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Comment by tharne | Hacker News Reader

There's a meaningful difference between casino-style gambling and investing in something like stocks or cryptocurrency.

Specifically, in a casino the odds are known and fixed in favor of the house. If I'm playing roulette at the casino and place $1000 on black, I have a less than 50% chance of winning (18/38) due to the two green spaces on the wheel. Over a long enough period of gambling the house will win and I will lose.

With stocks or cryptocurrency, things are very different. The odds are not known in advance, nor are they controlled by a specific organization. You can have a situation, particularly with stocks, where value is actually created and there is a net increase in wealth - this is not possible in traditional gambling, which is explicitly zero-sum.

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Can't you also have a situation where value is a lost and there is a net loss in wealth?

I think it's mostly about how predictable the risk is. In a casino, the odds are stated and known. In stocks, (in the US) companies are supposed to file statements with the SEC to honestly report the risks to their best extent. With crypto, no one seems to have to report any risk evaluation.

I guess the other difference is that in casinos, the bet typically goes to zero faster than with stocks and sometimes crypto, as it seems rare that those will zero out, so people may not lose 100% of a bet but sure can lose 99%.

But I agree with OP, that it mostly depends on whether someone likes it whether they see it as gambling, less so in actual definitions of what gambling is.

> Can't you also have a situation where value is a lost and there is a net loss in wealth?

For sure. If you had invested in Japanese stock market at its peak in 1989, you'd still be down more than 30 years later.

That's not the same thing as value being destroyed.

Indeed, Japanese companies have on the whole been profitable throughout that time and have passed on some of those profits to their owners, so value has been created.

The stock market bubble bursting didn't destroy value, it simply revealed that some investors overpaid

If a company pays no dividends and its stock goes to zero, it's a complete loss. Not sure if there's any value created. If a company takes investment money and never sells a product and then runs out of money, I suppose you could argue maybe value is created for others in the spending of that investor money, but that argument may apply for casinos as well.

But maybe I'm missing the point you're trying to make.

Surely crypto has always been zero-sum? People put their money into the pot, and then take it out at different times, in proportion equal to when they originally put their money in.

It depends on the currency, some have transaction fee mechanisms that pay existing holders, meaning there’s at least some amount of revenue (holders are selling transaction slots to transactors). Holding the currency is essentially a bet that revenue will increase

Crypto seems to be negative sum, due to the large amount of equipment and energy expenses that go into operating the whole infrastructure. (Obviously this is technically true of almost everything, but in case of cryptocurrencies I think the relative operating cost is much higher than, e.g., stocks or bonds or casinos).

Bitcoin can be considered zero sum since the only way to get money out is to trade with someone putting money in, and there is no other income stream. There are no plans to change this.

The real difference with traditional gambling is that there is no plan to ever end the game. As long as it continues, the players can believe they will come out ahead, even though if you stopped the game at any time, losses by people who didn't exit would match gains by people who did.

"The game ends now" values current holdings of Bitcoin at zero since there is nothing in the pot, but it's unclear if that will ever happen, and no sign that it will soon.

If you remove the exchange cut and transfer fees the Bitcoin also enters in negative return territory. Unless you are the one running these services.

How is any tradable instrument any different. If you stopped the game most stocks would be worth 0 too as few pay any real dividend.

Not true, if own a certain percentage of the stock of a company you can auction of its assets and keep the money.

Here are a few ways they're different:

- For most bonds, the game ends at maturity.

- The money used for stock buybacks doesn't come from other shareholders, so that's not zero sum.

- Many companies have substantial assets, so they do have liquidation value.

However, it's true that most stocks trade far above liquidation value, under the assumption that the game will continue.

sorry - i keep asking this question - how can you tell if value was created? how is value different from price?

I always assume you don't create value at all when you are a speculative investor like buying a stock. The value creators are the company you invest in.

You are very loosely or indirectly giving the company money to re-invest when you purchase their shares, no?

Yes. Even if the company isn't selling the stocks directly, you're paying early stage investors, who provided investment some point in the past.

There's also a theoretical difference between trading stocks and trading cryptocurrencies.

Speculation, or the assumption of existing risk, or investing in creation with an expected return is not the same as gambling (which is 0 sum game and creates risk to shift money around).

That being said, in the real world today, this appears to be a distinction without a difference.

The most problematic gambling is where the bookie also provides credit. A guy putting $100 on a game in Vegas and losing it is nothing compared to the guy who puts $10k on a game he doesn’t have, and then is out stealing from his employer or committing insurance fraud to cover debts and vig.

The parent said trading in stocks. You said investing.

These are different things (yes, there is a qualitative difference).

Sounds like regular day trading has similar issues too?

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