Few events are as well known in the short history of bitcoin as Pizza Day, when the first real-world transaction was made using the cryptocurrency, then very much in its infancy. On May 22, 2010, software developer Laszlo Hanyecz paid 10,000 bitcoin for two Papa John's pizzas. On Feb. 25, 2018, he did it again, this time buying two pies using the lightning network.

The lightning network is a second-layer bitcoin application that's in the very early stages of development and – if it lives up to the hype – adoption. It was proposed by Joseph Poon and Thaddeus Dryja in a 2015 whitepaper as a way to solve bitcoin's notorious scalability problem: the blockchain's throughput maxes out at a handful of transactions per second, compared to tens of thousands for major credit card networks. This leads to long wait times and contributes to occasional spikes in transaction fees. (See also, How Bitcoin Works.)

The $98 million pizza

Hanyecz had to pay rather less for his 'za this time around, 0.00649 bitcoin. The 2010 pizza transaction has become an object of fascination, not just because it marked bitcoin's first halting step into the tangible economy, but because of how much that pizza would be worth today. @bitcoin_pizza, a twitter account that broadcasts the dollar value of the pizza to over 6,000 followers every day, informs us that on Feb. 25, the figure was $98,300,725:

The #Bitcoin pizza is worth $98,300,725 today. (+0.76% from yesterday)

— Bitcoin Pizza  (@bitcoin_pizza) February 26, 2018

Neither the bitcoin nor the lightning pizza purchase involved a direct transaction between Hanyecz and Papa John's International Inc. (PZZA). On May 18, 2010 he posted an offer to bitcointalk, a forum where much early bitcoin history was made (the HODL post, for example):

"I'll pay 10,000 bitcoins for a couple of pizzas.. like maybe 2 large ones so I have some left over for the next day.  I like having left over pizza to nibble on later.  You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I'm aiming for is getting food delivered in exchange for bitcoins where I don't have to order or prepare it myself, kind of like ordering a 'breakfast platter' at a hotel or something, they just bring you something to eat and you're happy!"

Even at the time, 10,000 bitcoin was a bit steep for a couple of pizzas. "That's quite a bit," another user wrote, saying Hanyecz could sell his bitcoin for $41. Still, it took a while for anyone to take up the offer. Eventually a British user ordered the pizza to Hanyecz's Jacksonville, Florida home for him. Three years later, when the pizzas were worth around $6 million, Hanyecz told the New York Times, “It wasn't like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool." He added, "No one knew it was going to get so big." (See also, Bitcoin Pizza Day: Celebrating the $20 Million Pizza Order.)

The pizza Hanyecz unwittingly chose over 50 retirements. Source: Hanyecz.

Lightning network pizza purchase

The lightning payment took a bit more logistical wrangling than the first pizza purchase. Again, a British counterparty agreed to facilitate the transaction, accepting bitcoin via a c-lightning payment channel (c-lightning is one of three major implementations of Poon and Dryja's concept). In order to prove that the payment had gone through, Hanyecz showed the first and last four digits of the transaction's "preimage" to the delivery driver; Hanyecz would not know the preimage unless his counterparty's invoice had been paid.

"Note that you should not share the preimage with anyone," he wrote in the forum post describing his purchase.

Lightning functions by allowing two counterparties to keep a payment channel open, so that they can send bitcoin back and forth off the blockchain, without having to go through the slow, expensive step of mining. Channels can be strung together so that, if the network gets big enough, anyone with a handful of open channels is likely to be able to reach anyone else.

Either party can close a lightning channel at any time and settle the transaction on the blockchain. Cheating is not quite impossible, as it has proved so far for on-chain transactions, but clever smart contract designs have made absconding with a channel's funds risky – the injured party would have to ignore the channel for a set number of blocks, such as 1,000 (about a week) – and simple to punish by forfeiture of all bitcoin in the channel.

With time, the lightning network may take on a consumer-friendly form, and the long strings of encrypted gibberish that pepper Hanyecz's post will be relegated to the background. Then this image might forever be associated with Feb. 25, Lightning Pizza Day:

Source: Hanyecz.