to other alternative currencies like Bristol Pound. Bitcoin is unapologetically a global currency existing outside the banking system and that’s the key attraction for some. Users aren’t limited to pizzas, there are sites allowing consumers to indirectly shop from huge corporate monoliths like Amazon, should they so desire, and indeed purchase absolutely anything else besides – quite literally, if some of the more scandalous reportage is to be believed.

Bitcoin, therefore, is not set up to promote your friendly, local independent retailer in the same way as Bristol Pound. Had Hanyecz been a Bristol citizen using TXT2PAY to procure his pizza, he might have supported a number of local businesses in a transparent supply chain that sourced the flour, cheese, tomato and more with the minimum of food miles.

On the world currency markets, things are still quite volatile for bitcoin, with huge price increases and subsequent crashes relatively frequent, so only time will tell whether it will provide a genuine alternative to the traditional monetary model or not. In the meantime, who fancies pizza?

‘Bluffer’s guide to bitcoin in 104 seconds’


One thought on “Bitcoin and the $2.6 million pizzas

  1. Pingback: Local resilience and empowerment: Molly Scott-Cato on the Bristol Pound, economic change and why she became an economist | Bristol Pound Blog

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