Cryptocurrency is still unfamiliar territory to most. Some have never even heard the term despite the industry existing for more than a decade now. As it has yet to become a household term, its nature is often compared to gambling rather than investment or trading.
Warren Buffett, CEO of Berkshire Hathaway, even goes as far as calling it a gambling device. In a Berkshire Hathaway annual meeting, Buffett stated, “It’s a gambling device… there’s been a lot of frauds connected with it.”
Charlie Beach, who works for the cryptocurrency platform Lendingblock, said to investors, “Bitcoin is an investment only suitable for the sophisticated investor and even then only as a small part of any portfolio.”
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What is Gambling?
The majority of gambling is harmless, low-risk social activity for any participant. The kind of gambling that is widely known and the reason why the term has such a negative connotation is the kind that involves casinos. It is the home to high-risk and high-reward gambling.
According to McGill (2008), gambling has two types of games: luck-based and skill-based. Games of luck are games in which the results depend, either partially or totally, on luck. Practice does not increase a person’s chances of winning, and neither knowledge nor skill has any control over the game’s result. On the other hand, games of skill are games in which a certain level of knowledge or skill is required; the player can, at least in part, control the result of the game. Practice can make a person a better player.
What is Investment?
Investments are either an asset or item that is acquired with the expectation of its value rising in the future to convert into profit. Hayes (2021) said that investment could refer to any mechanism used for generating future income, including bonds, stocks, real estate property, or a business, among other examples.
Although, investments are not without risks. Cryptocurrencies’ main feature that makes them both appealing and dangerous as an investment tool is their volatility. Volatility is a finance term that depicts how the value of an asset varies from time to time.
What are their differences?
Even putting cryptocurrency aside, it is true that investing and gambling have similarities in the aspect that both put their capital at risk for maximum profit. On the contrary, they differ in how gambling will never have certainty in knowing which will provide them profit in most circumstances. It is still, ultimately, a game of luck most of the time.
Investments, however, have more sources in which they can gain relevant information on where they should put their capital on. Investors, and cryptocurrency investors, also have the chance to pull out their investments to avoid major losses, something a gambler may not always have the option to do. Cryptocurrency investors can also invest in multiple areas to cover the losses they acquired.
Additionally, there are tools such as Bitcoin Prediction that lend insights on the market’s standing that aid investors in planning their next financial move.
It’s all about perception, as both carry varying degrees of risk. If you were to invest in something without any form of preparation and solely believe in luck, then it may seem like a gamble. Many compare cryptocurrency investments to a game of poker where you can calculate the probability and decide whether to fold or bluff. In poker, the player has the privilege to make certain decisions based on experience and skill. Nevertheless, a good hand doesn’t necessarily guarantee victory, even in poker.
Blockchains, also known as cryptocurrency’s databases or ledgers, may provide the necessary information you need to turn that gamble into an investment. However, these ledgers are passed through a network and have no central authority. As such, network participants must agree on the validity of the transaction before it can be recorded.
Disclaimer: This article is not intended to be a recommendation. The author is not responsible for any resulting actions of the company during your trading/investing experience.
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