How do stocks and cryptocurrencies differ?
Web3 technology as it relates to stocks and cryptocurrencies.
The similarities between stocks and cryptocurrencies seem obvious on the surface, but with some nuances covered in this article, it is actually more difficult to draw any comparison between the two.
Cryptocurrencies and Stocks — How they are alike
There are some similarities between stocks and cryptocurrencies, but the similarities are usually superficial and do not pertain to their fundamental characteristics. Stocks and crypto have similar characteristics in that they can both be used for investment purposes. It is common for individuals to purchase it with the intention of reselling them later on.
Stocks and cryptocurrencies are also similar in the way they are traded and bought, both of which are purchased using fiat currency through brokers and exchanges. It is at this point that most similarities between it end, except for one minor difference.
There is a nuance
In spite of the similarities that have been discussed above, there is one important nuance that is important to emphasize in this discussion. Stocks can be cryptocurrencies, even though technically they aren’t the same thing. Crypto assets or security tokens are better terms for this, and I know that may sound confusing.
Many companies have listed their common stock on the blockchain, including Overstock.com, Exodus Wallet, and others. It is actually possible to purchase a token of their common stock and store it in your cryptocurrency wallet. So, while not all stocks are cryptocurrencies, and not all cryptocurrencies are stocks, stocks can be cryptocurrencies, and cryptocurrencies can be stocks.
What is the difference between stocks and crypto?
Stocks
A general understanding of what a stock is and why cryptocurrency does not fit into this definition is necessary in order to understand how cryptocurrencies differ from stocks. The purpose of a stock is to raise capital through the sale of financial instruments (security).
The general public can own a small share of your company if you own a company and have a public offering. As a general rule, this is a very positive aspect of capitalism.
Public perception of the strength of the company is formed based on information provided by the company. Audits and government agencies verify this information to avoid fraud. The general public may choose to purchase a small piece of a company, if it is growing, making a great deal of money, implementing new innovations and expanding into new markets (shares of common stock).
In the course of the company’s growth, the market value of its stock and the demand for its stock will increase. As the value of those items increases, the value of public shares will also increase, which will enable them to sell them at a profit. In the event that billionaires are perceived by the general public as having too much wealth, the general public is to blame.
It has been criticized that the founders and CEOs of Microsoft, Facebook, Apple and Alibaba are worth hundreds of billions of dollars. Neither of these CEOs is to blame for this, unless you consider the creation of a valuable company to be their fault, which in some ways it is.
Ultimately, the general public is responsible for the wealth of these individuals, who purchase their stocks, thereby increasing their value. Jeff Bezos would not be worth $200 billion dollars if Amazon was not the most convenient service on earth.
Why would you not buy Amazon stock? There has been an impressive return for the common stockholders of the company over the last 15 years. The early investors in Amazon have become wealthy as a result of their investment.
Crypto
Following an overview of stocks and the corporations that they represent, we will take a closer look at cryptocurrency and how it differs from stocks. The analogy could be drawn between cryptocurrencies and gasoline for your automobile, or oil for heating your home.
In the same manner that oil is valuable, cryptocurrencies can also be valuable if their blockchain technology is widely adopted and has a strong level of functionality. It is important to note that cryptocurrency is not a financial instrument that represents a company’s value; rather, it is a form of fuel. It is only through bitcoin transactions that the bitcoin network functions. In general, all cryptocurrencies share the same characteristics.
In the same way that Elon Musk owns a significant number of Tesla shares, some cryptocurrency founders became extremely wealthy because they held a lot of tokens. The fundamental difference remains, however. Despite the fact that you might become extremely wealthy from discovering oil on your property, oil does not qualify as a stock.
A cryptocurrency is also different from a stock in that it may be used to exchange goods or services, may be held in a self-custody wallet, and does not represent any other asset.
Bitcoin has been used in private transactions to purchase houses, jewelry, and many other items despite the fact that cryptocurrencies are not considered legal tender in the United States or in most parts of the world. A house cannot be purchased with Apple stock unless it has been sold first. The exchange of bitcoin for goods is possible if a merchant accepts cryptocurrency.
Conclusions
Stocks and cryptocurrencies may appear similar at first glance, but they differ greatly in practice. Stocks can theoretically be issued on the blockchain, and cryptocurrencies can be used as assets as well as vice versa. Stocks represent the value of a company and are used as financial instruments. As a company’s value increases, so does its stock value. A cryptocurrency is more like fuel than a currency, since it powers the blockchain on which it is based. The value of a cryptocurrency will increase as the blockchain network becomes more valuable.
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