“Crypto exchange” vs. “wallet.” After reading this article, you may ask why these terms are compared. They are used for different purposes and, thereby, have differing functions. We are going to make their unique features clear for you.
Crypto Wallets: A Brief Definition
Digital currencies don’t have a physical form – so, you can’t just keep them in a glass jar or stick them in your physical wallet. Yet, you still need to store them somehow. So, where can you keep crypto? One solution is to use a crypto wallet. The term “wallet” is a bit of a misnomer, though; crypto wallets don’t collect cryptocurrencies. Rather, they record transactions stored in the blockchain.
Public and private keys form the foundation of cryptocurrency wallets. The private key allows transactions to be signed and proves the ownership of currencies. You use your public key to get funds.
Crypto wallets can take on two forms: hardware and software. The primary difference is that a hardware wallet is a device, while a software wallet is a program. Hardware wallets (cold storage) are safer, as the owner of the crypto assets fully controls them. To access the funds, you need to connect the device of the hardware wallet to the computer and enter a PIN.
A software wallet is more convenient in terms of rapid access. It can be presented in three forms: mobile, online, and desktop. All the versions allow access to crypto if there is an Internet connection.
Crypto wallets are used to store, send, and receive crypto assets. They are not a place to buy, sell, and trade crypto.
Broadly speaking, cryptocurrency wallets are safe, especially hardware ones. When you use a hardware wallet, only you control access to funds by entering a passphrase. Software wallets are less secure. In most cases, private keys are stored on online servers. This makes them subject to fraudulent activity and hacking.
Crypto Exchange Trading Platforms: Meaning
A cryptocurrency exchange is a place where a crypto owner can buy, sell, and exchange crypto and fiat money into cryptocurrencies. Picture a stock exchange. A cryptocurrency exchange is the same. There are currency quotes there.
Exchanges can have their own wallets. Access to the exchange wallet is provided after you sign in. The exchange wallets are designed for user convenience. It’s helpful if you use the exchange frequently.
Still, you should remember that exchange wallets are less secure. The private key is stored on the exchange. Thus, your private key is stored online and controlled by third parties. Also, exchanges are constantly under threat of fraud and hacking. Many cryptocurrency exchanges are poorly regulated. Thus, be careful choosing the right one. Failure to do so could result in you losing all your funds.
A crypto exchange allows users to exchange, purchase, and sell cryptocurrencies. It’s not used to store crypto.
The security of a cryptocurrency exchange depends on its regulation. There are well-known exchanges such as Coinbase and Binance. You can trust them.
If you find an unknown crypto exchange, keep in mind that you might lose your money. Cryptocurrencies are not regulated. Thus, cryptocurrency exchanges can hide high risks.
Difference Between Crypto Exchanges and Wallets
In this part, we want to highlight the key differences between a crypto wallet and an exchange.
Crypto Wallet vs. Exchange: Purpose
Cryptocurrency wallets and exchanges have different purposes. The exchange is used to buy, sell, trade, and exchange cryptocurrencies. Conversely, the cryptocurrency wallet is used to store, send, and accept funds. Although the crypto exchange has its own wallet that allows a user to control the balance and make transactions in the exchange platform, this wallet is riskier as third parties control it.
Crypto Wallet vs. Exchange: Functions
When choosing between crypto wallets and exchanges, the first point you should consider is their functions. Cryptocurrency wallets are used both for long-term investments and daily operations. It’s possible to use small funds for daily payments (usually via a software wallet) and keep crypto for the long term (usually hardware wallets).
As for cryptocurrency exchanges, they are not the best option for long-term investments. Exchanges serve for rapid rewards. Although it’s possible to open long trades, it’s better to withdraw funds from exchange platforms when there is no need for them to be there.
Cryptocurrency Wallet vs. Exchange: Security
If we compare a cryptocurrency wallet vs. a cryptocurrency exchange, the wallet is safer, as it provides a higher grade of user control. An exchange’s wallet is not as secure, as exchanges are subject to cyber-attacks. Also, the exchange controls access to the wallet, which is a risk for the security of your funds.
Crypto Exchange vs. Wallet: Availability
Both cryptocurrency wallets and exchanges are easily accessed when you have an Internet connection. If you use a software wallet, you can control your crypto anytime from anywhere, just having a mobile phone or a device with the Internet. Crypto exchanges are presented on websites and applications that are also available through a device with Internet access.
Cryptocurrency Wallet vs. Exchange: What to Choose If You Are a Beginner
Being a beginner or an experienced crypto owner shouldn’t really play a factor in choosing to sign up for an exchange or a wallet. Cryptocurrency wallets and exchanges have different functions. If you think about holding crypto on an exchange vs. a wallet, you should open a crypto wallet. If you compare hardware wallet vs. an exchange for long-term storage, choose the hardware one. If you have little funds used for regular payments, the software is a better option. Suppose you want to try to invest your funds and trade on an exchange. In that case, it’s recommended to open a cryptocurrency wallet, sign in to a reliable exchange and start trading cryptocurrencies.
Cryptocurrency Wallet vs. Exchange: Takeaway
Should you open a crypto wallet or exchange account? Cryptocurrency exchanges and wallets have diverse functions. Although some exchanges have their own wallets, they are chiefly used for user convenience, not for long-term cryptocurrency storage. A cryptocurrency wallet allows users to keep crypto assets for the long term and have them at hand for regular transactions.