Cryptocurrencies have recently made the headlines with vast profits being made and significant shifts in the value of many of them. This has led to a number of mainstream markets adopting this form of payment solution. This is very much the case when looking at the online gambling world and retail industries, where there is a constant pressure to be ahead of the competition. However, in the early days, cryptocurrencies were more likely to be associated to a form of investment, even if it was not regulated or accepted in the banking community.
At the end of 2017 Andrew Bailey the head of the Financial Conduct Authority said in an interview with the BBC that cryptocurrency is not a secure investment and likened buying it to gambling. He said one of the main reasons it is high risk is because neither central banks or the government back it. But how accurate is his view on cryptocurrency like bitcoin? Is buying cryptocurrency just gambling?
A cryptocurrency is a digital or virtual currency which works as a form of exchange online. Cryptography is used to secure transactions and verify users, as well as controlling any introductions of new cryptocurrency. They are essentially limited entries into a database that cannot be changed unless strict, specified criteria is adhered to. The most famous, well known form of cryptocurrency is bitcoin, which has increased in value since it was created by over 2,500%.
Cryptocurrency can be bought, sold and traded online and a lot of individuals have become very wealthy as a result. Others however have lost out due to the volatile nature of the digital currencies which sees their value change rapidly, sometimes on a daily basis. Trading of cryptocurrency is not something that should be done on a whim; and research should go into it and an understanding of cryptocurrencies, how they work and the possible risks must be taken into consideration.
Along with Andrew Bailey quite a few public figures have come out and discussed the risks of trading cryptocurrency and likened it to gambling. The Bank of Canada Governor, Stephen Poloz, is another figure who commented on this last year. It is worth considering though that as cryptocurrency cannot be controlled in anyway by the government, there are potential reasons why government and financial authority figures would want to dissuade the public from investing in such a currency.
Gambling can be defined as ‘the act or practice of risking the loss of something important by taking a chance or acting recklessly’. If this definition is applied to the case of cryptocurrency it would be fair to say that what goes a long way towards determining whether or not it is gambling is the individual buying and trading the cryptocurrency. If someone is doing so without understanding cryptocurrency fully, without doing their research and buying it with money they can’t afford to lose; then it could definitely be classed as gambling.
However for those who understand cryptocurrency and have spent a lot of time looking into what they are buying and can afford to do so, it can be likened to having a similar level of risk to those who invest in the stock market. If done responsibly this is not defined as gambling. A lot of investors in cryptocurrency such as bitcoin, especially in it’s early days have really seen the benefits, as their value has skyrocketed; plus there is the added benefit of using it like any other currency to transact online. With any investment, even property, there is no guarantee that you will not lose money or indeed that the value of your investment will rise. Buying a house is not classed as gambling so neither should responsible trading within cryptocurrency.
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