I disagree with this. Fools have a hard enough life without permitting predators to take their money. Nobody chooses to be a fool.
I don't know what a good solution is, or how to stop something like dogecoin without being too paternalistic, but it also feels wrong to me to just ignore this game of musical money even though the most likely outcome is many people losing and a small number gaining, in a zero-sum gambling game designed to look a bit like investing.
Dogecoin is at least honest, so many other "jokes" including Bitcoin, contemporary art, some stocks etc...
If people want to play a game of musical chairs, I rather prefer this game to be called exactly what it is.
It surprises me to see so many warnings about Dogecoin and so few about Bitcoin for instance. People actually believe there's any relevant difference?
Just look at how the U.S. IRS is starting to get a subpoena process off the ground with regards to identities of wallet holders from exchanges. Even though the glacier doesn't appear to move, I assure you, it most certainly does.
Never make the mistake of assuming just because something is new meaning it will always remain that way, and if your nation state is cracking down on political people non grata, they may have no compunction with figuring out who was behind those transactions with or without your help.
This is ironically why cash not in a bank vault is the king of anonymous, difficult to trace financial activity. No paper trail.
Note: Of course banks and regulators know that too, and capital markets will do anything to make sure the maximum number of people entrust their finances to an institution to a loanmaking institution. People don't realize that ease of transaction and traceability is in and of itself a populational control mechanism.
I haven't looked too much into it, so maybe I'm wrong about the useful program thing, but to my knowledge smart contracts are mainly used for creating digital tokens and things like that. Maybe Ethereum could be a useful way to conduct raffles, lotteries, or sports betting.
If you know more about Ethereum could you point out any useful applications that use it?
And, while most of the consequences of poor investment strategies do fall on individuals - at least superficially, both the hyper-social nature of our species and the political/economic structure of our societies ensure that those consequences frequently extend far beyond them.
I've been following since near the beginning, and my circle's rather techy so they largely get it. But I'm not sure what the average person today understands about something like Bitcoin and similar, technically or financially. I've struggled to inform myself before. I looked into the protocols for some decentralized exchanges and I noticed that it's hard to find much about them because in-depth or neutral discussion is buried under a pile of buzz and hype. The biggest advocates promise the Moon, sometimes literally.
Perhaps public education of some kind could help, so that more people understand risks and unknowns? When everything that comes up on cryptocurrency is from the biggest stakeholders in the game, people will not be getting a fair understanding.
Also I'd like to add that the only thing speculative investing has in common with gambling is that risk is being taken, it isn't gambling, and speculation in cryptocurrencies is certainly not a zero sum game.
Chris Sacca, who went on to become a billionaire investor in companies like Twitter, tells a funny story [1] about how he made foolish decisions in the stock market and lost a ton of money. Over the course of his career he reverses his fortune and becomes rich. The message of the story is something like "Don't stop grinding or hustling" or something like that. I think he's a good example of the ignorant fool that I imagine you are thinking of.
There's another class of fool though that basically cannot know better. This could include a wide variety of people, mentally unwell, gambling addicts, desperate people, elderly, people with an IQ of 80, etc. These people flat out are not going to read books on investing, or whatever mitigation path you would recommend to the ignorant fool, and if they did, they might not understand them or be able to use what they learned effectively. This is something like an "inherent fool" that I was thinking of.
What proportion of people who are going to lose money on dogecoin are ignorant fools, for whom this will be a valuable lesson and a stepping stone on their way to better living, versus inherent fools for whom this will be a setback in an already challenging life?
I can't speak for all cryptocurrencies in general, and I can only share my opinion, but I'm pretty confident that coins like dogecoin are certainly zero sum games. The best argument I can make for this is that zero value is being produced from dogecoin. Money is being put in, eventually people will want to take money out, but with no value being produced all the money that comes out of the system will come at the expense of those who put money in. It's kind of the quintessential example of a zero sum game.
I'd compare it to the company Coke. I can buy a share of Coke like I can put money into dogecoin. Coke is going to produce cans of sugar water. People are going to buy that sugar water, putting their money into the system, and, crucially, never expecting to get it back. They put their money in so that they can consume the value that is the can of sugar water.
This addition of money to the system, and the consumption of value, are what makes owning Coke not a zero sum game. Money games into the system from participants who do not expect their money back. As a shareholder of Coke, some of that money will come to me. I can own my share of Coke and benefit from the increased value that comes from the value Coke produces and the money of people who consume that value.
Conversely, dogecoin doesn't produce any value. You can move dogecoins around, but nothing is getting made and nothing is getting consumed. Every participant who is putting money in expects money back. There is nobody analogous to the person buying and drinking the Coke. Worse, everyone is hoping for MORE than the money they put in to come back.
As a simple matter of math, there is no real way for this to work so that everyone, or even most people, can benefit. If someone makes money, then someone else loses it. In this way, dogecoin is not at all investment. You aren't putting money towards a company or a venture, you are just buying lottery tickets that may or may not be worth more later. It's a gambling game of musical chairs.
