What a $400 Million Pizza Order Teaches Us About Crypto

Crypto people think differently

On May 22, 2010, Florida resident Laszlo Hanyecz bought two pizzas that would later be valued at over $400 million. Why the massive price tag? Hanyecz paid for his pizzas with 10,000 Bitcoins, which at the time were worth a measly $41. Hanyecz sent them to a 19-year-old California student named Jeremy Sturdivant, who in exchange ordered Hanyecz two large pizzas from Papa John’s.

At the time, this might have felt like a somewhat silly, inconsequential exchange. Except it wasn’t. Fast forward to today, and as I write this Bitcoin is priced at around $41,000 per coin. That means the 10,000 Bitcoins that Hanyecz spent on his two pizzas would today be worth over $400 million. Had he held onto them instead of buying the pies, Hanyecz would be worth nearly half a billion dollars.

Despite the staggering sum he traded for two pies, Hanyecz told the New York Post that he has no regrets about the transaction. Although he’s not wealthy beyond his wildest dreams, his pizzas have earned him a place in history. It turns out his exchange was the first time Bitcoin was ever used to purchase physical goods, an event that’s now celebrated each year on Bitcoin pizza day. Hanyecz reportedly feels pretty good about being part of that slice (sorry) of crypto history.

Hanyecz’s $400 million pizza can also teach us three important lessons about cryptocurrencies and the crypto world.

Being Early Matters

When it comes to cryptocurrencies, being early to the party matters a lot. Most proof of work coins like Bitcoin are built using algorithms that make mining coins progressively harder as more coins are discovered and more miners enter the market. That means that early movers who begin mining a coin in the early days can rack up large numbers of them, whereas later miners need to work way harder to find the same number of coins.

Hanyecz saw working with Bitcoin in the early days as akin to working on an open-source project. He was delighted when the coins he mined earned him some “free” pizzas. He likely mined his 10,000 Bitcoins using basic home computer hardware, and the cost was almost certainly minimal. Today, the difficulty of mining Bitcoin has increased exponentially. By my calculations, mining Hanyecz’s 10,000 Bitcoins today would cost about $240,000,000.

That’s why being early to crypto projects matters a lot. Today there is so much attention focused on promising new coins that it’s probably nearly impossible to be as early as Hanyecz was unless you’re personally participating in a new coin’s launch. But still, the earlier a potential crypto investor or miner is to a new coin or project, the more they stand to gain if the coin later explodes in value.

There’s a big caveat, though. At an early stage, it’s often hard to tell which coins will work and which won’t. Sometimes, you can’t even tell if a coin is a massive scam — just ask early investors in Squid Game Coin. Especially when joining a project in its early days, the potential rewards are huge — but the risks can be huge as well! Hanyecz happened to back a coin that exploded into a global phenomenon, but he could easily have worked on a similar blockchain project that turned out to be worthless.

It’s Hard to Value Crypto Coins

Another truism about cryptocurrencies is that they’re hard to value. Hanyecz couldn’t fathom that his coins might one day be worth millions. Even today, with Bitcoin established as a legit cryptocurrency, it’s hard to value and price the coin appropriately. Prices of Bitcoin have swung from lows of under $5,000 in early 2020 to highs of over $60,000 in a very short time.

People seem to oscillate between thinking “crypto is valueless” and “crypto is the next big game-changing technology!” Those swings lead to hugely volatile prices that can make people millionaires overnight, or wipe them out entirely. That’s why many crypto investors and enthusiasts focus on a strategy called “HODL.” The strategy was born out of a forum post where a Bitcoin trader misspelled the world “Hold.” HODL has since become a persistent crypto meme, and has been turned into the backronym “Hold On For Dear Life.”

The strategy and the philosophy behind HODL is simple. Given that cryptocurrencies are nearly impossible to price appropriately in the short term, experienced traders expect that their prices will be all over the map. For that reason, they buy the coins and then commit to “holding on for dear life,” keeping their coins no matter what the market might do day-to-day. The idea is that the price of a coin might skyrocket and tank, but ideally, over the long term (perhaps decades) it will approach a rational level when the trader can then sell their coins.

