Hanyecz is known as the first person to use bitcoin in a commercial transaction. On May 22, 2010, when bitcoin was a little over a year old, he bought two pizzas for 10,000 BTC. The day is now known as “Bitcoin Pizza Day.” With one bitcoin now worth $9,500, this is apparently a joke and Hanyecz’s $45 million pizzas are the punchline.
The joke is also a parable, illustrating the competition and interplay between three potential uses of bitcoin. The first is speculation. Bitcoin’s nosebleed-inducing decade of upward price movement is what drives CNBC headlines and motivates participation: People see it as a way to get rich. “Bitcoin is a way to harness greed,” said Hanyecz in a recent interview from his home in Jacksonville, Fla. It’s greed that underpins the delicate balance of incentives that keeps bitcoin running.
Hanyecz understands that balance well, having been a contemporary of bitcoin’s pseudonymous founder, Satoshi Nakamoto (he says they messaged a few times), and an early bitcoin miner who tinkered to mine more efficiently and earn more bitcoin.
“Speculation” is sometimes treated as though it were not a legitimate use. It is, and it has been, an important part of bitcoin’s DNA from birth. Even U.S. Federal Reserve Chair Jerome Powell has spoken respectfully of bitcoin’s role as a “speculative store of value.”
The volatility that makes bitcoin attractive to investors also makes it difficult to use as money, or “electronic cash,” as the Bitcoin white paper specifies. Hanyecz’s solid-gold pizzas show us that if CoinDesk paid me in bitcoin, one of us would likely get rekt.
Or would we? Hanyecz works for apparel brand GORUCK as a developer and, partly because he is internet-famous, the e-commerce company is one of a handful that accepts bitcoin. It’s a small volume, about two or three orders per week over the past two years, Hanyecz told me. But it’s working out.
“We’ve just been holding it and we’re actually up a significant amount,” he said. “We had some people check out at $3,000, we had some people check out at $11,000. The dollar cost averaging people talk about, it works really well.”
That doesn’t mean bitcoin for everyday purchases is really a thing most businesses can support, although there are projects, like Lightning Pizza, to make it easier for consumers.
“It’s common knowledge that anybody who held for four years is in the money,” Hanyecz said. “But businesses can’t generally afford to just hold for four years and not pay their rent.”
Bitcoin as digital gold, or a store of value to accumulate and hold for the long term, has proven more attractive than commerce, as a pair of recent events underscore. First, bitcoin’s halving showed in real time bitcoin’s inviolable issuance schedule all while central banks test just how much money they can print on demand. Then, on Wednesday, as I was writing down questions for Hanyecz and trying to home-school my kids, someone moved bitcoin that had been sitting in the same place since February 2009.
Hodling is part of what drives the value of bitcoin up, as low velocity can do for any currency. But low velocity can’t be the whole story, as Hanyecz realized early on, looking at bitcoin as an experiment.
“It was a really interesting system but nobody’s using it,” he said. “If nobody’s using it, it doesn’t matter if I have it all.”
As widely known and held as bitcoin may be, it’s still an experiment. With hedge fund household names placing long-term bets on its viability as “digital gold,” that narrative seems set in stone. In fact, it’s malleable, like the metal. Ten years from now, it may seem as absurd as a $45 million pizza.
Avalon image via CoinDesk archives
Canaan Reports $5.6M Loss in Q1 Despite Bitcoin Miner Price Cut
In an earnings report released on Friday, the firm said it made $9.4 million in revenue for the first three months this year with a growth of 44.6% compared to the same period last year. But it also incurred $9.3 million and $5.9 million expenses in cost of goods sold and R&D, respectively.
For that revenue, Canaan sold 0.9 million terahashes per second (TH/s) of Bitcoin computing power, which accounts for less than 1% of the network’s current total.
That means Canaan had cut down the prices for its mining hardware sold in the first three months by more than 50% to just $10 per TH/s, reflecting an overall slowdown of the buying interest into mining hardware amid Bitcoin’s halving event and the COVID-19 pandemic that has disrupted global logistics.
For context, Canaan booked a revenue of $66.5 million in 2019 with 2.9 million TH/s of Bitcoin computing power sold, meaning the average prices was around $22 per TH/s last year. Other major manufacturers have also taken a similar price cut strategy over the past a few months.
“The overall market situation since December last year until January had not been too good. So the unit price per TH/s was indeed lower,” Zhang Nangeng, CEO and chairman of Canaan, said in an earning call on Friday. “And the logistics in mainland China had basically stopped around the Chinese new year due to the COVID-19 pandemic. So even though bitcoin’s price was a higher point in February and early March, the pandemic largely affected our sales.”
The filing also shows that as of March 31, Canaan had cash and cash equivalents of $37 million, compared to $71 million as of the end of last year.
“The decrease was mainly due to higher short-term investments as the Company invested RMB173.4 million (US$24.5 million) in short-term investments as of March 31, 2020,” Canaan said in the report.
Zhang said the firm has partnered China-based Semiconductor Manufacturing International Corporation – in addition to its existing supply chain partnership with Samsung and TSMC – to roll out bitcoin mining equipment with 14-nm chips and expects to be able to ship in larger quantity in Q2.
But the firm declines to issue a business outlook for Q2 2020 citing the uncertainty of the COVID-19 pandemic and the uncertainties after Bitcoin’s halving gives itself “very limited visibility on the potential impacts to its business and the markets in which it operates.”