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Difference Between Cryptocurrency and Stocks

These are desperate times and we live in a world of uncertainty. The way things are going, investors are looking for alternative investment routes like Bitcoin, as the stock market tumbles further. When talking about cryptocurrencies, they come close enough to be useful but like they say, investments are always risky and cryptocurrency is definitely one of the riskier investment choices out there. But cryptocurrencies like Bitcoin are also some of the hottest commodities out there. In fact, there are more than 4,000 cryptocurrencies currently exist as of 2021. Cryptos gained a lot of hype back in 2017, when the value of Bitcoin increased 1,318 percent. These returns were nothing less than a miracle, at least more than what a stock investor could ever make in a lifetime. But this begs the question – what exactly is a cryptocurrency and how does that work? And is it safe to invest in cryptos rather than stocks?

What is Cryptocurrency?

A cryptocurrency is a digital asset or a digital currency, like a form of payment designed to work like any other currency – to buy goods and services – but is based on a decentralized recordkeeping system called blockchain and is secured by cryptography. In fact, the very foundation of cryptocurrencies such as Bitcoin lies in this new technology called the blockchain – the infrastructure that cryptocurrencies are built on. The best thing about cryptocurrency is that a crypto is a cross between an asset and a currency. Unlike the traditional ways of measuring value, the crypto data isn’t stored in a central hub; in fact, there is no central authority in charge of the transactions and the power is distributed among the members of any given crypto community. Cryptocurrency makes heavy use of cryptography to provide a secure mechanism for encoding the rules of a cryptocurrency system in the system itself, making it extremely difficult to counterfeit and preventing people from tampering with the system.

What is Stocks?

A stock, also known as equity, is a form of investment that represents shares of ownership in a corporation and each share of a stock is worth a fraction of the ownership of the company. If a company has 100 shares, then each share would account for a 1% ownership in the company. So, if you own at least 51 shares, you basically own the majority of the company. Most of the times, companies sell their stocks to raise money for expansion. This means they only sell a part of their company. Stocks can be bought or sold privately or on stock exchanges. There are many stock exchanges around the world, including two of the world’s largest stock exchanges in the United States; the NASDAQ and the New York Stock Exchange. Stocks carry risks like other investments, but also have the potential to make money.

Difference between Cryptocurrency and Stocks

Value 

– A cryptocurrency is a digital currency designed to work as a medium of exchange to buy goods and services using cryptography to secure the transactions. Unlike a flat currency, cryptos like Bitcoin cannot be created out of thin air. Although, it has intrinsic value, it cannot be a real currency. Stocks, on the other hand, are a form of investment that represent shares of ownership in a corporation and each share of a stock is worth a fraction of the ownership of the company.

Power 

– Cryptocurrencies resolve the issue of absolute power by distributing the power among multiple people, or better yet, among the members of a said community across a given network. Decentralization is the key idea behind the blockchain technology. Stocks can be bought or sold privately or on stock exchanges. Stocks are sold by companies looking for raising money to expand their business. The power lies among the investors and the companies and where they put their money.

Intermediary

 – The fundamental idea of cryptocurrencies is that there’s no middleman to control your transactions or charge any commission, unlike with traditional cash, wherein banks or a digital payment service takes a cut. With cryptocurrencies, there are no middlemen; just the network members in the blockchain who act as the men in charge of the transactions and their compensation are calculated differently and is minimal. In the stock market, a broker acts as an intermediary between buyers and sellers.

Governance

 – Cryptos like Bitcoin are not governed centrally by any governing body or the Government; transactions using the blockchain ledger system are authenticated and recorded without any third-party interference. The governance is distributed among the members of the said community who have access to the transactions. The stock market, on the other hand, is highly regulated and is governed by the Federal agencies like the U.S. Securities and Exchange Commission (SEC). The SEC overlooks the entire stock market to ensure fair trade practices.

Cryptocurrency vs. Stocks: Comparison Chart

Summary

Exchanges come in different shapes and forms. Some are traditional stock exchanges with middlemen who have their ways to steal money from you. Some brokers may trade against your orders and charge unjustified commissions. Cryptos, on the other hand, are a whole new story; they are also a potential investment vehicle but they operate without any governance, which means no central authority, no middlemen and no risk. But that’s not the case. Investing in cryptos has its own risks because the crypto market is still in its development stage. So, getting to know the crypto community can be the next step towards finding your way in this young new market.


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    References :


    [0]Narayanan, Arvind, et al. Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. New Jersey, United States: Princeton University Press, 2016. Print

    [1]Kidd, Siam. The Crypto Book: How to Invest Safely in Bitcoin and Other Cryptocurrencies. London, United Kingdom: Hachette UK, 2018. Print

    [2]Danial, Kiana. Cryptocurrency Investing For Dummies. New Jersey, United States: John Wiley & Sons, 2019. Print

    [3]O'Neil , William J. How to Make Money in Stocks: A Winning System in Good Times or Bad. New York, United States: McGraw Hill, 1994. Print

    [4]Image credit: https://commons.wikimedia.org/wiki/File:Cryptocurrency_logos.jpg

    [5]Image credit: https://static.businessworld.in/article/article_extra_large_image/1610520139_T1H1DR_Stock_Market.jpg

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