Why use parens instead of backticks for executing a command 'in situ'?

I have recently started to shift my shell scripting from utilizing backticks to parens to execute a command in situ and use the results in something else. Eg:

for line in `cat file`
do
    echo "$line"
done

Now I use parens, substituting thusly:

for line in $(cat file)
...

What is the actual difference between the two methods, and why is paren substitution considered better than backticks?

Solution 1:

There is no functional difference, however $() makes nesting a bit nicer and easier to follow. Consider this silly example:

$ echo `echo \`echo \\\`echo foo\\\`\``
foo

vs

$ echo $(echo $(echo $(echo foo)))
foo

Now consider doing it with a complex series of commands that do something useful ;).