Some speculative vehicles are not zero sum games because they have one or more of the following characteristics: they are an experiment in some technology or tool that can benefit all people, or the simple fact that they exist is useful, or they enable capital to be allocated more efficiently. Almost all speculative assets have the last trait, all currencies have the second trait, and right now as far as speculative assets go, only cryptocurrencies have the first trait.
When you say "benefit" you mean to get profit. But "benefit" can mean much more than that. The benefit of the invention of electricity cannot simply be attributed to the amount of profit made from it, or the amount used by the purchaser. It has a myriad of less tangible yet more impactful benefits, such as it helped humanity understand electromagnetism and it helped humanity get out of the mud. The same applies to new ways to abstract value. Would you say the concept of money has value beyond simply who has how much?
One idea might be some kind of test. Can you pass a basic financial literacy test? If so, then maybe you should be allowed to gamble even on high risk things. If not, maybe finance isn't for you right now. When you pass the test you get a license and need to provide that license when doing KYC checks with financial institutions.
I think we'll just have to agree to disagree on the question of whether all people have sufficient mental equipment to handle risky financial decisions.
I do think the concept of money is valuable. To put it in my earlier framework, I think the people who are consuming the value are the people who use money to exchange it for goods or services.
I don't think dogecoin innovates on money though. In many ways, I think dogecoin is a step back from money. For example, our current systems have vastly greater throughput.
While true, it takes people filling roles using the system to increase adoption and a killer use case (watching videos) creates a new market in which those roles will expand.
A killer use case is not a cool system, it’s the USE of the system by the role holders.
And yet, it will always happen. Some of us are fools, some of us will be fools, and some of us will never know how much of a fool we really were. Those will be the lucky ones.
Nature works this way for a reason.
Misguided compassion is a big part of why we are even having this discussion in the first place: people wanting to help wholeheartedly without realizing they are being fools themselves.
Were our previous best intentions not good enough? or maybe were they the cause of it all? Who can tell, who can tell...
In fact, perhaps a law that prohibits you to get mugged in the first place is in order.
A law against fraud is like a law against mugging, you cannot commit fraud and you cannot mug. Both pretty clear and reasonable. But a law against trading because you might get scammed is like a law against getting mugged: YOU ARE NOW FORBIDDEN TO GET MUGGED, problem solved!
Of course people, because they are good hearted and their intentions are so pure, often fail to see the difference. After all, how can anyone be against a law prohibiting mugging?!
"dumb money" IRA? By default you can only invest in index ETFs, but you you can contribute up to 5% of your income per year to a "dumb money" account that allows you to do whatever you want with it.
Unfortunately, the implementation is absolute bullshit. Proficiency is exclusively measured in experience, leading to a textbook example of Catch-22: You can trade precisely whatever you've already been trading in the past.
I do believe that some basic level of understanding of the mechanics of markets and various asset classes should be a pre-requirement, and I like the driver's license analogy: Just like in road traffic, with investment decisions, your actions don't only endanger yourself.
Unfortunately I don't know how that could be implemented without being yet another driver of inequality or being extremely easy to bypass.
The test could be definitely done better though, perhaps closer to the new tests for basic drone piloting.
For basic drone piloting, in Poland at least, you have to take an online course, and then take a test with I think 40 knowledge questions selected randomly from a pool of 90 or so.
You have 90 sec to answer each question, so if you're a good Googler, you can cheat, but really after taking the online course you don't need to.
Took me 2-3h to get my basic permissions to fly a drone. Advanced permissions require a weekend in-person training and a more complicated exam. Still pretty accessible.
I think we could have the same thing with investor qualification - a good test, and also a single "license", instead of each bank implementing their own testing scheme to answer 10 basic questions.
If you risk more than you can afford to lose an anarcho-capitalist free market economy, then yes, you choose to be a fool. You're choosing to opt out of a regulated financial system with insurance and legal protections into a system whose only rule is "caveat emptor, lol. Git gud noob" because you think it's easy money.
There's a rule in poker - if you look around the table and can't tell who the mark is, it's you.
Do they, though? Even if they know DOGE is a joke, do they have the rest of the knowledge on cryptocurrency to quite understand what they're putting their money into? The risks? The issues of things like time delay and transaction fees which may inhibit pulling funds out quickly? Etc.
The first result on Google for Dogecoin currently auto-completes to "Dogecoin stock". This indicates the degree of ignorance some people are coming into it with.
Large-scale price instability is a general negative. As is lack of wealth among the middle class. For an individual, losing a bunch of wealth on DOGE would just be a silly, or tragic, story. And I tend to agree that fools should be parted from their money...
But if a significant number of ordinary middle class and working class people are vaporizing their savings, that's a social and institutional problem to some degree. It would have ramifications that go beyond those individuals. See when large banks fail. One can wash their hands of it and say they should have chosen a better bank. But you still have mass unemployment and lack of liquidity issues to deal with, from a policymaker's perspective.
And as you say, wealth inequality is a problem. And chances are it's not the 19 year old college student who bought 100,000 of a DOGE a year ago who is cleaning house, on average. Much of this is flowing into investors who have six to eight $ figures locked in DEX exchange contracts raking in fees. For all the democraticizing potential of cryptocurrencies, a lot the wealth is flowing from the gullible to the already-rich.