In the most basic sense, cryptocurrency is a virtual currency that people can use to make digital transactions, and that speculators and investors hold on to for their value. Just as one might buy and sell an asset on the traditional stock market, there are now online exchanges where people can buy, sell, and trade cryptocurrency assets.
The difference between cryptocurrency and a traditional asset like a stock is that stocks represent fractional ownership or a share of interest in a company, whereas crypto, such as Bitcoin, is a digital currency that is not backed by a real or tangible asset or security. The trading of crypto is essentially done without a broker and is tracked via a digital ledger.
While both cryptocurrency “stocks” and traditional stocks come with advantages and disadvantages, some investors may prefer one over the other. All investing comes with inherent risks, but the risks you’re willing to take depend on your situation and the kind of gains you seek. While investing in cryptocurrency is considered high risk due to its extreme volatility, it can produce greater returns in a short amount of time. On the other hand, traditional stock investments, while more regulated, may take longer for investors to see potential returns.
The initial idea of electric (digital) money was first conceived in the 1980s as something called eCash. However, decentralized cryptocurrency as we know it today was not officially invented until 2009, when Bitcoin was introduced by the pseudonymous developer, Satoshi Nakamoto. Since then, cryptocurrency has rapidly grown in popularity, and many other currencies have been established in addition to Bitcoin, with the value of all digital currencies totaling around $2 trillion.
Despite little being known about crypto when it first came out, investors swarmed this new market with the hopes that it would provide significant returns and help diversify their portfolios. Cryptocurrency is also unique compared to traditional trading assets, as it exists on decentralized networks that are highly protected using blockchain technology.
Instead of being managed by traditional brokers, crypto is enforced using digital ledgers that are monitored by a network of computers called nodes. This means crypto is not issued by a central authority and is therefore immune to government interference and manipulation. Despite cryptocurrency prices being highly volatile due to the technology being in its nascency, many believe crypto to be the future of money.
More Flexible in Money Transfers
One of the many benefits and uses of cryptocurrency comes in the form of flexible money transfers. This means that crypto can be used for investing purposes as well as for making purchases without having to sell or liquidate wallets.
Generally, with traditional stocks and assets, you have to find a way to sell and liquidate them to receive that money. However, as crypto is accepted as a digital form of cash already, it’s much easier to sell and transfer into a digital wallet.
More Potential For Large Gains
Though cryptocurrency is highly volatile because the prices are constantly fluctuating, this larger risk means it has the potential to yield higher returns than traditional investments. Many cryptocurrency prices have skyrocketed over the years since their introduction, which is what makes this type of investment extremely attractive to investors.
Cryptocurrency is also much easier to start investing with compared to conventional investing, which is another reason it’s gaining in popularity. Anyone can invest in crypto, regardless of experience. Of course, people should still learn how to invest in cryptocurrency and then do so with caution, but in general, crypto investing is much more approachable.
This upward momentum with cryptocurrency also means there are constantly new coins being added to the mix. On top of this, digital currencies are becoming more widely accepted, which means more opportunities for investors overall.
Stock Market Investments
Despite cryptocurrency gaining in popularity and having the potential to provide significant gains, traditional investing is still an option worth considering, for several reasons:
One of the biggest differences between crypto and traditional stock investments is in how they are regulated. Crypto is not highly regulated, which does mean it can pose a greater risk. Traditional stocks are more regulated, which many feel makes them a safer investment. However, just because something is more regulated doesn’t necessarily make it the better option.
Regulations can keep things safe and organized, but they can also come with more limitations. In this sense, many prefer that cryptocurrency exists on a decentralized, unregulated network because it’s not susceptible to government interference.
For some, traditional investing is the better option because it allows people to buy in with simple, low-cost stock options that don’t come with as many fees as cryptocurrency exchanges. Additionally, many brokers are moving their business online, which does make traditional investing more accessible. Digital investment platforms like Robinhood allow anybody with a smartphone the opportunity to purchase stocks via their app — however, these same platforms are also beginning to offer cryptocurrencies alongside these traditional stocks.
Slower but Potentially More Stable Growth
While cryptocurrency can yield higher returns in a shorter amount of time, the constantly fluctuating and volatile market does mean investors can also easily lose money if an asset quickly drops in value before they sell. With traditional stocks, it can take a lot longer to see the gains and returns, but this does mean fewer risks and more stable growth.
In general, the stock market doesn’t see huge highs and lows that fluctuate quickly like cryptocurrency. For some, this may be seen as a benefit, but for others, this may be seen as a negative. It simply depends on your strategy and how quickly you need or want to see returns on your investment. Again, there are pros and cons to both cryptocurrencies and the stock market, and it is worth considering all of your options before risking your money on something that isn’t right for your specific needs.