That was the post Laszlo Hanyecz posted on a bitcoin transaction reporting the first ‘real world’ transaction in Bitcoin. Two Pizzas for 10,000 BTC.
That was [eight] years ago today on 22 May 2010. On this day every year, nerds of the world unite (you guessed it…) to order Pizza on Bitcoin!
So, if you are reading this far, you may be somewhat of a nerd yourself - Happy Bitcoin Pizza Day!
As of today’s, that transaction is valued at A$28.6 Million (Update: A$110m or US$84) - surely making these the world’s most expensive Pizzas
So I ask myself, honestly - without the knowledge of hindsight - would I have been the buyer or seller of two pizzas for 10K BTC?
“It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool,” Laszlo later recalled in the NY Times.
For his part, the counterpart to this transaction Jeremy Sturdivant ("Jercos"), didn't become a millionaire. He sold out at a 10x ROI netting $360. In an interview he gave, he sounds more intelligent that his nom de guerre may suggest. "Jercos" said:
Bitcoin as a currency is meant to be spent... A ~10x ROI from simply trading in a different currency is quite good, even if that factor could have been higher had I held on to said currency longer.
Naturally there will always be people hoarding coins, trying to get rich, and quite a few people did get quite rich, but they wouldn’t have got that way without economic growth allowing it.
What he is basically saying is that bitcoin without a nexus to real world spending has no inherent value. bitcoin needs people spending it in the real world in order for do gain any value. Without knowing it, he is in fact referring to Ludwig von Mises' regression theorem, tracing the price and value of money to its origins by deriving its value in terms of the goods and services it obtains (Mises, The Theory of Money and Credit: 1912). It turns out, bitcoin satisfies every condition of the theorem.
According to this thinking, it was people like Jeremy and Laszlo that gave this theoretical currency the first frame of reference. In fact, one of the quirkier indexes around is the Pizza Index which links Bitcoin value to its purchase value in Pizzas. Continuing this approach is Coinmap (below), a directory of bricks and mortar shops where you can exchange bitcoin for "real goods."
This whole story raises questions about value. Why was Jeremy willing to sell real goods for 10,000 digital tokens? How did those coins derive their value? How can the value of this same coin be worth 1,000,000x seven years later?
Jeffrey Tucker from FEE writes a great article on the subject, which is worth reading in its entirety. He starts with a exposition of the manner in which currency derives its value in Regression Theorem which traces "the value of money backward in time to its value as a bartered commodity." Ludwig von Mises said in this context:
The theory of the value of money as such can trace back the objective exchange value of money only to that point where it ceases to be the value of money and becomes merely the value of a commodity….
Tucker continues:
As time passed—and I read the work of Konrad Graf, Peter Surda, and Daniel Krawisz—finally the resolution came. I will cut to the chase and reveal it: Bitcoin is both a payment system and a money. The payment system is the source of value, while the accounting unit merely expresses that value in terms of price. The unity of money and payment is its most unusual feature, and the one that most commentators have had trouble wrapping their heads around.
We are all used to thinking of currency as separate from payment systems. This thinking is a reflection of the technological limitations of history. There is the dollar and there are credit cards. There is the euro and there is PayPal. There is the yen and there are wire services. In each case, money transfer relies on third-party service providers. In order to use them, you need to establish what is called a "trust relationship" with them, which is to say that the institution arranging the deal has to believe that you are going to pay.
In short, he proposes a counter argument that in fact bitcoin derives its inherent value by what its blockchain infrastructure offers over and above its potential value in goods and services.
But before you question the value of Bitcoin, ask yourself what gives value to the dollar, a currency no longer linked to gold or commodities, that is capable of inflation with no limit (Bitcoin, in contrast is capped at 21 Million). In terms of its purchase value, only 8.3% of monies will be in circulation as currency notes with the remainder having no more substance than a digital token.
So, after all is said and done - would you have bought or sold those pizzas at 10,000 BTC?!