In this article, we’ve done a detailed “crypto wallet vs. exchange” comparison. Cryptocurrency exchanges and cryptocurrency wallets are two different things.
Cryptocurrency exchanges facilitate the purchase, sale, and exchange of cryptocurrencies. And a crypto wallet is used for storing, receiving, and sending cryptocurrencies.
But there are more differences than just the purpose.
This article will compare the two most common ways of storing cryptocurrency: crypto wallet vs. exchange. And we’ll answer some frequently asked questions about the two.
So, without further ado, let’s jump right into it!
Contents
- What Is a Crypto Wallet?
- What Is a Crypto Exchange?
- Crypto Wallet vs. Exchange – Similarities and Differences
- Exchange Wallet vs. Personal Wallet
- Which Is Safer Exchange Wallet or a Personal Wallet?
- Exchange Wallet Address vs. Wallet Address
- Does Your Crypto Grow in a Wallet?
- When Should I Move My Crypto to a Wallet?
- Conclusion – Crypto Wallet vs. Exchange
What Is a Crypto Wallet?
We use a crypto wallet to buy, sell, and store different crypto assets in software or hardware form.
A cryptocurrency wallet’s two primary components are private keys and public keys. These keys are similar to how the keys of a locker work. A private key provides access to sensitive information. And, losing your cryptocurrency wallet’s private key means losing all your cryptocurrency. Hence, keep your private key safe at all times.
Coming to the public keys, cryptocurrency wallets generate public keys corresponding to your private keys. And this ensures that the public keys are secure. To receive crypto from another person, the recipient must share their wallet’s public key with the sender to facilitate the transaction.
Public keys are also called wallet addresses, and you can generate several addresses from a single wallet. Wallet addresses can either be QR codes or long strings of randomly generated alphanumeric characters.
How Do Crypto Wallets Work?
A cryptocurrency wallet does not hold any actual cryptocurrency. It only allows you to interact with the blockchain and establish your right to particular digital assets. When you try to access your funds, wallets use your private keys to verify that the funds belong to you.
Most cryptocurrency wallets’ primary purpose is to store, receive, and send crypto. However, some offer a wider range of services. For example, several wallets allow users to buy, sell, exchange crypto and access decentralized applications (dApps).
It is easy to use wallets since they require only a few clicks and the user’s details. And users do not need to be an expert because the wallet handles the technicalities of the cryptocurrency.
Every wallet has a different user experience. But, the best one is the one that meets the user’s needs and helps the user easily understand things.
Before using a wallet, you must have a basic understanding of how wallets and software work. This information is very crucial to set up a cryptocurrency wallet properly. And, depending on the wallet, this may or may not be a simple process.
What Is a Crypto Exchange?
You can buy, sell, and exchange crypto in a cryptocurrency exchange. You can also hold cryptocurrency on exchanges with the help of custodial wallets(More about this later).
In some ways, an exchange is comparable to a digital bank, as customers can deposit and withdraw cryptocurrency.
Some crypto exchanges let customers borrow money against their cryptocurrency holdings. Also, some exchanges allow you to trade futures and options on their platform free of cost. In addition, they allow you to use different leverages and derivatives as well during trading.
There are also custodial wallets. A custodial wallet is an exchange’s wallet controlled by the exchange. In a custodial wallet, you do not control your private keys; the exchange controls them.
Now, if you deposit money in a bank, it becomes the bank’s property and no longer belongs to the depositor. Similarly, you no longer own your assets when you deposit them in a custodial wallet. Alternatively, if you want to control your assets or holdings, you can use a non-custodial crypto wallet.
How Do Crypto Exchanges Work?
There are two types of crypto exchanges: centralized and decentralized (DEXs). Big exchanges are usually centralized—for example, Binance, Kraken, Coinbase, KuCoin, etc.
In a centralized exchange, a single body handles all the buy and sell orders and keeps track of the transactions.
Centralized exchanges offer the “market” order function to let you buy or sell crypto at the market price. You can determine the market price by looking at real-time crypto prices or crypto charts.
You can also place buy or sell orders at higher or lower than the current market price. Hence, they place orders when the price reaches the level they specify.
However, DEXs do not have a single authority governing the buy and sell orders. And it’s common for businesses to operate without order books. However, decentralized exchanges widely utilize automatic market makers(AMM). AMMs automatically pair buyers and sellers based on up-to-the-minute pricing information obtained from AI.
Most centralized exchanges require users to authenticate their identities for security purposes. But, compared to centralized exchanges, decentralized exchanges rarely require users to authenticate their identities.
Also, DEX users are less likely to be tracked. Hence, they have more privacy. They may also be able to use additional Defi services, such as borrowing and lending, without being subjected to a traditional centralized exchange’s credit check procedure.
Crypto Wallet vs. Exchange – Similarities and Differences
| Similarities | Differences |
| Used to store, receive, and send crypto. | In a wallet, you hold the private keys. But, in exchange, the exchange holds the private keys. |
| Makes people’s interaction with the crypto space easier and better. | With a crypto wallet, you can mostly only store crypto. In contrast, you can buy, sell, and trade crypto with an exchange. |
| The user interface and user experience is very simple and easy to use. | Exchanges require identity verification. In contrast, wallets do not. |
Exchange Wallet vs. Personal Wallet
Authority and Control
While both wallets and exchanges allow you to store cryptos, the control you have over your assets is a key distinction between the two. Using a personal wallet, you can manage your crypto and how it is moved around with complete privacy and security. Also, you control the timing and destination of all Bitcoin and altcoin transfers and have access to all relevant passwords and private keys.
