The traditional stock exchange as we know it has many similarities with the cryptocurrency market, sometimes causing new investors to refer to them interchangeably without thinking twice. Still, at a fundamental level, there are some critical differences between the two that are important to distinguish.

What are Stocks?

A stock represents partial ownership in the amount of equity a holder has in a company, meaning that you are the owner of your amount of shares and the value thereof.

Let's say you purchase a large portion of Amazon stock. That makes you a part-owner (also known as a "shareholder") of Amazon. Being a shareholder means you are entitled to a percentage of Amazon's assets and profits, proportional to how much stock you own.

If you had purchased a large amount of Amazon stock back in the 90s, that would make you a multi-millionaire by 2022. As a shareholder, your financial interests stay protected by centralized bank exchanges, SEC regulations, and other regulatory bodies that ensure your investments and assets are safe, with minimal risk of scammers. 

What are Cryptocurrencies?

Cryptocurrencies are digital assets that function across centralized and decentralized financial (DeFi) exchanges and blockchains that allow users to transact and invest in various digital goods. 

Unlike stocks, people who invest in crypto aren't part-owners or holders of the entity or company; They only own the individual units of the cryptocurrency. There are ways in which crypto benefits its owners that stocks can't, such as staking rewards, where a percentage of a company's profits gets paid out to shareholders via periodic distributions.

On the other hand, cryptocurrency has more speculative risk when it comes to credible and long-term investments. Many people have gained millions of dollars with crypto. But, at the same time, many people have also lost millions. Terra Luna, a cryptocurrency considered a stablecoin, recently plummeted and cost investors more than $40 billion. This is why cryptocurrency education is critical to navigating the space safely.

What Drives the Market?

Both Stocks and Crypto represent ownership in the underlying company you put money into, where investors generally react based on future earnings expectations. When a company's developments look optimistic, investors typically buy more shares to reap a higher reward in the long run if the company follows through on its promises.

Which of the Two is Better?

In short, it depends on various factors, including your personal preference (DYOR: Do your own research), tolerance, risk, age of the company or asset, investment goals, and disposable income that you are willing to risk. Both stocks and cryptocurrencies allow investors to acquire various traditional or digital assets, meaning individuals can have investment portfolios that include both stocks and cryptocurrencies.

Bottom Line

History is proving that traditional stocks and cryptocurrencies are here to stay. In the face of recent market crashes, volatility, and economic meltdowns, cryptocurrency has remained remarkably resilient to the backlash of centralized exchanges, even though it's not perfect yet. Regarding sustainability, many cryptos have become much greener than the proof-of-work Bitcoin rigs people used back in the day. The new, energy-conscious approach to blockchains makes them an attractive alternative to traditional stocks.

Whether you invest in stocks or cryptocurrencies, it's always wise not to put all your eggs in one basket. Instead, diversify your portfolio and only risk what you can afford to lose.