A comparative analysis of tokens and cryptocurrencies. What is the best investment? Here is the answer to this question.
The world of cryptography is going through a very agitated evolutionary phase. It changes skin after a few months, produces innovations, attracts merchants of different levels. It is, therefore, an expanding sector, which from a niche territory for intrepid pioneers has become a solid benchmark for investors.
However, some issues are in the process of being defined (see regulation), others still inspire a lot of uncertainty in operators, especially in the less experienced. Uncertainty refers, for now, to the distinction between cryptocurrencies and tokens. Often, they confuse each other. The truth is that they are very different instruments, each of which has its own specificity and creates particular investment opportunities.
In this article, we will clarify the difference between cryptocurrencies and tokens. Finally, we will make a comparison between the two alternatives, trying to understand which one is the best.
The difference between cryptocurrencies and tokens
What are cryptocurrencies? Well, right now, with Bitcoin and the like taking the lead firmly, everyone has an idea of what they are. But it is good to refresh your memory.
Cryptocurrencies are virtual currencies, which do not refer to a centralized institution that in some way influences supply and prices (as in the case of the euro, the dollar, the pound or the so-called fiat currencies). They use a special system for the safe and autonomous execution of transactions. In the vast majority of cases, they refer to the blockchain or a kind of record-database shared by all owners of the cryptocurrency, which is updated for everyone in each transaction. The hacker who wants to violate a transaction must overcome an incredible network of obstacles.
Cryptocurrencies are characterized by abnormal volatility, with price changes that often reach two or three digits in a year. The reason for this is that they are not connected to a real economy and do not depend on an institution that can control the price.
Obviously, being virtual currencies, they do not exist in physical form. For now, it is also extremely rare to be able to use them as a form of payment.
What are the chips? We can define them as embryonic cryptocurrencies. To understand the mechanism, we need to step back and talk about the OCIs, which are the programs with which the chips are sold or distributed. OCIs are financing programs, somewhat similar to crowdfunding campaigns, with which cryptocurrency developers attract investors. In exchange for the money, they deliver the chips.
The investor-donor who has acquired his card is at a crossroads: wait for the project to be finished and the cryptocurrency makes its debut in the market, and in that case, the card becomes a cryptocurrency (according to the forms, times and figures established by the promoter-programmer) or makes us operate immediately. The tokens, in fact, they can be exchanged even before the virtual currency becomes…
Real. In fact, from a certain point of view, the chip trade is more flourishing than the cryptocurrency trade. We will talk about this clash in the following paragraph.
Cryptocurrencies vs. Token
Is it better to invest with crypto coins or tokens? To answer this question, it is first necessary to know the real difference between trading with cryptocurrencies and trading with tokens. In reality, there are only two differences, although substantial and capable of having a profound impact on the dynamics in question.
Tools to operate. The truth is this: those who trade with cryptocurrency have two alternatives ahead. Those who trade with chips can go in one direction and that’s it.
Cryptocurrencies, in fact, can be exchanged both directly and indirectly, like the underlying one. In the first case, we use the Exchange, that is, platforms that, in a very trivial way, allow you to sell or buy cryptographic currencies in exchange for other cryptographic or traditional currencies (as well as Forex Trading platforms). In the second case, traditional brokers that offer operations with crypto-currency CFDs are used. CFDs, by the way, are derivative instruments similar to Futures.
The differences between Exchange and CFDs are palpable. The exchanges really allow you to own crypto-currencies, it is true, but on the other hand, they are slow because crypto-currency transactions, for now, are slow. CFDs, on the other hand, allow rapid negotiation, very similar in this regard to the negotiation of currencies, stocks, bonds, and others.
In the topic of Exchange-CFD, it is necessary to make a couple of notes. First, exchanges are on average riskier. The reason is simple: they are not regulated, not so much because they are “dishonest”, but because there is no regulatory framework that allows control by third parties. Second, because it is not a dichotomy destined to last.
Sooner or later, the chips will be taken into account by brokers, as happened with cryptocurrencies. When this occurs, chip-based CFDs will be offered. In that case, tokens and cryptocurrencies, from the point of view of commercial instruments, will be the same.
Market risk. It seems strange to say, but there is an asset that is even more volatile than cryptocurrencies. These assets are only tokens. Price variations are abnormal and fast. This is due to a simple fact: tokens are by definition less capitalized than cryptocurrencies.
On the other hand, as we said before, the tokens are embryonic cryptographic coins. This, of course, brings advantages and disadvantages. It is true that when there is volatility there is an opportunity to obtain surpluses and benefits, but it is also true that volatility is often synonymous with chaos, especially when there is no real market engine to lean on and hold on to.
The “Market Move.” To say that cryptocurrencies have no market engine on their side is partly wrong. In fact, they have their own market engine, only that they are unpredictable because they don’t have fixed appointments. The cryptocurrency market mover, in fact, is nothing more than news about the crypto world. The opening and closing signals of the government and/or financial authorities, the publication of a study of virtual currencies, the technological innovations patented by the pioneer developers….
Everything makes soup and everything is capable of influencing the prices of cryptocurrencies. Everything is very different for the chips. They remain a niche sector, so, for now, they are little considered by the elite and analysts. As a result, market risk is even higher.
Invest in token and cryptocurrencies: the point
So, in light of these differences, how to answer the question “best cryptocurrencies or tokens”? Well, you can’t answer it. Or rather, each merchant is asked to give his answer. Again, the final judgment is a private matter, and it is the individual merchant who decides. Depending on your style of operation and even your mentality, you may prefer an alternative instead.
If you have an operation style that focuses on speed, your preference should go to cryptocurrencies. It is simply unthinkable to trade fast with the bags. For now, there are technical obstacles between this approach and direct trading in virtual currencies that cannot be avoided. It is not excluded that these obstacles are removed, sooner or later, but advances in this field, although rapid, will wait a few more years (or perhaps more).
If you have a more compact operating style and want to play with both large volumes and large variations, opt for the Bags. Both because these platforms impose a more compact style and because they allow you to physically (as much as possible for virtual currency) own the coins and then, possibly, switch to cash in a few days.
Speed discrimination can be perceived by some as a simplification, if not as a forcing. Also, because rapid trading is associated with the concept of risk and, for all intents and purposes, exchange platforms are riskier than brokers that offer CFDs (if only because the former are not regulated and the latter are). This, far from delegitimizing the reasoning done so far, confirms the initial assumption: the world of crypto-currencies remains, in part, an object of mystery, difficult to confuse according to traditional standards.
A problem, this, warned by all: initiates, analysts, traders, and even financial authorities. It is no accident that the world of cryptocurrencies is moving, although slowly (there is ideological resistance on both sides) towards greater regulation, if not true institutionalization.