The Pizza Purchasing Power of Bitcoin vs USD

in blockchain •  19 days ago 

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tl;dr: Exchange rates and total amounts are interesting, but purchasing power of a currency matters more. The Bitcoin Pizza Purchasing Power Index is one way to assess and compare value.

Much is made of Laszlo Hanyecz, the man who spent 10,000 Bitcoins in 2010 for 2 pizzas.

For the uninitiated, the easy thing to say is:

“what an idiot. If he had held onto those 10,000 Bitcoins, he’d have so $800,000,000 today!”

But the uninitiated don’t realize that, back then, Bitcoins couldn’t really buy anything, so the idea of trading Bitcoins for pizza was revolutionary.

Were it not for Laszlo’s transaction, it’s possible that the flywheel of Bitcoin would not have started. Or at least, it would have taken on a different form.

And certainly, there would be no “Bitcoin Pizza Day” celebration among the crypto-faithful.

But Bitcoins for Pizza is not what I want to talk about.

What a Bitcoin Can Buy
What I want to talk about is purchasing power.

That is the real story here.

Instead of thinking of this story as 10,000 BTC for 2 pizzas, let’s look at it from the vantage point of the pizzas.

In 2010, it cost $25 to get two pizzas. Today, per Dominos, for 2 large 14″ pizzas with delivery (which I’m sure doesn’t include the tip for the delivery person), it is listed as $27.98. Let’s assume you give the delivery guy $3, so it’s $31.

Ok, so the price of 2 pizzas in dollars has increased by 24%

On the other hand, 2 pizzas in 2010 cost 10,000 Bitcoin.

Today, you can get those same pizzas for .003875 Bitcoins (using $8k/BTC price)

Your dollars don’t go as far (you need more to get the same pizzas).

On the other hand, the price in Bitcoin terms has decreased by 9,999.996125 Bitcoins.

In Bitcoin terms, the two pizzas are 99.99% cheaper.

And, if you want, you can still order pizza with Bitcoins.

Pizza is Great, but what about stuff that really matters?
While that is all fun and games, let’s look at something that is perhaps a bit more tangible, has a higher perceived value, and is a recognized scarce asset.

Gold.

One of the reasons why people value gold is because it is scarce. Whereas the supply of pizza in the world is somewhat elastic, the supply of gold in the world is not.

So, a better comparison might be the price of an ounce of gold in dollars versus Bitcoins.

In 2010, an ounce of gold was about $800. Today, it is in the $1500-$1600 range.

Meanwhile, an ounce of gold in Bitcoin…well, you can see for yourself.

Purchasing Power Matters
This post isn’t investment advice.

I’m not making any promises and I’m certainly aware that past performance is no indication of future performance.

Still, the numbers don’t lie.

In looking at prices and portfolio values, it’s easy to get caught up the total numbers we see.

“Ah, the price went up so my portfolio is doing well!” is a common refrain.

But what really matters is:

Does the money you have buy you more or less today than it did yesterday?

Note: The message here isn’t “hold Bitcoin forever and don’t spend it.”

I think the message is “hold some Bitcoin and spend some Bitcoin.”

What Laszlo did was help push the movement forward a bit. Every transaction on Haven, for example, or other places that accept Bitcoin is another nudge forward.

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