It sounds like a legend…
On May 22, 2010, a programmer named Laszlo Hanyecz bought two large Papa John’s pizzas for 10,000 bitcoin.
At the time, it probably felt like a good deal. Hanyecz didn’t have a lot of choices when it came to vendors accepting bitcoin, and back then, 10,000 bitcoin were worth around US$30.
What is widely believed to be the first purchase of a physical product with bitcoin is celebrated every year on “Bitcoin Pizza Day”. But for Hanyecz, it’s probably a reminder of what could have been.
You see, if Hanyecz had held on to those bitcoin, they’d be worth over US$35 million today.
Many crypto investors consider Hanyecz to be a cautionary tale. If you spend all your crypto, you could miss out on big gains.
But if we’re ever going to see cryptocurrencies go mainstream – and really soar – people have to start spending them.
So what should crypto investors do – spend, or hold? The answer is somewhere in the middle…
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It’s still hard to spend bitcoin
Nine years since Hanyecz’s revolutionary purchase, it’s still difficult to spend your cryptocurrency.
Sure, we’re seeing more and more news stories celebrating new retail outlets accepting crypto. But there’s a reason why this kind of thing is still news – because it’s still pretty rare.
You may be lucky enough to find a local café that will let you to buy a coffee with bitcoin, or even a store that has a bitcoin ATM. But would you feel confident leaving your cash and cards at home for a whole day, or even just for an evening out, and rely on your cryptos? Probably not.
And some outlets that had been quietly accepting bitcoin – like travel site Expedia – have removed the option due to customer complaints over transaction times, the anxious wait for whether the funds actually made it to their intended party and complicated refund processes.
The thing is, it won’t get easier to use crypto until more people start spending crypto.
The network effect
By spending your crypto at every available opportunity, you can help achieve a “network effect” that will unlock mass adoption. Your friends will see you paying with cryptos, and they’ll become intrigued. Businesses will take note when you’re the fifth person in their store that day that asks whether they accept crypto payments.
The network effect can be pretty powerful. Imagine if only one person had a phone. The usefulness, or, what economists call “utility” of that phone will actually rise as more people get their own phones. Literally, as the network of people with phones grows, so will the utility of having a phone.
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The same network effect is in play with cryptos. Its pretty obvious that if no one uses cryptos, no companies will feel a need to accept them. Conversely, if a lot of people use cryptos, a lot of businesses will feel that need to accept them.
And once your local café realizes that they don’t have to pay extortionate Mastercard or Visa fees if they start accepting bitcoin, they will become more profitable. Their competition will wonder how, and then change will happen. Wall Street companies are already working on making it easier for people to start using crypto.
And it isn’t just Wall Street. I just got back from Singapore where I spent nearly a week talking to businesses that are focused on using crypto to do everything from safely storing your wealth to passing time with games.
In one of my meetings, we sat down for a nice cup of tea and dim sum at a very classy tea house.
Tea pots and tea cups at a Singapore tea house
Source: Yixing Xuan Teahouse
The tea house accepted bitcoin and a handful of other cryptos as payment. And paying was easy and fast. The transaction was less than five sections. That’s extremely encouraging.
And the same system they are using at the tea house to accept cryptos makes it just as easy to “top up” my crypto supply to spend. I handed the cashier SGD$100 and in less than five seconds she had added it to my phone’s bitcoin wallet.
Someday we might all buy pizza with bitcoin
So while it might seem counterintuitive, if you want your crypto investments to go up in price – you have to start spending. The more people that use and spend cryptocurrencies in the real world, the higher they’ll go.
Think of crypto as you do your local currency – some you spend, some you set aside for savings.
That way, you’re helping grow the crypto ecosystem, but you’re still set up to profit when crypto prices soar.
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