However, when you store your digital assets in an exchange wallet, you give some of that power to the exchange.
Thus, thinking about how paper currency works can help you grasp this concept. Your ability to decide when, where, and how much to spend is greatly enhanced by having actual cash. However, putting the money in a savings account restricts your ability to withdraw and spend, so you lose some discretion.
It would be best if you considered your long-term goals for crypto when choosing a safe place to store it. In conclusion, the primary distinction between a wallet and an exchange is that wallets provide greater security for your crypto assets than exchange wallets, which may be vulnerable to hacking, legislation, or other external influences that restrict your access to your money.
Whatever You Choose, You Will Have to Keep it Safe
Suppose you’re just starting with Bitcoin and other cryptocurrencies and want to learn how to invest. In that case, you might want to keep your funds in an exchange wallet. Crypto exchanges are rapid and simple to manage and monitor. Binance and Coinbase are two exchanges that will immediately set up your crypto storage.
Standard cryptocurrency wallets, such as the industry leaders Ledger, Nano X, and CoolWallet S, place the burden of protecting your assets squarely on your shoulders. And, if you lose your digital wallet or forget your passwords, you will lose all your assets, just like a physical wallet.
The private keys you use to access your cryptocurrency wallets are the most vital part of the system. And, you need to make sure they’re safe and sound at all times. In contrast, exchange wallets store the private key internally, and account recovery is straightforward in the event of forgotten credentials.
However, successfully trading Bitcoin and other cryptocurrencies will require you to consider investing in a cold storage wallet. Though an exchange wallet is convenient for quick access, you should store most of your digital assets in a secure hardware or software wallet.
Which Is Safer Exchange Wallet or a Personal Wallet?
If you want your cryptocurrency to be as secure as possible, you should store it in a non-custodial or personal wallet where you have full control over the private keys.
That’s because, with exchanges, a third party holds the keys to your crypto when you deposit them there. And, a hacked exchange or an employee stealing from a user’s account could result in the loss of funds for the user.
We think hardware wallets are the safest alternative, but they are often inconvenient for frequent users.
Exchange Wallet Address vs. Wallet Address
When sending and receiving cryptocurrency, you require a wallet address. An exchange wallet address is the address of your custodial wallet. In contrast, a wallet address is the address of a non-custodial or hardware wallet.
Verifying identity or transactions requires private keys. Therefore, using the correct private key is crucial when creating a wallet. Anyone with the wallet’s public keys can access the funds.
A wallet address stores a group of private keys that you can use to access a variety of other wallets. Users can receive or spend crypto with this information only. Once the user sends the crypto, the wallet scans the blockchain to check for any balance or transaction associated with the wallet’s addresses. Afterward, it tallies up the remaining funds and deposits or withdraws from your account.
Does Your Crypto Grow in a Wallet?
Yes, the value of your cryptocurrency in a wallet can go up or down over time. Their prices will rise or fall based on the markets. So, for example, if the market goes up, the value of your crypto will go up.
And, if the market goes down, the value of your crypto will also go down. In this case, your profit depends on whether or not cryptocurrency prices rise. So, keeping your crypto in a personal or exchange wallet makes no difference.
Wallets and exchanges are subject to the same market forces that cause prices to rise and fall over time. And any wallet, whether it be a paper one, a hardware one, or even a digital one, is susceptible to this. Your crypto will maintain its worth regardless of how you keep it.
In conclusion, your crypto holdings will grow in value regardless of where you keep them. And, they’ll increase if the market value increases and vice versa.
When Should I Move My Crypto to a Wallet?
Rule of thumb: utilize a wallet if you have more cryptocurrency than you can afford to lose.
Wallets are irrelevant for storing small amounts of cryptocurrency. And, when your cryptocurrency holdings are less than $100, there’s no point in keeping it in a wallet. That’s because a hardware or personal wallet will cost 50-100$.
Suppose you want to buy a wallet and are considering doing so. In that case, you need at least $250 worth of cryptocurrency after considering the average price range for wallets. Unfortunately, no single rule can apply to everyone because of individual differences in risk management.
Nevertheless, it is good to exercise caution because cryptocurrency values can potentially experience enormous gains. And, given the potential upside of crypto, a one-time investment of $50 or $100 hardly seems worthwhile.
You will need a wallet to store cryptocurrency in your investment strategy. Hence, to make regular cryptocurrency investments, investing in a wallet early on is a good idea.
Conclusion – Crypto Wallet vs. Exchange
The term “cryptocurrency wallet” describes the software investors use to keep their cryptocurrency safe. On the other hand, a cryptocurrency exchange is a website to buy, sell, and exchange cryptocurrencies.
You can keep crypto in either an online wallet or an online exchange; the decision is entirely up to you. And, in the event of a hack or if the exchange’s owners trade the money and disappear, you could lose all of your assets stored there.
But, when you have crypto, you also have to worry about backing it up, keeping it secure, and managing it. So, always consider your options before choosing a crypto wallet vs. an exchange.
This was a complete crypto wallet vs. exchange comparison. We hope you found the answers to your question. Visit our blog for much valuable content.
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