The difference between crypto wallets and crypto exchanges
TL; DR
Crypto wallets are software or programs that keep private keys and public keys which enable users to receive and send cryptocurrencies.
Desktop wallets, mobile wallets and web based wallets are examples of wallets for crypto.
Crypto exchanges are platforms where people can buy, store and transfer cryptocurrencies.
Users can purchase cryptocurrencies on centralized exchanges such as Gate.io using credit cards and bank transfers.
Introduction
The people who use cryptocurrencies should know how to navigate crypto wallets and crypto exchanges. These are important for receiving and sending cryptocurrencies as well as making investments and trading. However, some people confuse cryptocurrency wallets and exchanges. In this article, we discuss the differences between wallets for cryptos and crypto exchanges.
What are crypto wallets?What are crypto wallets?
A crypto wallet is a software or tool that enables users to interact with the blockchain in order to receive and send digital assets. The wallets generate and store blockchain addresses which identify the ownership of certain digital assets. This is because digital assets like cryptocurrencies are part of the blockchain system, the reason why wallets are essential to access them.
Crypto wallet- E-zigurat
How does a crypto wallet work?
In technical terms, crypto wallets do not store cryptocurrencies but hold the private and public keys which enable people to send and receive these digital assets. The public key, which is a sequence of alphanumeric figures, enables wallet holders to receive cryptocurrencies. Therefore, you can share it with other people who want to send you cryptocurrencies. It works in a similar way as your bank account number.
On the other hand, the private key allows the wallet holder to transfer digital assets. Note that the private key is a proof that an individual owns certain digital assets that exist on the blockchain. The private key should remain confidential like passwords, since anyone with it can access your cryptocurrencies. To send someone some cryptocurrencies you simply open the wallet and input the receiver’s public address and the amount you want to send.
Types of cryptocurrency wallets
There are different types of cryptocurrencies which exist in varying categories. However, a crypto wallet can belong to two or more categories. Let’s discuss some of the categories and types of wallets.
Custodial vs. non-custodial crypto wallets
With a custodial crypto wallet, a third party such as a cryptocurrency exchange holds the users’ private keys. In this case, once the user login to an exchange he/she can transfer the digital assets. However, one gets a public key which enables other people to send him/her cryptocurrencies. Users who are not worried about the security of their assets use such wallets for crypto.
Non-custodial wallets
The owner of the wallet keeps the private key and no other person or third party has access to it. However, it is very important for the wallet holder to keep the private key safely since anyone who comes across it can use it to withdraw the digital assets. Also, if a user loses the private key and seed phrases, he/she will not be able to access the cryptocurrencies in the wallet.
Hot and cold wallets
These are other categories of digital wallets you need to know. A hot wallet is a crypto wallet which works when it is connected to the internet. Hot wallets are the easiest and most convenient wallets to use. However, malicious actors like hackers can easily exploit them. For this reason, the users should keep small amounts of digital assets in their wallets.
Cold wallets are crypto wallets that are not always connected to the internet. The users can only connect them to the internet when they want to transfer cryptocurrencies or other digital assets like non-fungible tokens. These wallets are very secure since it is difficult for malicious actors to hack them. Individuals should keep most of their cryptocurrencies in cold wallets. However, it is difficult for people who are not conversant with them to make transactions.
Cold wallet-Earthweb
Types of hot wallets
Hot wallets can either be custodial or non-custodial ones and they include desktop wallets, mobile wallets and web-based wallets.
Desktop wallet: These are software that the users can install on their computers which enable them to send and receive cryptocurrencies. Desktop crypto wallets are more secure than the web-based ones. However, the users should ensure there are suitable firewalls, VPN and antivirus software.
Mobile wallet: These digital wallets are similar to the desktop ones. The only difference is that the users install them on their mobile phones. Notably, the wallet holders can use QR codes to make transactions.
Web-based wallets: These crypto wallets consist of a browser interface. As such, the users do not download any applications. They only need to open the wallet interface and generate their blockchain addresses.
Similar to the other wallets, the user should safely keep their private keys and seed phrases. At times, they also use passwords as additional security features. Nevertheless, such wallets are prone to exploits such as hacking.
Hardware wallets: These are physical devices that look like USBs which generate private and public keys required for making crypto transactions. Hardware wallets are an example of cold wallets and are more secure than all the other types. However, the users should keep them safely. If they lose them they will not be able to access their cryptocurrencies.
Paper wallets: Paper wallets are another type of cold wallets. Basically, a paper wallet consists of a piece of paper that has a blockchain address and a private key. They also have QR codes which the users can scan when they want to transfer the cryptocurrencies.
Which wallet should you use?
It is important to compare crypto wallets before choosing the one that is most suitable for you. For example, cold wallets are most suitable for storing large amounts of cryptocurrencies for a long time. However, they are not suitable for users who make several transactions on a daily basis.
On the contrary, hot wallets are most suitable for handling small amounts of cryptocurrencies where the users make multiple transactions within short periods. Generally, the users should give more consideration to the security of their digital assets than to any other factors when selecting the best crypto wallets.
What are crypto exchanges?
A cryptocurrency exchange is a platform where people buy and sell digital assets such as non-fungible tokens and cryptocurrencies. In fact, these are the websites where people trade cryptocurrencies. Some exchanges offer many services such as crypto loans and margin borrowing.
