When you start investing in cryptocurrency, you’ll have to choose between a wallet vs exchange. Both will allow you to store your crypto, but they’re different and have their own key benefits and disadvantages.
Let’s find out the difference of a cryptocurrency wallet vs exchange.
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What Is a Bitcoin Wallet?
If you’re planning on investing in Bitcoin, you’ll need to compare bitcoin wallet vs exchange. A wallet is essentially a program that allows you to store all of your Bitcoin. You can have a cold wallet or a hot wallet.
Cold wallets remain offline, while a hot wallet will stay online. There are a lot of benefits to cold wallets, with the main being less security and hacking risks.
You may also find that your exchange offers a wallet. You may be able to store your private keys on the exchange, but you won’t have 100% control of the wallet itself.
A wallet itself doesn’t actually store your currency. Your currency relies on both a public and private key. You need both of these keys to access your currency. The wallet will hold one or more private keys.
There’s also a major difference of a Bitcoin wallet vs exchange.
What Is a Bitcoin Exchange?
While a lot of people compare a wallet vs exchange, they’re actually quite different, albeit having the same type of role. You’ll be in charge of your wallet, but an exchange is a service or website where you can:
- Buy and sell crypto
- Convert fiat currency into crypto
There are market rates for each currency that fluctuate much like the stock market does. When you use an exchange, it will also have a wallet hosted on the website – in most cases. These wallets are essentially web-based.
You’ll have to create an account on the exchange, sign in and then have access to your wallet.
The nice thing about an exchange is that it allows you easy access to all of your account information. You can quickly see your balance, make trades or sell your crypto this way. In fact, an exchange operates much like a bank in that it holds all of your “currency” for you.
There are obvious benefits of a cryptocurrency wallet vs exchange.
Key Differences Between Crypto Wallet and Exchange
When you have a crypto wallet, you’re in full control over your private key. The key is the only way to access your crypto, so having full control makes it inherently safer in terms of storing your currency.
But exchanges also offer:
You will not get these three main features on a wallet. Exchanges also allow the exchange access to your private key. If a security hole is found or the exchange doesn’t take proper measures to hide your key, someone else may access the key and transfer all of your crypto coins to themselves.
The main difference is the purpose of each wallet.
What’s the Purpose of a Crypto Wallet?
A crypto wallet is a wallet that is designed for:
- Long-term storage
- High security
- Easy access
When you want to keep your crypto secure, you’ll find that a wallet is more secure than an exchange. You’ll want to incorporate some form of a backup system because wallets can be susceptible to failure, especially when they’re kept on a flash or external drive.
What’s the Purpose of an Exchange Wallet?
Most of the users that choose an exchange wallet make their choice out of a matter of convenience. The wallet is integrated neatly into the exchange’s trading and selling functionality.
These wallets are simple to use, especially if you often plan to use the exchange’s services.
But you will also risk some security because your private key will reside on the exchange. If the exchange disappeared overnight, you would lose access to your crypto with no means of retrieving it unless the exchange went back online.
Conclusion: Exchange vs Wallet
How to Invest in Cryptocurrency
Cryptocurrency investing is much like a fiat currency that is traded. There are a variety of ways to engage in a crypto investment. You can invest with a simple buy and sell order, which allows for a medium-term to long-term investment, or you can invest in other ways, such as loans.
You don’t want to confuse this with crypto trading, where you trade one currency for another to gain interest or ROI. There are a variety of ways to invest, but many people will start with:
- Opening a digital wallet
- Connecting a bank account
- Signing up for an exchange
- Placing an order for currency
When you do this, you can exchange your fiat (physical) currency for a digital currency.