When quoting the price of one bitcoin, does it pay to use the globally-recognized Big Mac in place of region-specific fiats? Radoslav Albrecht, founder of the peer-to-peer lending service Bitbond, is betting in the affirmative. Radoslav’s company has sponsored the launch of the BitcoinPPI, a new index and API, which tracks the second-to-second price of a bitcoin in Big Macs.
Bitcoin.com tracked down Radoslav to find out why he’s bullish on Big Mac price indexing for the future of global finance.
“Comparing today’s Bitcoin price in U.S. dollars with what it cost two years ago isn’t really a fair comparison. The purchasing power of the dollar has gone down in the meantime due to inflation.”
Bitcoin.com (BC): The Bitcoin Purchasing Power Index — or BitcoinPPI — aims to measure one bitcoin’s value in Big Macs rather than fiat currencies. How do you determine the Bitcoin price of a Big Mac without valuing it in fiat terms first?
Radoslav Albrecht (RA): Well, you got me — we have to value Big Macs in fiat first. Since Big Mac prices are only quoted in fiat currencies and reported in such by The Economist’s Big Mac index, local fiat Big Mac prices are the starting point of our calculations.
What we do is we take the local price of a Big Mac, say in Mexico — 49 Mexican pesos at the moment. We then take the local Bitcoin price, which at the time of writing is 5,397 pesos, and divide it by the Big Mac Price. In this example, this gives us 110 Big Macs for one bitcoin.
The important point is that this transaction is not just theoretical, but could actually happen this way. Let’s say you take on a gig for which you are paid one bitcoin. You could actually go and convert this bitcoin into pesos, and then buy your Big Mac. We only use Bitcoin prices that are available to consumers.
BC: What gave you the idea to create the BitcoinPPI?
RA: I always thought that quoting Bitcoin in U.S. dollars or euros is a bit misleading.
Comparing today’s Bitcoin price in U.S. dollars with what it cost two years ago isn’t really a fair comparison. The purchasing power of the dollar has gone down in the meantime due to inflation. The central banks have been flooding markets with cheap money for a long time now, which can dilute purchasing power further. I was looking for a measure that has a relatively good stability in value and that everybody can easily imagine.
We could also have taken a balanced basket of commodities with stable demand. The result might be equally useful. However, it would be an abstract index that nobody can relate an everyday item to. At the same time, being so abstract, it would be hard to replicate. The BitcoinPPI is super-transparent — everybody can easily check out Big Mac prices around the world. As we have seen with the LIBOR scandal, transparency and an easy way to replicate an index can be of enormous value.
BC: BitcoinPPI has an API. Have any other sites begun to use it yet? If so, who? And who would you like to use it most?
RA: So far I’m not aware of third parties using the API. But since the API is free and no authentication is required, I wouldn’t have noticed if someone had already started using it. I also didn’t check the server logs yet for requests. At Bitbond we will most likely introduce a loan that uses the Big Mac as a base currency. We have users from all around the world, and it feels a bit unfair to only offer the USD as the main loan denomination. Therefore, we might become the first commercially-oriented user of the BitcoinPPI.
“At Bitbond we will most likely introduce a loan that uses the Big Mac as a base currency. We have users from all around the world, and it feels a bit unfair to only offer the USD as the main loan denomination.”
Besides Bitbond, I would like to see an ecommerce site use the API to quote prices in Big Macs. OpenBazaar — which is about to launch — would be the perfect example. It would be great if sellers quoted their prices in Big Macs and use the BitcoinPPI API to determine the payment amount in Bitcoin.
BC: How is Bitbond different from similar sites like BTCJam?
RA: We primarily focus on small business loans, even more specifically loans of online sellers. Our competitors mainly focus on short-term payday and personal loans, which usually have significantly higher interest rates and which are riskier for the lender.
BC: What’s been Bitbond’s biggest success story, in your opinion?
RA: We have great success stories every day where an entrepreneur gets an affordable loan through Bitbond that they couldn’t get elsewhere. We help these businesses grow and become independent of the user unfriendly legacy banking system. This borrower from Colombia is an excellent example.
BC: What is the average rate of interest on loans made through Bitbond?
RA: The average interest rate is about 20% p.a.
BC: What are your favorite projects in the cryptosphere right now?
RA: I’m excited about OpenBazaar. Making global trade and commerce happen is what bitcoin is just perfect for. I wish them a great start. I’m also a big fan of Bitproof. Notarization in Germany, where Bitbond is based, is expensive and always a lengthy process. The blockchain can make notarization far more efficient and I would like concepts like Bitproof to replace our legacy system rather sooner than later.
I’m also curious how Ethereum will play out. I think it’s great that they released the first version of their software, and I hope to find some time to play around with it in the comming weeks. I’m most interested in smart contracts that bridge the gap between physical objects and the blockchain.
“We see a lot of experimenting today, which I think is the best thing that can happen to the cryptocurrency ecosystem. In 5 years’ time we will have a better idea what works commercially and what doesn’t.”
BC: Give us a brief overview of where you see the crypto-economy in five years.
RA: We see a lot of experimenting today, which I think is the best thing that can happen to the cryptocurrency ecosystem. In five years’ time, we will have a better idea what works commercially and what doesn’t.
At Bitbond, we work hard every day and night to make the global financial system of the future more open, more accessible, and more stable compared to where it stands today. If we achieve this, and other crypto-related companies achieve their goals, the crypto-economy will be on a success path comparable to the Internet of the last decade.
What do you think of pricing cryptos in non-fiat terms? Share below!
Featured image courtesy of LifeHacker