The Pizza that Didn’t Cost US$42 Million
Today, May 22, 2018, the crypto world is celebrating the “Pizza Day”. 8 years ago today, the programmer Laszlo Hanyecz bought 2 pizzas for Ƀ 10.000, which means Ƀ 5.000 (five thousand Bitcoins) each.
* para ler este artigo em português visite: https://cointimes.com.br/a-pizza-que-nao-custou-155-milhoes/ *
There comes the most common error, convert Bitcoin to Dollars or even Reais.
I live in Brazil and to illustrate the error committed here I will tell you about my trip to Orlando, Florida a few weeks ago.
In 2013, 5 years ago, I’ve travel to Orlando to visit Disney World and, of course, to shop for electronic goods.
A little before my trip, exactly April 15, 2013, I’ve bought Dollars paying R$1,99/US$ (taxes included).
When I get there I bough a water bottle at the airport at $2.12 (including taxes). If we convert my purchase to Brazilian Reais, this water bottle cost R$4,21.
I’ve travel to Miami/Orlando again a few weeks ago. At Orlando International Airport I’ve bought a water bottle, but this time I’ve paid $2,78 (taxes included).
Before converting back to Reais I must remember that I’ve chosen a bad time to travel because the conversion rate between US$/R$ is growing on a daily basis. I’ve bought Dollars at a median rate of R$3.54 (taxes included) between March 21 and Abril 23, 2018.
If we convert the water bottle to Reais, this time I’ve paid R$ 9.84 for it.
The question is: How much have I paid for the water bottle in 2013?
And the answer, of course, can only be one: I’ve paid R$4.21 for the water bottle!
*if you prefer the value in Dollars, I’ve paid $2.12 for the water bottle.*
I haven’t paid R$7,50 for the water bottle just because today the conversion rate between US$/R$ is bigger than the first time I’ve travel in 2013.
The math that really matters is that the water bottle at the Orlando Airport had a 30% raise in 5 years, which means a 5,57% inflation per year.
If I use the same math in Reais, the annual inflation, or the loss of power to buy items using Reais at Orlando Airport, is 118,5% (yes, yearly)!
Lets get to what brought you here: How many Bitcoins was paid for the pizza in May 22, 2013?
And of course, the answer can only be one: One pizza costed Ƀ5.000 back then.
*for those who prefer the values in Dollars, a pizza costed $12.50 (or R$23.38)*
The pizza didn’t cost $42 Million neither R$155 Million.
Lets talk again about inflation.
A Pappa John’s pizza used to cost $12.50 in May 22 , 2010 and it costs about $15 today, which represents a 20% raise in 8 years, a 2,31% per year.
If we use the same math, but in Bitcoins, the pizza’s price had a drop of 2.742,34%, which means a deflaction of 478.41% per year, since today the same pizza would cost only Ƀ0.01823264.
Deflaction in Bitcoin
Bitcoin is considered a deflationary currency. That means that, instead of being able to buy less with the same amount (like what we’ve seen before), you can buy more!
This is thanks to Bitcoin’s Monetary Base, which has an emission limit of 21 Million units that will be generated until ~2148. Besides that, every 4 years (approximately) the amount of minted coins per year is cut in half. During the first 4 years (between 2009 and 2013) 10,5 Million Bitcoins were mined. In the following 4 years (between 2013 and 2016) 5,25 Million Bitcoins was mined and between 2016 e 2020 more 2,625 Million unidades will be mined. This cut, known as Halving, will continue until it’s no longer possible to mine new coins.
The fact that there a less and less new coins entering the market makes its value naturally raise given the fact that more people will look to acquire it.
The math above proves that the buying power of Bitcoin has been raising since its creation. It was possible to buy a pizza with Ƀ5.000 back in 2010. Now, 8 years later in May 22, 2018, you could have bought 274.223 pizzas with the same amount of coins.
We must remember that Ƀ1 will always worth Ƀ1 and that its buying power tends to be naturally bigger thanks to the coin emission limit.