The Weekend Edition is pulled from the daily Stansberry Digest.
They were likely the most expensive pizzas ever made...
I am going to tell a story that many cryptocurrency gurus have probably heard before. But many casual observers probably don't know it...
In May 2010, back when bitcoin was a little more than a year old, a Florida man named Laszlo Hanyecz – a Hungarian immigrant, an early bitcoin "miner," and a contemporary of the pseudonymous bitcoin inventor Satoshi Nakamoto – wanted to prove a point.
Hanyecz wanted to show that you could buy something with bitcoin.
So one night from his home in Jacksonville, he logged on to the BitcoinTalk message board, a place for early bitcoin enthusiasts to talk online. And he made an offer...
Hanyecz would give 10,000 bitcoins to anyone who would send him two large pizzas. Here's his original post...
What happened from there is now digital history...
Hanyecz got his pizzas – two large pies with all the fixings from retail chain Papa John's. In exchange, he sent 10,000 bitcoins (then worth about $41 in total) to a 19-year-old American named Jeremy Sturdivant.
The obvious punchline to this story is that those pizzas turned out to cost more than $530 million. If you're feeling "FOMO" right now, this might soften the blow...
Sturdivant sold the 10,000 bitcoins not long later – when they reached $400 in combined value – to help pay for a trip. He figured making a 10 times return on his investment was pretty good.
And Hanyecz sold all of his bitcoin before it reached $1 per coin... to buy a new computer.
What were they thinking?
We'll get to that... Simply put, it has to do with human nature. But we share this tale today mainly to bring up a few other points about cryptocurrencies (and investing) that are valuable for everyone with an interest in the markets – or frankly, innovation.
First off, the media still bills the deal of pizza for 10,000 bitcoins as the "first commercial transaction" of bitcoin. It wasn't really that, but closer to a barter.
The swap was made between two people who already had bitcoin accounts... The transfer was direct. Pizza just happened to be what they promised to exchange. It could just have easily been bubble gum or video games.
Sturdivant ordered the pizzas with a credit card from out of state, and they arrived at Hanyecz's house the old-fashioned way.
This was the early, early days...
At the time, Hanyecz was "mining" – or creating – thousands of bitcoins per day. Thousands! And he was doing it with a relatively small amount of computing power.
Hanyecz had no idea what they would be worth in 10 years. If he thought the price would be greater than $50,000 for one bitcoin, we doubt he would have made the offer. He wanted to simply show the possibilities for bitcoin, which he did.
The whole story shows that bitcoin at its core can be used for exchanges. But maybe more importantly, the story shows that it also represents a technology...
This is a distinction and idea that Crypto Capital editor Eric Wade says is critical to understand. It's what really got him thinking about the potential of cryptocurrencies...
This is lesson No. 2 from the "bitcoin pizzas"...
Beyond the obvious price appreciation of bitcoin, it's important to know that it's all possible because of the value of the technology that powers bitcoin, called blockchain.
It's hard to find somebody who can explain it in plain English. But as regular readers know... Eric can. As he wrote in the August 8, 2020 DailyWealth...
success has shown the world it's possible for independent and fragmented entities (miners) to enable strangers with their own computer power to exchange value with no need for intermediaries.
And it can be done in a completely transparent, verifiable, and open way. Said another way, the bitcoin blockchain is single-handedly doing the job of more than 100 years of financial infrastructure.
It's the Federal Reserve, the Treasury, the banking system, and auditors all in one package...
It's immune to government control (and government manipulation). And with a fixed supply of ultimately just 21 million bitcoins... it can't be inflated away.
I'm not going to get into the nuances of blockchain today – the "nodes" and the "miners."
Instead, I simply want to say that knowing bitcoin is based on the blockchain... and understanding what blockchain technology is and how it really works... is to unlock the true understanding of the long-run value of cryptocurrencies.
Thought of another way, if "data is the new oil" – as our Stansberry's Investment Advisory team believes – we want to first own the oil if at all possible to seek the profits.
That's cryptocurrencies.
Transferring "dollars" – or pizza – is simply the first use case for cryptos...
It just so happens that a lot of people care a lot about money. And at the time, the mortgage crisis of 2008 and 2009 was fresh in the minds of a lot of people who had been burned.
So bitcoin came first instead of a "digital art blockchain."
