What separates investing from gambling is the expected return for everyone is greater than zero.
AKA buy stock at 100$ and sell it at 100$ does not mean you broke even. You could have gotten 10$ in dividends. Now that positive may be small and some people may lose money, but that's allowed as long as the expected returns end up positive.
Bitcoin's can't have a net positive return because they only way to add money into the system is via coin buyers. Further because of transaction costs it's inherently negative sum.
Some cryptocurrencies generate the equivalent of "dividends", especially those based on Proof of Stake systems. For example, holding Neo generates Gas equivalent to a 3-6% annual return[0], and Stellar (given free to HN readers a few years back[1]) has "inflation" equivalent to around 1% annual return[2], to name two that Robinhood will be listing.
So are Berkshire Hathaway shares not investments, because you need to sell them to end up with money? What about a savings account with compound interest, or an ETF with automatic dividend reinvestment - do they not count as investments either, because you have to do something with them to get money out?
Don't forget that investing in the stock market is still something of a gamble, because the return for everyone is not guaranteed to be greater than zero - a company can go bust leaving the shareholders with nothing.
Berkshire Hathaway is something of an exception as the vast majority of successful company's pay dividends. Clearly, buying a single stock is risky. But if you buy a basket of stocks and those stocks pay dividends then the only way to lose money is for the socks to be worth significantly less money when you sell them thus making it a positive sum game.
PS: Berkshire Hathaway still returns money to shareholders via stock buybacks. Which preform similar functions the difference is simply related to taxes. They can and are likely to at some point issue dividends.
If I buy a lump of gold, and attempt to sell it to someone else later at a higher price, that is pure speculation. Gold is gold is gold. That lump of gold is going to be the same lump of gold a year from now or a hundred years from now. You might as well have buried the money in a backyard for all the change of affected in the world.
If I take that same money and invest it in a business -- the business is going to take that money and create something new. Hopefully what it creates will be worth more than what you invested, but in any case your investment has changed the world in some way.
I think a cryptocurrency is probably something in between that, because your 'investment' is actually ultimately going to miners who will expand the network, so you are actually building something new in a sense by investing in cryptocurrency. However I'm not sure that building the bitcoin network out is a net positive for the world.
> If I take that same money and invest it in a business -- the business is going to take that money and create something new.
Only if you're buying at the IPO. Most of the time, you're just buying stock from another person and the company gets zilch. The service you're providing to the company is just better information about its ability to raise additional capital from selling equity.
For some cryptocurrencies, you are providing a service to the miners by adding liquidity and pricing information, but given the volume trading on crypto exchanges, there is simply not enough currency being mined for even a tiny fraction of it to be going directly to miners as a counterparty. For a currency like Ripple, that is completely pre-mined, you don't even have that.
The company is also a shareholder and can pay out dividends or buy back stock to increase the price. One pays you directly, and the other increases your stake by diluting the pool of outstanding shares. Both are direct results of actions taken by the corporation, and both create something new: cash and equity, respectively.
I have trouble seeing what this has to do with my comment, which was specifically on the notion that investing money by buying a company's stock somehow helps the company, which is true only in the very narrow sense that I indicated.
Which would change nothing as gold is not an investment.
Also, if you 1 one bitcoin you can only sell less than 1 bitcoin from transaction fees. Remember, someone needs to spend real money maintain servers and that money is constantly being removed from the coin ecosystem.
Untrue. You can sell someone the private key to your wallet. That's free. If you're not going to classify commodities or real estate as investments, then sure, I guess bitcoin isn't an investment. But it's as much an investment as any commodity or real estate is.
real estate pays a dividend in the form of use of that land.
If I own a house I get to use the house today and still have a house tomorrow. With a field I could grow crops and then still have a field next year.
Commodities are an interesting 3rd thing. But, closer to buying something from a wholesaler than an investment as they represent actual goods (ie Oil) that will be sent somewhere. Think of it like this, if you buy coffee contract you get coffee which can be sold off. However it's a physical thing and it's got a physical expiration date, if you keep it in a pile somewhere for 10 years you end up with dirt.
