What is the difference between a crypto wallet and a crypto exchange? Both these tools are useful when trading cryptocurrency whether you buy or sell bitcoin or dogecoin or any other token. But they both complement different parts of the ecosystem. Here’s what you need to know about both, why you might want to use a crypto exchange, and having a crypto wallet.
A cryptocurrency like bitcoin or ether When you ‘mine’ a token by solving complex equations, as investors, we usually only buy and sell the tokens we use.
A crypto exchange allows you to do this (and you can even store your coins), whereas a wallet can store your investments more securely but you cannot use them actively. In fact, many large transactions even have their own separate wallet applications. Here is a detailed look.
What is a crypto currency exchange?
A crypto exchange is a platform that allows you to buy and sell your bitcoin, token, ether or other cryptocurrency token at a fixed price and with security.
An exchange is a website or application that allows you to convert your fiat currency (such as USD or INR) into cryptocurrency. You can use these exchanges to convert crypto currencies into fiat currency and in your bank account.
If there is no exchange, if you want to buy crypto currency you have to find someone else who is willing to sell that currency. Then both would have to agree on an exchange rate and then send the crypto to their wallet, which is obviously more complicated.
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What is a crypto wallet?
A crypto wallet is a software program that allows you to store crypto currencies. Suppose you buy a certain amount of bitcoin, a type of electronic currency. Since it has no shape, how to keep it safe? Here you need online storage facility. A crypto wallet will do this for you.
A crypto wallet contains the private key that allows you to sign transactions. Think of these private keys as secret codes that allow the cryptocurrency you hold to be spent. Blockchain is the record of all these transactions.
These private keys are important. If someone steals your private key (while malware is running on your device), they can spend your crypto currency. Furthermore, if you lose the private key in any other way, you will lose all access to your cryptocurrency holdings.
As we mentioned earlier, there are two main types of crypto wallets – hot and cold – which determine how each of these wallets work. Wallet add a layer of security and keep your savings safe.
To learn more about these types of wallets and to help you start your crypto journey, read our guide on wallets.