Xpedition Week 10: This or That?
Crypto vs Stock
If you are wondering whether crypto and stock are similar, only that the former is using blockchain technology and the latter is a more traditional system, well, yes and no. It is not uncommon for our Xplorers and most people to think that crypto is merely stocks with blockchain technology. While equivalents of crypto to stocks are often made (as in the case of ICO VS IPO), it is usually to aid in better understanding of the concept. Of course, there are definitely some overlaps and similarities between the two, it is not entirely right and fair to simply equate crypto to stocks using blockchain technology.
For one, owning stocks usually means that the shareholder owns a part of a company and receives profits in the form of dividends. In other words, shareholders’ funds are closely tied to how much profit or losses the company is making. However, crypto represents digital currencies and owning crypto does not make an investor own a fraction of the company. In this case, investors will only need to be concerned about their own crypto instead of having to worry about whether or not the company does well.
Next, it is generally known that in the crypto market, instances of meme coins and other crypto soaring are not uncommon. This means that crypto has the potential to yield greater returns as compared to stocks. Most prominently, in just ten years, Bitcoin witnessed 9,150,088% return on investment. However, a typical investment in reliance stocks of ten years will roughly see a 500% return. Thus, this major difference will be a determining factor for many investors.
Following on the above point, the huge difference in the potential yield between crypto and stocks is also due to the perceived risks by investors. Since the unique selling point blockchain technology is decentralization, it also means that regulation is rather limited in most countries. To some investors, such would equate to higher risks in the crypto market. This is not to say that stocks investment carries no risk, but rather, the stock market is still conventionally more regulated as compared to the crypto market. Hence, the perceived risk, coupled with potential yield, wields a great influence on investors’ decision on which market to invest more heavily in.
Having said that, there is no “right” answer as to which market is better as it is highly dependent on individual’s profile. Therefore, it is always important to evaluate and conduct proper research before coming to a decision!
Coin vs Token
Did you know that “coins” and “tokens” are often used as synonyms and considered by many people as interchangeable, however these two words are actually referring to completely different concepts! Let us clarify them today. In the ever-changing world of cryptocurrency, there has been an emergence of many new terms, leading to the misunderstanding and misuse of them. Following the success of Bitcoin, there were emergence of many new coins and tokens which named themselves as “cryptocurrency”, which did not fulfill the characteristics of a cryptocurrency — medium of exchange, a unit of account or a store of value. Let’s dive into the differences now!
Coins refer to cryptocurrencies which are built on their independent blockchain network. One of the most famous examples is Bitcoin (BTC), which also has the largest market capitalization to date. These digital coins are designed to serve the same purpose as physical coins — transfer of value. Digital coins also store value that is directly linked to their demand and supply, thus the value of digital coins is often volatile.
The main characteristics of coins are:
- They are tied to a public-open blockchain and anyone is allowed to join and participate in the network
- Coins may be sent, received or mined
- Coins are not meant to perform any functions beyond acting as money
What about tokens? Tokens are digital assets which are issued by a project. These tokens are created on existing blockchains and can be used as a method of payment inside the project’s ecosystem. Created through an initial coin offering, crypto tokens are usually used to raise fund for crowd sales. With the creation and increased used of smart contracts, the most common blockchain token platform is Ethereum. Tokens that are built on the Ethereum platform are also known as ERC-20 tokens. These tokens are used as a standard for creating and issuing smart contracts on the Ethereum blockchain!
Do you Xplorers have a better idea on the difference between token and coins now? Let’s now use the terms “coins” and “tokens” correctly! Do check out the links below for our IG and Twitter postings for this week!
MEXC Global: https://www.mexc.com/