Cryptocurrencies: It's Just Candy Crush

One needs considerably more computing power to mine cryptocurrencies than to play on-line games because the puzzle is very complicated. However, one cannot deny the similarity between on-line games and cryptocurrency mining. One solves a puzzle and wins a coin.

The only difference between cryptocurrency mining and on-line games seems to be whether the accumulated coins or tokens are tradeable. One would imagine that the folks who developed Candy Crush never thought to make the game nearly impossible to win and allow winners to trade their limited Candy Crush coins outside the game.

Regulation: 6th grade stock market game

When I was in 6th grade, our teacher formed a stock market game so that the class could learn how financial markets worked. The game included currency (made of construction paper), stock certificates, and daily business updates on the fictitious companies on our exchange. Looking back on our 6th grade stock market today, I realize there were crashes and bubbles, undervalued companies, and even long-term investors and short-term traders.

However, the aspect I remember the most was that the game ultimately needed a regulator. Some rather devious members of the class bought shares using counterfeit money (remember it was only construction paper). The game ultimately failed because many members of the class didn’t trust their counterparties and one would receive a failing grade if caught with counterfeit money.

Similar to my 6th grade experience, cryptocurrency speculators should want regulation and oversight of the cryptocurrency markets to ensure proper counterparty protection, eliminate fraud, etc. We are not as certain as are cryptocurrency advocates that blockchain technology will truly eliminate these risks. There are now over 1300 cryptocurrencies with “circulating supply,” and it seems reasonable to assume all 1300 are not of equal quality. Cave etiam speculatoris.

It’s just Candy Crush

Playing an on-line game and getting coins for solving a puzzle can be great fun. Taking coins won from an on-line game and trading them with others is today called a cryptocurrency.

The game may be hard to win, but it is still a game. If only the founders of Candy Crush had realized that selling the coin could be more profitable than selling the entertainment.

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This article was written by Richard Bernstein, Chief Executive and Chief Investment Officer of Richard Bernstein Advisors, a participant in the ETF Strategist Channel.