Nakamoto's 2008 white paper on bitcoin describes it as a "peer to peer" electronic cash transfer system with no middleman. The concept has caught on over the past decade-plus.
If you feel that the biggest upside has already been realized in cryptocurrencies, we urge you to think again. Today, we're seeing what the world "beyond bitcoin" can look like...
Things like non-fungible tokens ("NFTs") – linked to art, trading cards, or video highlights – are part of this story... in admittedly a dot-com-like bubble atmosphere, which our colleague Dan Ferris wrote about in last Saturday's Weekend Edition.
As a writer and editor, I see NFTs – and blockchain technology, in general – as a way to allow content creators to actually make a steady stream of royalties from demand for their own work... and not have to work for a corporate-owned mainstream outlet, for instance.
This is all to say that when Hanyecz wrote in a later post on the BitcoinTalk message board thread, "I just think it would be interesting if I could say that I paid for a pizza in bitcoins," he was right...
It is interesting.
That brings us to another part of the "bitcoin pizzas" story most people don't talk about...
After Hanyecz wrote up his offer of 10,000 bitcoins, it took three days for someone to take him up on it...
For starters, not many people knew about bitcoin at the time.
And even among those in the small community that did, there was some hesitancy to help prove bitcoin's "use case." One user, BitcoinFX, wrote...
I would offer to buy you a pizza, but I'm not based in the USA, so they might think I'm a prank caller.
Talk about "risk averse."
And as I mentioned earlier, both parties in the deal were out of bitcoin not long after the transaction. This is the human nature part of the story.
Hanyecz told the New York Times a few years ago that he didn't regret his decision. But we find that a little difficult to believe...
Today, he works as a developer for an apparel company that, not coincidentally, accepts bitcoin as payment. He told the crypto-focused website CoinDesk in May that his company is treating bitcoin like a reserve cash alternative...
We've just been holding it and we're actually up a significant amount. 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.
Speaking to these facts, we again remind you that you never need to be "all in" or "all out" of an investment or a speculation (whether you're buying or selling). This isn't a natural idea for many investors.
The "do half" way of thinking, as we discussed in the March 20 Weekend Edition, is a smart way to balance exposure and risk. The potential reward outstrips the risk of allocating a small percentage of your portfolio to bitcoin.
To be fair, it's easy to look back in hindsight and make comments about anything, good or bad...
But this brings us to our next point...
Most early inventions are regarded as dumb or worthless. At the very least, they're met with skepticism at the start. And to be sure, a lot of these "crazy" ideas do fail.
But the innovations that succeed, really succeed. And more often than not, they tend to appeal to the "things that never change," as the talented financial writer and thinker Morgan Housel terms it.
Think of bitcoin from this perspective... as a new outlet that could give us greater control over our own lives – and also be a faster solution to old problems.
I'm most attracted to the "un-inflatable" idea of bitcoin – the idea that, based on its code, only 21 million bitcoins will ever be mined – and that it is a scarce asset that lives "outside the system" that continues to debase the U.S. dollar.
And in a world with roughly $13 trillion of negative-yielding debt on the books, the idea of an inflation-proof asset sounds pretty great to us.
But remember, bitcoin is also a technology. It's like an entryway to many other industries... And the "smaller" coins are the next logical place to train your attention in this revolution.
So we ask now... What will be "bitcoined" next?
Many people today are already aware of bitcoin. They might not all be comfortable owning it yet. But certainly more people know about it than a year ago... or five years ago... or 10 years ago.
Just this week, Tesla (TSLA) CEO Elon Musk announced that you'll be able to buy the company's cars with bitcoin. That makes sense for the electric-car maker to increase the value of "cash" on hand – presuming bitcoin's price rises over time, as Musk believes it will.
If this feels like "peak bitcoin," well, I wouldn't quite go that far.
But it does show that bitcoin could be headed into a new realm of popular exposure... And for this reason, we still believe it's wise to hold at least some bitcoin in your portfolio today.
All the best,
Corey McLaughlin
Editor's note: On Wednesday, Eric went on air to discuss today's cryptocurrency revolution... and to reveal why six little-known cryptos are positioned to soar up to 10 times in value this year. If you're looking to take advantage of where cryptos are headed, you can view Eric's presentation right here.