If you’re going to invest funds in crypto (p.s. consult a professional advisor before you do so), I suggest adopting the HODL approach. Don’t expect crypto to result in a short-term payoff. If you buy crypto, plan to hold it for at least 5 to 10 years, leaving plenty of time for prices to hopefully stabilize or become more rational. Only invest funds you can stand to lose and don’t plan to use in the next decade or so.

If Hanyecz had HODLed his coins instead of spending them on pizza, he could have realized a much higher value for them — millions of dollars higher. Given that crypto is hard to value, it’s best to hold coins for long enough for the markets to show you what they’re really worth.

It’s Not About the Money

When Hanyecz says that he has no regrets about losing out on $400 million in Bitcoin gains, I believe him. Why? In my experience, crypto devotees aren’t that concerned about money. That might seem strange, given that they’re playing around with digital currencies that can be worth millions. But for true devotees, crypto appears to be about a lot more than making a buck.

Crypto true believers tend to value other things: decentralization, libertarian ideas about a form of money that governments can’t control, privacy, the really cool math behind the blockchain, the technical challenges of building mining rigs, and the like. They also value community. Crypto can be a bit like a religion, in that believers connect over a shared value system and then put that value system into action in the world.

Surely, there are plenty of crypto investors who are only concerned about making money. But those cash-driven investors ignore the will of crypto true believers at their peril. People like Hanyecz are perfectly happy to do financially irrational things in order to advance their deeper goals. To view their actions through a rational economic lens is dangerous.

A great parallel example is the saga of Gamestop. Lots of people like Hanyecz gathered together on the sub-Reddit WallStreetBets, and grew frustrated with the fact that big hedge funds were making money shorting the stock of Gamestop, a beloved but troubled brick and mortar video game store many participants remembered from their youth. Banding together, the group started buying up shares of Gamestop, driving its price to dizzying levels despite the company having no real growth plan.

Their actions were totally irrational from an economic perspective, but they weren’t motivated by money. They were acting based on a sense of community, and a sense of justice. Ultimately, they created a price squeeze that drove several big hedge funds out of business. Despite not much changing about its business model, Gamestop’s stock is still elevated as a result of their actions.

That says a lot about the mentality of investors like Hanyecz. Lots of people buy crypto for reasons other than making money. Again, deeply-held beliefs and a sense of community rank highly in their reasoning. If he could go back in time, Hanyecz really might still spend his 10,000 Bitcoins on two pizzas, trading $400 million for a hallowed place in the history of a community he values.

If you choose to invest in cryptocurrencies, remember that not everyone in the market is using crypto for rational, financial reasons. There are a lot of other factors that can motivate crypto investors, and these can make it hard to know how crypto markets will react to booms, busts, and everything in between.

Although he’s not a multimillionaire, Hanyecz enjoys lasting fame within his own community and is celebrated each year like a hero. Sturdivant, for his part, didn’t hold onto the Bitcoins he received either — he reportedly spent them on travel.

In looking at their choices, there’s plenty we can learn about cryptocurrencies.

• If possible, be early to new projects— by the time a currency is popular, it may be too late to see the kinds of massive gains Hanyecz could have realized.
• If you choose to buy crypto, plan to hold it for years or decades, so you can see what its true value is. If Hanyecz had held his coins for a decade, he could have bought a lot more pizza with them.
• And in entering crypto markets, remember that many holders of crypto don’t think like traditional investors. The crypto world is driven by big ideas, and these matter to many crypto devotees more than money.

I know that if I bought two pizzas for $400 million, I’d have a ton of FOMO. Hanyecz doesn’t appear to. His choices — and his reactions to them — say a lot about crypto and the communities of people who buy and sell it.

P.S.: First, you should get my posts in your inbox. Do that here! Secondly, if you like to experience Medium yourself, consider supporting me and thousands of other writers by signing up for a membership. It only costs $5 per month, and you can read all my articles about crypto, the blockchain, and my crypto earnings. I once earned $1013 mining Bitcoin and didn’t even realize it! By signing up with this link, you’ll support me directly with a portion of your Medium fee and get access to my articles, it won’t cost you more. If you do so, thank you a million times!

This article is for informational purposes only and should not be construed as investment, tax or legal advice. Always consult a professional advisor for advice specific to your situation before making any major financial decisions, and never invest more than you can afford to lose. Thomas Smith holds a diversified investment portfolio that includes a variety of securities and cryptocurrencies.