What Is The Difference Between An Exchange And Crypto Wallet?

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If you are confused between crypto wallet and exchange then we suppose you just stepped into crypto space and don’t know even the basics. Don’t worry, we are not here to judge you but to help you out with your confusion. The reason why anyone can get confused between a crypto wallet and exchange is that mostly both the services are managed by the same company for exchange Coinbase exchange and Coinbase wallet. So, what’s a crypto wallet and what’s a crypto exchange. Let’s find out about them separately first and then find out what is the difference between exchange and wallet. For now, what you need to know is that the main function of the crypto wallet is to keep your cryptocurrencies secure while the function of a crypto exchange is to provide trading services and enable you to buy and sell various cryptos online.

What Is A Crypto Exchange?

what is a crypto exchange

When you step into the world of crypto trading and plan to take advantage of it, the first thing you’ll need is a crypto exchange. If you’ve traded in stocks or at least have basic knowledge about it then you must be aware of stocks exchange. Crypto exchanges are just like stock exchanges, just the difference that it lets you trade in cryptocurrencies and not in traditional stocks and assets. So what do we mean by trading here exactly? These trading platforms let you exchange cryptocurrencies and then take advantage of the price volatility for example by buying low and selling high. It also provides you with advanced trading features like margin trading and futures trading, where you can leverage your interest to 100x or even more.

There are many cryptocurrency exchanges focused majorly on beginners. These platforms provide an easy to use interface with the ability to buy crypto with fiat. Once you buy specific crypto, you can then exchange it with any other cryptocurrency of your choice and then make money by crypto trading. So, we suppose you got the outline of how the crypto exchange works. We’ll learn more about it in our comparison of Crypto wallet vs crypto exchange.

What Is A Crypto Wallet?

crypto wallet explained

As we’ve already told you, crypto wallet helps you keep/store your cryptocurrencies. But it isn’t that simple because you can’t directly store your cryptos, it is their private keys that need to be kept safe. When you own a specific cryptocurrency, you basically own its private keys. These private keys are nothing like the physical keys but a mathematical proof of the fact that you actually own the cryptos. Without it, your cryptocurrencies are useless. You need private keys to send your cryptocurrency from one Bitcoin wallet to another or even to access your balance.

Now, it is necessary that you store these private keys somewhere safe and away from hackers and thieves. 

Here comes the need for a crypto wallet, as it let you store your private keys i.e. private keys. Not only that, but it also allows you to access your portfolio at one place and then send or receive more cryptos. To ensure the security of your cryptos, these wallets have features like two-factor authentication as well as backup options. You can take a backup of your entire wallet so that whenever you lose your wallet or forgot your password, you can access your wallet and portfolio once again. There are different types of crypto wallet that includes hardware wallet, desktop wallets, mobile wallets, paper wallets and web wallets.

That’s what a crypto wallet does. So, these two are necessary tools not only for trading in cryptocurrency but for simple tasks like buying and keeping cryptos safe. While both have distinctive functions, some people still can get confused in a crypto wallet and exchange due to various reasons. Let’s find out what is the difference between an exchange and crypto wallet.

Crypto Wallet vs Crypto Exchange

To understand what is the difference between an exchange and crypto wallet in a better way, let’s take the example of Coinbase and ask what it provides, some would say trading services while others would say it is a crypto wallet. But the truth is that the company provides both exchanges as well as wallet services. It is where all the confusion starts but it’s not that difficult to understand. Mostly, the top exchanges are providing wallet services as well but their purpose is not to keep your cryptocurrency safe but to ease your work. At the same time, all exchanges inform you beforehand that you should not store your cryptocurrency in the exchange wallet for long and transfer it to a private wallet as soon as the trade is completed.

Now coming to the crypto wallet, many wallets have integrated inbuilt features of crypto trading on their wallet interface. Such a feature lets you exchange cryptocurrencies directly from the wallet. But as we said above it is not their primary focus, so you won’t get as good services as provided on top exchanges. Which includes lower trading fees, advanced trading tools, crypto charts, technical analysis and many more. If you want to buy just a mere amount of crypto, you can exchange it simply within the wallet if your wallet has that feature. But if you plan to trade or invest a high amount, you must look for other options with much better services.

Bottom Line

We suppose now you are aware of the difference between an exchange and crypto wallet. There’s no restriction for using an exchange wallet or wallet’s inbuilt exchange feature, however, there are some points you need to consider while using them. When you use a private wallet i.e. a hardware wallet or a secure desktop wallet, you are the sole owner of your private keys. But when you use an exchange wallet, your private keys are in control of the exchange. The same if using the inbuilt exchange feature of the wallet as then you are not dealing with the exchange directly but through the wallet which is why the trading fees are higher there.

If you are looking for the best Bitcoin wallets or trading platform of 2020, you can trust hardware wallets like Ledger Nano S and Trezor One. If you are looking for exchanges by API, Binance, Kraken, Bitfinex and Coinbase are your best options. Note that before you sign up for any exchange, always do your research and find out everything possible about it.

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