Do you want to know the difference between a crypto wallet and exchange?
Are you wondering about the one that will suit your needs?
You are not alone, as beginners in crypto are always confused about it.
Wondering whether they should use a crypto wallet or a crypto exchange.
In this post, I will show you the difference between a crypto wallet and an exchange, so you can decide which one will be perfect for storing your cryptocurrencies.
You deserve to make the right decision.
What Is A Crypto Wallet
A crypto wallet is a software or hardware program that allows users to send, receive and store different cryptocurrencies.
Each Crypto wallet consists of two key parts; a public key and a private key.
The public key also known as an address is used in receiving crypto from others.
[READ: How to Get a Bitcoin Wallet Address]
You can share it with anyone you want to receive crypto from, but you cannot share your private key with anyone because it is like a key to your safe deposit box.
Anyone that knows your private key can take total control of all the cryptocurrencies you have in your wallet.
Which is why you must never share it with anyone under any circumstances.
Types of Crypto Wallets
There are two types of crypto wallets, which are hot and cold wallets, and there are different types of hot and cold wallets.
Online wallets, mobile wallets, and desktop wallets are all HOT WALLETS, while paper wallets and hardware wallets are COLD WALLETS.
And I should let you know that, unlike hot wallets, cold wallets do not connect to the internet, they are offline physical wallets either on a USB-like device or on paper, making them the most secure way of storing cryptocurrencies because they cannot be hacked.
Online Wallets
Online wallets are also called web wallets, and that’s because they are web-based and work in a web browser.
It can be accessed via any computer or mobile phone with an internet connection.
Sadly, online wallets are among the least secure wallets.
They are not suitable for long-term crypto storage.
Desktop Wallets
Desktop wallets are apps you download and install on your computer or laptop.
They allow users to hold their own private keys, which gives you control over your funds.
But the keys are held on an internet-connected device, and for that, they are considered less than secure too.
I must also advise you to use desktop wallets only on a computer or laptop with up-to-date antivirus and malware detection software.
Mobile Wallets
Mobile wallets are smartphone-based wallets, they run on a smartphone or tablet.
They are the most frequently used type of crypto wallet, as they make it easy to make crypto transactions on the go.
When you want to pay for something with crypto online or in physical stores, mobile wallets are the best option.
But like other hot wallets, there’s a risk of theft, which means it is not a good option for storing large amounts.
Read Also: 5 Best Crypto Mobile Wallets
Paper Wallets
Paper wallets are an early prototype of a hardware wallet.
They allow investors to store their cryptocurrencies offline, and for so many years were considered one of the safest ways to hold crypto.
Paper wallets were generally used during the early years of cryptocurrency before crypto became popular, and they still remain a valid way to send, receive and store cryptocurrencies today even though they have fallen out of favor.
Hardware Wallets
Hardware wallets are physical devices similar to USB sticks.
They also allow investors to send, receive and store cryptocurrencies offline.
Hardware wallets are currently the most recommended way to store cryptocurrencies.
Read Also: Best Crypto Hardware Wallets for Storing Crypto Offline
What is a Crypto Exchange
A crypto exchange is a website where people buy, sell, and trade cryptocurrencies.
They also allow users to send, receive and store cryptocurrencies just like crypto wallets.
And like crypto wallets, there are two types of crypto exchanges: centralized exchanges and decentralized exchanges (DEX).
The most popular crypto exchanges like Binance, Coinbase, Kucoin, and Bybit are centralized exchanges.
The centralized exchanges require users to verify their identity, in that way they can comply with regulations like anti-money laundering (AML) and know-your-customer (KYC), while decentralized exchanges often do not.
This means that, unlike centralized exchange users, decentralized exchange users can remain more anonymous.
Check out the best centralized crypto exchanges to use.
What is the Difference Between a Crypto Wallet and Exchange
A crypto wallet and an exchange do almost the same thing, e.g, storing, sending, and receiving cryptocurrencies, yet they are two very different things.
Below are some of the major differences between a crypto wallet and a crypto exchange;
1. A crypto wallet allows users to have full control over their private keys, on the other hand, crypto exchanges do not, so you don’t have control of your funds in a crypto exchange.
2. Crypto exchanges offer features such as buying, selling, and trading, crypto wallets do not, although some have connected exchanges now.
3. Crypto exchanges require users to verify their identity, crypto wallets do not.
4. With crypto wallets you are solely responsible for the security of your funds. If you forget your private key and recovery phrase no one can help you. Whereas with a crypto exchange there are ways to recover your account if you forget your password.
Conclusion
That is it, and I hope this post helped you to learn the difference between a crypto wallet and exchange.
One more thing you should know is that both crypto wallets and crypto exchanges have their benefits and drawbacks, but of course, crypto wallets give users maximum security and total control of their cryptocurrencies.
It is recommended to leave only the funds you are trading with on a crypto exchange.
read also:
- The 3 Safest Stablecoin to Use
- Seven Common Mistakes Crypto Investors and Traders Make
- Important Things to Know Before Investing in Cryptocurrency
IMPORTANT; you must never send money to anyone you meet online asking to help you invest in cryptocurrency. They are scammers. Crypto is easy, and you can do it all by yourself.
DISCLAIMER:
The information presented here should not be used as the sole basis of any investment decisions, nor should it be construed as financial, tax, legal, or accounting advice. I will also advise that you invest in cryptocurrency only what you are comfortable living without, at least temporarily.