Casino slot machines and crypto meme coins: why long-term participation is a losing proposition?

An overseas player recently exposed his recent experience online:

He described losing everything in the trading of the LIBRA tokens issued by the President of Argentina. He had reaped generous rewards from the previous meme coins to the recent Trump coin, but all of it was reset with LIBRA.

To turn the situation around, he is ready to sell offline physical assets and get back everything lost on the chain.

I’ve seen too many stories like this, and I’ve shared them with you many times in previous articles. But this time, when I saw such a story again, my thoughts changed a bit. It’s not that the conclusion has changed, but the way of thinking has changed a bit. Now I have a more rational framework for looking at this kind of problem.

During the Spring Festival, I saw a very interesting video that explained many interesting phenomena in the casino using the law of large numbers and expected value regression.

For example, why will a gambler always lose in the long run?

Why are the most inconspicuous slot machines in many casinos the most profitable and stable money-making machines in the casino?

Although I am a science major, probability and statistics were also compulsory courses when I was studying. However, it’s the first time I’ve seen such a clear explanation of the phenomena in the casino using probability and statistics in such simple and understandable language.

So today I’m going to share with you the mysteries of it all.

Let’s first look at an example of tossing a coin.

We all know that flipping a coin, the expected probability of landing heads is 50%. However, if we operate in different ways, we will see results that are very different from what we imagine.

If we toss a coin 2 times in a row, we will find that many people can toss heads 2 times in a row. In this case, many people will habitually think that the 3rd toss will still yield heads.

If we toss this coin four times in a row, there will be fewer people who can toss heads four times in a row. In this case, the number of people who think the fifth toss will still result in heads also decreases.

If we toss this coin 6 times, 8 times, 10 times, 100 times in a row, the number of people who can continuously toss heads will decrease sharply. Those who habitually believe they can toss heads again next time will also decrease sharply.

As the number of coin tosses increases, we finally find that the probability of getting heads is basically stable at 50%, instead of sometimes reaching 100% as seen in tossing 2 times or 4 times.

This is where the law of large numbers (the more times a coin is tossed) and the expected value regression (the probability of heads returning to 50%) come into play.

Applying this principle to a casino, we will find some interesting phenomena:

If a gambler only plays once in a gambling game and does not participate in the future, even if the probability of winning for the gambler in this gambling game is only 10%, the advantage of the banker is not very significant in the end, or in other words, the disadvantage of the gambler is not very significant in the end.

But if a gambler plays indefinitely in a gambling game, even if the gambler has a 49% chance of winning in this game, the house edge will be very obvious in the end, and the gambler will eventually lose.

Based on this principle, casinos will try to design some games when designing gameplay, even if it means making the gambler’s expected value of winning slightly higher (as long as it does not exceed the casino), they will find ways to keep gamblers playing endlessly.

Slot machines are the best representation. With low bets each round, losing is not heartbreaking, and occasionally winning makes gamblers unable to get up once they sit on the machine. As long as they can’t get up after sitting down, the outcome of losing all and leaving is basically predetermined.

Switch to the meme coin in the crypto ecosystem.

The development of this round of meme coins has now become less and less about touching stories, basically only emotional speculation and manipulation behind the scenes.

In such a game, retail investors are obviously at a disadvantage.

If you only participate in such projects as a game, it doesn’t matter how happy you play.

However, if participating in such games as a long-term way to make a profit, being addicted to it, playing for a long time, even if not losing everything in one go but occasionally winning, the final outcome will definitely be like playing a slot machine, gradually losing all assets.