Difference Between A Crypto Wallet Vs Exchange
Beginners are often confused about these two. What is the difference between a crypto wallet and exchange? What are the functions of each one? How to use them? Is storing crypto in an exchange vs wallet safer? Well, let’s find all the answers. Crypto wallet vs exchange – the battle starts now.
What Are Crypto Exchange Trading Platforms
Use crypto exchanges to buy, sell and trade cryptocurrency you can. There users can deposit fiat currency to buy crypto assets. You can also convert cryptocurrencies back into fiat and store it in the exchange or withdraw it to your bank account. It’s also possible to exchange currency for other currencies.
To start buying, selling or converting, firstly create an account. Crypto exchanges often provide their users with convenient web crypto wallets. Basically, you can treat exchange as a digital bank for cryptocurrency.
The only con of an exchange is the issue of security. If a person loses access to the exchange, then they would access the crypto.
Cryptocurrency exchanges are mostly decentralized so there’s no central institution that can back up and protect your funds as it is with traditional money in centralized, government-ruled banks. Oftentimes exchanges became targets for hackers.
However, some platforms do secure their users with insurance policies. It will be paid to the user if they got their funds stolen by hackers or fraudsters. Platforms that don’t offer insurance prefer to rely on their own security measures.
The security of the exchange should be your top priority no matter how long you are planning to store your money in it. Always look into how much assets are kept offline. This is extremely important as with the growing value of cryptos the number of hacker attacks increased. The cold storage of cryptocurrency is more secure as it’s much more difficult for hackers to access.
Often these services have other protection methods, such as PIN code or two-factor authentication.
There are three main types of exchanges: Brokers: Prices on crypto are set by the broker.
Trading Platforms: Platforms help buyers and sellers to find each other. Usually the fee is being charged for the service.
Direct Trading: Trade crypto directly, set your price as there are no fixed prices.
What Are Crypto Wallets?
A cryptocurrency wallet is what you use to store crypto assets.
Crypto wallets are software or special physical devices. A software program-like wallet is a hot wallet, and a wallet that is a separate physical device is called a cold wallet. Many people prefer cold wallets as they are harder to hack.
A wallet holds keys, a private key and a public key. The public key is the key that identifies you and encrypts the transaction. Share this key with those you need to receive money from. The private key, on the other hand, decrypts the transaction. Never disclose this key, as you risk losing your funds.
As hacking methods become more and more creative, we need to prioritize our security over anything else. To prevent the impact of malicious softwares, pay attention to the points listed below.
- Use a Cold Wallet
This type of wallet is more difficult to hack, especially if we are talking about paper wallets - in this case the chances are close to zero.
- Avoid Public Wi-Fi
Avoid public Wi-Fi connections whenever possible and make sure your internet connection is safe. Also use VPN for better protection.
- Diversify Your Investment
Use of multiple wallets more likely will give you a great level of protection by separating sensitive data. At the same time, you definitely won’t lose all of your funds even if one of your wallets becomes compromised.
- Employ 2FA
Two-factor authentication (2FA) is the safest way to secure your password. The authentication is an access-control mechanism that requires two different methods of identification or authentication.
- Be Careful About Wallet Service Security
Before using an online wallet, find out if it has proper security measures to protect users.
- Keep Backup Handy
It is important to keep backups of your private key, which proves that you own and can use that digital currency account.
For wallets there are options too: Software-based wallets are websites or computer programs, allowing you to store funds there with an internet connection. Hardware-based wallets store your private key on a USB-like device.
Similarities Between Cryptocurrency Wallet Vs Exchange
Both crypto wallets and exchanges are used for storing digital currency – this is the only similarity between the two options.
Differences Between Cryptocurrency Wallet Vs Exchange
The difference between a crypto wallet and exchange may be depicted easily in just three points:
While crypto wallet is a program that allows their users to store cryptocurrency, crypto exchange is a service for buying and selling assets or converting fiat into crypto.
- Control over the private key
Unlike crypto wallet, cryptocurrency exchange doesn’t allow you to take full control over your private key.
- Other features
With the exchange you are able not only to store assets, as it is with wallets, but to buy, sell and trade also.
What To Choose If You Are A Beginner
Holding crypto on exchange vs wallet – it may be a tough choice for a newcomer, so we highlighted a few points which, hopefully, will help you to decide.
Is It Safer To Keep Your Crypto In A Wallet Or An Exchange?
Keeping your crypto in a wallet vs exchange – which one is more secure? A hardware wallet is the safest option, although it is not as convenient as other options available. A well-trusted exchange may work too if you are not planning on storing big amounts and buying hardware is unreasonable for you.
Which Type Of Crypto Wallet Is Considered The Safest?
Cold wallets are the most secure choice. They are harder to hack as the keys are kept offline. Also, cold wallets come encrypted.
What Happens If You Move Crypto From An Exchange To A Wallet?
If you transfer your coins from the exchange to your wallet, nothing will change and your assets will be worth the same as before.
In conclusion, storing crypto in exchange vs wallet – each option has its advantages and disadvantages. Now it’s time for you to decide.