Gate i.o crypto exchange
Gate.io is a centralized crypto exchange that offers various products such as copy trading, crypto loans and cloud mining.
How do crypto exchanges work?
The users can buy cryptocurrencies using fiat currency, wire transfers and peer-to-peer transactions. Also, they can convert their digital assets to fiat money. Since there are wallets on the exchanges, the users can transfer cryptocurrencies from external sources to the exchange for the purpose of investing them or spot trading.
How to trade cryptocurrencies
The first step to take when you want to trade cryptocurrencies is to fund your exchange crypto account. You can either purchase the cryptocurrencies on the platform using credit cards or bank transfers. Alternatively, you can send cryptocurrencies from other digital wallets such as MetaMask or Trust Wallet.
Types of crypto exchanges
Technically, there are two main types of crypto exchanges namely decentralized exchanges (DEXs) and Centralized exchanges (CEXs).
Centralized exchanges
A centralized exchange functions like an intermediary that enables the users to buy and sell cryptocurrencies. It works like a stock exchange but allows the trading of digital assets. However, the exchange charges fees for the various services it offers. Gate.io is an example of a centralized exchange.
In fact, the users purchase cryptocurrencies at their market prices using spot trading features. The prices of the cryptocurrencies are determined by their supply and demand.
Decentralized exchanges
Decentralized exchanges facilitate peer-to-peer exchange of cryptocurrencies. They are different from centralized exchanges in that they do not act as intermediaries. Smart contracts are responsible for all the various transactions that occur on these exchanges.
Also, the users maintain total control of their cryptocurrencies as they do not transfer them to the exchanges. In general, decentralized exchanges are more secure than centralized ones. This is because there are no central servers which malicious actors can hack. Another advantage of decentralized exchanges is the low transaction fees they charge.
However, the users should have the required skills to navigate the exchanges and make transactions. Another disadvantage of a decentralized exchange is that there is no insurance of the funds and there is no one to consult if you encounter problems when making transactions.
The difference between crypto wallets and crypto exchanges
Crypto wallets and exchanges have both similarities as they deal with digital assets. However, they also have remarkable differences.
The main reason for wallets for crypto is to keep important information required in storing and transferring cryptocurrency. Mainly, they keep private keys and public keys. In contrast, the main function of exchanges is to facilitate the buying and selling of digital assets. The following table shows the major similarities and differences of crypto wallets and exchanges
Crypto wallets vs exchanges
Both allow people to receive, store and send cryptocurrencies
With wallets, the users keep their own private keys. However exchanges do not allow the users to keep the private keys.
They enable the users to interact with the cryptocurrency ecosystem.
Most wallets do not have facilities for the users to purchase cryptocurrencies. Nevertheless, there are a few wallets that enable people to buy digital assets. On the contrary, people can buy cryptocurrencies on exchanges.
In most cases, both are very simple to use. They have user-friendly interfaces.
People use wallets pseudonymously. However, most exchanges require the users to verify their identities.
Conclusions
Both crypto wallets and exchanges facilitate transactions of cryptocurrencies and other digital assets. Crypto exchanges are platforms that allow people to buy and sell cryptocurrencies. Nevertheless, the main function of digital wallets is to keep the private and public keys which enable the users to store, receive and send cryptocurrencies.
FAQ on crypto wallets and exchanges
Should I store cryptocurrency on crypto exchange or wallets?
The truth is that you can store your cryptocurrency on both crypto exchanges and wallets. However, you should keep a small amount of cryptocurrency on exchanges and most of it in your wallets. It is important to use cold wallets rather than hot wallets for keeping your digital assets. The reason is that hackers can easily attack both centralized exchanges and hot wallets.
Does my crypto still grow in my wallet?
The value of cryptocurrencies can still rise even if they are in your crypto wallet. The reason is that their prices are determined by their demand and supply, irrespective of where you keep them. Also, all cryptocurrencies exist on the blockchain and are affected by market conditions in the same way.
How do I get out of exchange?
You can easily transfer your cryptocurrency from the crypto exchange to the wallet at any time. To do so, you login to the exchange and input the wallet address where you want to send the cryptocurrency. You should also indicate the amount you want to transfer to the wallet.
What is the difference between a crypto wallet and crypto exchange?
A crypto exchange is a platform that enables people to buy, receive, send and trade cryptocurrencies. On the other hand, a crypto wallet is a software or program that keeps an individual’s private key and public key. The private key allows you to transfer your cryptocurrencies while the public key enables other people to send you coins and tokens.
Is it safe to keep crypto in a wallet or an exchange?
It is more secure to keep cryptocurrencies in a wallet than on an exchange. This is because it is easier for hackers to exploit an exchange than a wallet. Nevertheless, cold wallets are the safest crypto wallets followed by desktop wallets. Most crypto exchanges, however, put in place measures to secure all digital assets.
What happens if you move cryptocurrency from an exchange to a wallet? What happens if you move cryptocurrency from an exchange to a wallet?
It is possible to transfer the cryptocurrency from an exchange to a wallet because they both exist on the blockchain. When you send cryptocurrency to your wallet, there will be a reduction of the amount in your exchange account and an increase in your wallet balance. You can also transfer the cryptocurrency from your wallet to the exchange.
