Bitcoin Pizza Day 2: How and Why A Lightning Payment Just Made History

What’s your favorite food? The crypto industry seems to be partial to pizza.

At least that’s the case today, with the industry celebrating (with some nostalgia) the first Lightning Network transaction used in the purchase of the Italian food favorite, one made by none other than the man who made bitcoin’s first major purchase – Laszlo Hanyecz.

If that name doesn’t immediately ring a bell, the bitcoin transaction that made him famous will – on May 22, 2010, Hanyecz traded 10,000 bitcoins ($41 at the time) for two Papa John’s pizzas.

The transaction went viral then and is legendary today, namely because bitcoin’s price has increased so much that those bitcoins would be worth a whopping $100 million. But it is also heralded as the first bitcoin transaction in which someone bought something from a mainstream merchant, a couple years before the push for merchants to accept bitcoin began.

In that way, Hanyecz was seen as a bitcoin maverick, and now, he’s made himself known again by purchasing pizza with bitcoin’s in-progress (and ill-advised to use) off-chain lightning network, what many enthusiasts see as the cryptocurrency’s liberator from its scaling and payments constraints.

“Good people, harken and know that on this day the one called Laszlo did buyeth the first Bitcoin Lightning Pizzas, bringing us into this new era of glory and cheesy goodness,”
blockchain researcher Brian Lockhart wrote on the Lightning mailing list.

And on Reddit, a user commented: “This dude Laszlo has nerves of steel and should be in the first batch of Mars colonists.”

For Hanyecz, though, it’s not about a dish or his daring, it’s about making sure the vision of bitcoin as a cheaper, faster, altogether better online payment system fulfilled.

“On my [2010] pizza transaction, I paid a fee of 1 BTC, and it just didn’t matter then because I was happy to get anything with it. I was spending this internet money to purchase a real good,” Hanyecz told CoinDesk, adding:

“I came out to post about lightning because I do believe in it. And it’s still in its very early stages, but the lightning network promises to bring back that functionality of being able to buy pizza with bitcoin.”

More pizza please

Like Hanyecz’s 2010 purchase, this one in 2018 is only a small blip, but its symbolic value is far-reaching.

For many, bitcoin’s scaling debate was an exhausting ordeal, one that pitted different parts of the community against each other.

There was a side that insisted transactions were growing and in turn, fees were growing too high for businesses to survive so action in the form of a block size increase was needed now. The other side advocated for slow and steady changes so as not to squeeze bitcoin into a more centralized state or break the network that had created a censorship-resistant store of value for users.

While all sides seemingly wanted the same thing, each had their own urgency and ideas about how that vision might be reached, and so in the end, Bitcoin Core introduced Segregated Witness, a code change meant to impact scalability; the controversial Segwit2x agreement, meant to push a small block size increase in November was suspended; and competing cryptocurrency bitcoin cash was hard forked off the main chain, showing off an 8 MB block size.

And all that started a new era of competing cryptocurrencies birthed from hard forks.

“A lot of the reasons that these altcoins got a big push this past year is that people have started seeing you know bitcoin, it can’t process every transaction in the world, we need something better, and all these people came out of the woodwork promising something better,” Hanyecz said.

But he remains very skeptical that any of these new coins are worth a slice.

“All these things that are supposed to be better, they’re just kind of a copy and paste for the most part; they’re not solving the problem,” he said.

He continues, lamenting what he sees as salacious cash grabs between forks and initial coin offerings (ICOs), and firmly planting his stake in the ground as a bitcoin maximalist of sorts.

And with that, Hanyecz is very much interested in seeing the lightning network – which Bitcoin Core developers have been meticulously working on for years – to resuscitate bitcoin as a payment mechanism.

“You know it’s not some new thing that somebody came out with to try to sell their coins, you know. It’s not like they’re issuing coins and getting rich off them, like these ICOs or whatever,” he told CoinDesk, adding:

“This is a completely different thing and I could stand behind it because you know, I’m using it, I bought a pizza with it.”

Slightly undercooked

Yet, even though Lightning development is nearing completion, issues – the biggest of which is the network’s usability as detailed by Hanyecz’s recent purchase – remain.

For one, because lightning relies on what is called a bi-directional payment channel, Hanyecz had to employ the services of a middle man.

With a bi-directional payment channel, both parties – the consumer and the merchant – would need to set up the payment channel in order to accept lightning payments. Because the pizza place Hanyecz was ordering from did not have the ability to set up a lightning payment channel, Hanyecz paid a friend who set up the channel to facilitate the transaction.

So, like the 2010 transaction, where Hanyecz paid pizza seller Jeremy Sturdivant to make the pizza purchase, Hanyecz paid a friend who was also running a lightning node to purchase pizza’s for him in dollars.

While using a middlemen isn’t technically the point, the transaction “demonstrates the basic premise of how this works for everyday transactions,” Hanyecz said.

Still, there were a couple other tricky technical hindrances (one that will likely need to be worked out before lightning is used widely) – Hanyecz had to prepay for his pizza, and needed to prove he’d made the transaction in a simple way, without any kind of invoice.

“I didn’t want to prepay and end up with no pizza,” Hanyecz said.

As an easy workaround, the pizza delivery driver was given the first few characters of the hex string, the transaction’s unique payment identifier, and told not to hand the pizza over unless Hanyecz gave him that code.

Once the pizza arrived, Hanyecz flashed a piece of paper with the code, “7241-a8c1,” and the pizza was handed over.

In response, a regular on the lightning mailing list, Robert Olsson wrote that in the future this process could be facilitated with an escrow service of some kind, and urged the mailing list: “Start your brains, guys! Things are getting serious, there is pizza at stake!”

Seeing how far bitcoin has come since Hanyecz’s first crypto-for-crust purchase, he doesn’t believe the challenges interfacing with lightning will persist for long.

“I’m thinking that people will figure that stuff out pretty quickly, and they’ll provide ways of doing it automatically so that people don’t have to think about it,” he said, concluding:

“The software takes care of it for you.”

Pizza image via Shutterstuck

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