What is the difference between cryptocurrency and stock?

If you are new to crypto but a veteran with stocks, understanding the difference between crypto and stocks can help you decide where you want to invest.

 Cryptocurrencies are now the new frontier of investment – ​​and even Wall Street is starting to notice it. People are talking about the next great ICO, investing in blockchain technology, and even adding cryptocurrencies to their portfolios all the time.

While cryptocurrency has had its ups and downs, it is still going strong. In fact, it is actually quite safe to call cryptocurrency an increasingly mainstream phenomenon. Even major investment firms like Merrill Lynch have begun rolling out funds that include bitcoin and ethereum. 

A bigger issue concerns the way investors in crypto understand it. Most beginners don't know the difference between crypto and stocks - and end up getting burned out because of it.

Before you short money on crypto, remember that investing in tokens is not the same as investing in stocks.

The biggest difference between crypto and stocks can be seen in how each is rated.

Stocks are backed by legitimate companies that are expected to make a profit. They include physical assets as part of their valuation, and you can determine whether a stock is truly worth at market value using math.

On the other hand, cryptocurrencies are not always backed by companies. They are mostly valued based on the hype they have, although some also get an increase in valuation based on their functionality. Since this is a more subjective evaluation, it is not always easy to predict whether a currency is worth it.

Anyone can create a cryptocurrency, whereas the stock has to be issued by particular groups.

One of the reasons why the cryptocurrency is known as a "rebel technology" is that anyone can create their own blockchain ledger. Many longstanding digital currencies, such as Dogecoin, were actually created by groups of bored programmers.

Since anyone can create a blockchain token, it is quite easy to start your own ICO. However, the same cannot be said for stocks -- especially those traded on the NYSE, NASDAQ, or Dow Industrials.

When stocks are created, they have to be approved and audited by government agencies. They also have to follow certain rules before coming into the market.

Stocks are created for one very simple reason: fundraising for companies that need money. Cryptocurrencies are slightly different, as the same currency can have multiple purposes.

Some cryptocurrency tokens can be used as a blockchain base for games and programming. Others are strictly a fundraising thing, while even more can be used exclusively with other sites.

The striking differences between crypto and stocks often deal with the purposes they are sold for. This makes sense because crypto is really nothing but computer code. Stocks, on the other hand, are paperwork and fundraising motifs.

Before you decide to invest in crypto, it's important to find out what your crypto will be doing. It can be more than just an investment.

Volatility is different.

You know how cryptocurrencies are valued based on their reputation? Well, it makes for a very volatile market with extreme volatility.

The crypto market is unpredictable, and there is a risk of a sudden currency crash. In terms of investment behavior, this is one of the most important differences between crypto and stocks.

Stock investors tend to hold their stocks in times of volatility, knowing that things will eventually smooth out. Because crypto is wildly unpredictable it is not always wise to HODL for dear life.

As a result, panic-selling is more common, and sometimes even more appropriate, in the crypto scene.

Let's face it- investing in stocks is a must if you want to be able to retire. crypto? Not so much. Due to this small fact, the range of demographic usage can be very clearly seen with the difference between crypto and stock.

Since stock investing is the real way people prepare for retirement, people from all walks of life invest in them. You'll notice that plumbers, school teachers, and even teenagers have full stock portfolios.

However, cryptocurrency is still a niche investment. Most cryptocurrency owners are highly male in their mid-20s to mid-30s, and also tend to be college-educated.

Stocks are generally safer from fraud than crypto.

Stocks are heavily regulated and must undergo annual audits to continue trading in the market. Because of the heavy scrutiny that comes with creating your own stock, it is highly unlikely that the stocks you invest in will be fraudulent.

Crypto, on the other hand, is very prone to fraud due to its decentralized, unregulated nature. Not only do real ICOs and cryptocurrencies have the potential for exit scams associated with them, but actual cryptocurrency exchange scandals mean you can easily lose your portfolio fairly quickly.

A stock exchange business like crypto exchanges will not be fraught with the possibility of fraud. This alone makes the stock more secure. A good word of advice with crypto would be to proceed with caution.

Speaking of fraud, there is another issue that marks the serious difference between crypto and stocks. When you buy a stock, it is issued in your name, and you have proof of ownership. Because of all the tracking and record-keeping involved in stock trades, people cannot actually steal shares of stock.

However, cryptocurrency is different. It's literally digital currency - and it's very hackable. Also, it doesn't show your name attached to any of it. Due to the nature of the digital currency, it is easy to steal and hack. If you don't believe me just check out some cryptocurrency scandals you need to know about.

There are many cases where successful crypto investors did everything right, deposited millions of dollars, and then found themselves penniless due to a hacker.

With great risk comes great reward.

As with all the problems with cryptocurrency, you'd think people would avoid it like the plague. If it had regular returns, this would have been the case. However, cryptocurrencies do not always have "regular" returns like stocks do.

Many people who are very long-term investors have seen returns of over 1,000 percent. Even short-term ICO returns are around 150 percent. So, the reward is there.

To trade stocks, you can use some investment apps like Stash or Robinhood to start trading. It is quite straightforward and easy to do. Learning how to trade cryptocurrency, despite being a bit more mainstream these days, is still a lot more complicated.

For most crypto trading outside of bitcoin or ethereum, you will need to download a cryptocurrency wallet, transfer cash to bitcoin or ethereum, and then buy coins using those two tokens. If you want to cash out, you will also need to make several trades.

Finally, there is a lot of uncertainty about the future of crypto.

The differences between crypto and stocks are massive, but one of the more obvious is that the stock market has become an institution, and it is it that has begun to determine the way entire economies function. With cryptocurrency, there hasn't been the same amount of institutionalization yet.

Sure, major companies are investing in crypto now, but that doesn't mean it will stick around. Many countries have begun to ban its use in favor of legal tender – and others are beginning to follow suit.

Will it work? Will the crypto market become a new stock exchange? Can the crypto market even recover given the recent events? It's hard to tell, but no matter what happens, it's safe to say it's been a wild ride.

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