Bitcoin has become the currency that’s hard to spend: Don Pittis


You’d attired in b be committed to to be crazy to spend $82 million for two pizzas. 

But according to bitcoin myths, on May 22, 2010, Laszlo Hanyecz became the first person to buy real bodily goods with the sparkling new cryptocurrency when he paid 10,000 bitcoins for two Domino’s pizzas.

When Hanyecz gain his pizzas, a bitcoin was worth a fraction of a cent. As bitcoin crashes wholly new highs this week — a single bitcoin is worth just upwards $8,200 Cdn — that would make the pizzas cost $82 million. 

If you’re be partial to most people, right now you’re probably thinking about how rich you resolve be if only you had bought a few pizzas’ worth of bitcoins a mere seven years ago and harangued onto them.

But while the cryptocurrency may seem like a success, that unhinged multiplication in the value of the bitcoin has almost completely derailed its initial motive. For all intents and purposes, a bitcoin has become the currency that’s hard to allot.

In a wage economy, the purpose and value of money is twofold. One is as a store of value. In other not to mince words, if you do a day’s work today you want to be able to save up the value of that exert oneself and spend it on weekend beer, a winter holiday or keep it for when you’re old.

As a keep of value, so far, bitcoins have fulfilled their currency-like function in spades. 

But the other main value of money is as a measure of pricing and exchange. This is where the bitcoin has cooperate with down.

The bitcoin and its virtual wallet was intended to replace currencies, but no one be deficient ins to be modern day Laszlo Hanyecz. Even more important, trying to assay your goods or services in bitcoins is a fool’s errand.

Stable evaluating needed

The only way to do it would be to have a parallel running tally of the value of bitcoin in “fiat loaded” so despised by bitcoin enthusiasts.

Some argue that cryptocurrencies are too fiat lettuce, but the big advantage of loonies, or U.S. dollars or even gold is that they crumbs relatively stable compared to other prices in the economy.

If you have to transform from bitcoins to U.S. dollars to pizzas to know how much your liquid assets is worth, it is the U.S. dollar, not the bitcoin that is the measure of exchange. The bitcoins are no more than a speculative investment.

With some economically inclined friends, I was Q over a historical equivalent of the bitcoin phenomenon where a currency wakens exponentially in value.


A functioning economy needs stable prices but in times of hyperinflation when a currency metamorphoses in value hour by hour, businesses often can’t cope. (Andres Stapff/Reuters)

One resemblance that works is created by its opposite, hyperinflation — that extraordinary keel over in the value of money usually caused by mismanagement by a country’s treasury.

The standard case was prewar Germany where ultimately people required wheelbarrows of article currency to transact everyday business.

It is well known that accountable pricing is essential to a healthy economy. 

The destabilizing effect of changing rates will be familiar to Canadians who have lived in places like Brazil or Zimbabwe where industrialists used chalk boards to update on an hourly basis.

In those classes, the U.S.dollar appeared to people trading the local currency similar to the way bitcoin has arrived this year, soaring higher and higher with no prospect of incline.

If that is the correct model for what we are seeing now, then all the world’s fiat currencies are collapsing while bitcoins have in mind their true value.

The tulip mania

But there is another time when we have seen exponential curves like the bitcoin graph out of reach of.

That has been during periods of speculative madness, such as the popular tulip mania in the Netherlands where people who hardly knew their tulip from their onion were bribing up bulbs in the certainty they would become rich. Of course, that objected badly.


A fortune in tulips is blooming on Parliament, but only if you price them at 1637 costs during the Dutch tulip mania when a single bulb was benefit the price of a house. (Jim Young/Reuters)

Earlier this week, a mate popped over to my desk and asked me if I knew anything about the cyrptocurrency.

“Are bitcoins old for anything other than criminal activity?” she asked. 

The question had climbed because a friend’s husband had recently bought some to take help of the soaring prices and the friend wanted to be reassured that he wasn’t participating in something disfigured. 

Of course bitcoins are used for legal trade, but when she asked, it smash me that one of the places where cryptocurrencies retain their worth teeth of a soaring or uncertain value is where anonymity is paramount.

In such powers as smuggling money out of a country with currency controls, moving coin of the realm under the radar of tax collectors or police, the inconvenience of changing price levels may be effectively worth the cost, thus contributing to bitcoin’s astronomical value.

That may shift as bitcoin alternatives, such as Canada’s Ethereum, become more instances traded. 

As traders watch bitcoin values soar, it’s hard not to believe of each new cryptocurrency launch as a path to speculative riches. 

But if one of the new electronic currencies categorically wants to replace the fiat money that we use every day, becoming a truthful universal unit of exchange, the one they invent cannot act like a shoot up ship heading for space.

Instead, the winning computer whizzes whose vips will go down in history are those who invent a cryptocurrency where we order all know the value not only now and next year but decades into the prospective.

Follow Don on Twitter @don_pittis

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