Bitcoin provides a service though - a service that has demonstrable economic utility. Specifically: international value transfer. There are existing mechanisms for this (western union, swift) and they have costs. The sum of those costs is a reasonable way to think about Bitcoin's theoretical value by substitution, because it costs bitcoin to move bitcoin. And therefore if Bitcoin were to replace all other intl. value transfer mechanisms, the sum of those two sets of costs should be comparable.
Owning bitcoins don't facilitate these transactions by third party's. The service can create value but don't let the name of the service be confused with the coins.
You could speculate that the utility created will increase the value of the coins you hold. However, unlike mining there is no connection between buying a coin and enabling other people to do these transactions.
Smart contracts absolutely can, just like regular contracts can. A bank granting a line of credit backed by future sales unsold gas station inventory is money showing up from 'thin air'. Move that to a smart contract and you've got money - that is, a promise to deliver future real value - getting generated.
Try and write a loan on Etherium via a smart contract.
I apply, get eth, cashing out by selling it to someone else, then get hit by a buss or just ignore you.
Now, in what way can the system enforce that loan?
If you can get the eth from someone that gave me money then they are not going to give me money in the first place. If you say, sue someone in the real world that's fine. But, the smart contract did not actually do anything. If you say I need to put up eth as collateral then you did not give me a loan.
I don't know much about ETH, but would it be possible to write a contract using an escrow concept? I.e., there would be a wallet that eventually would pay out to one party in one circumstance, and to some other party in some other circumstance. (If you want to get complicated, it could even blend payouts among multiple parties.) We wouldn't have to trust you not to get hit by a bus, because the value wouldn't be in your wallet.
If they went to the work of creating digital contracts and didn't consider escrow, that seems to be a fairly significant omission.
Ah, ok, I think now I better understand the point you made above. I can accept that value per se is only created by one or more parties, but the coin itself can make it easier for them to do so profitably.
First of all, yes they can. Proof of stake coins pay dividends. Second of all, dividends from companies don't show up 'from thin air'. They show up from the economic activity of the company. Which is facilitated by their capital investments. Just like staking in cryptos.
Lets say I Buy '1,000' tokens including a 10 token payment for a transaction fee for 1$. Now A had 1,000 tokens and now has 1$, I have 990 tokens and another group get's 10 tokens. But, notice that other person(s) got tokens not money.
If I got to keep 1,000 tokens or someone else get's those 10 tokens nothing changes because nobody who has tokens got any money. The only way people with tokens get money is if they sell some number of tokens minus a fee to someone else. It does not matter of all 10 tokens go to a miner, or miners get 5 tokens an 5 go to 'investors' or what not.
It's still a (edit: negative sum game) and contracts don't change anything about this.
Bitcoins and USD may both be tokens, but they are not the same token. The same is true of say WoW gold and ISK (EVE Onlines money). I can farm WoW gold all day, that does not turn into ISK unless someone is selling ISK.
What about stocks with no dividends (which constitutes the vast majority)? By your definition, only dividend investing and rental property investing is true investing.
I'm not disagreeing with you. In fact I almost agree with you, but your argument fails for most stocks.
Stocks with no dividends have some probability of paying a dividend (or doing a buyback) in the future. If you could prove that a company will never pay a dividend or do a buyback then its value would be zero.
this is turning to a very insane argument.. So if Buffet signs a iron clad legal contract that says no dividends ever for the duration of his company, it means the stock is worth 0?
If the dividend-less companies are profitable, then you can still expect the increased value to get returned to you through stock buybacks, or an eventual dividend or acquisition of the company in the future.
AKA buy stock at 100$ and sell it at 100$ does not mean you broke even. You could have gotten 10$ in dividends. Now that positive may be small and some people may lose money, but that's allowed as long as the expected returns end up positive.
Bitcoin's can't have a net positive return because they only way to add money into the system is via coin buyers. Further because of transaction costs it's inherently negative sum.