Whenever we talk about cryptocurrency investment or trading, we come across two similar things known as Wallets and Exchange/trading platforms.
Since they are so similar in context, Beginners may get confused and often register on a wrong platform. In this cryptocurrency wallets vs Exchanges, we are going to explore the topic further and we will know the key differences between a wallet and Exchange.
What are cryptocurrency wallets?
A service which let’s you send/recieve a specific cryptocurrency and store them securely is called a cryptocurrency wallet. So the main focus of wallets is to store cryptocurrency instead of selling/recieving/trading it.
A good example of cryptocurrency wallet would be Zebpay ( Currently disabled in India ). Zebpay let’s you send/recieve cryptocurrency and store them securely in your account.
Wallets have a unique wallet address for sending and recieving cryptocurrency.
Here is an example Bitcoin wallet address:
Using these addresses, we can send or recieve cryptocurrency from your wallet.
What are cryptocurrency exchanges?
Exchanges on the other hand, as the name suggests, are the services which helps you in buying/selling cryptocurrencies.
In other words, Exchanges let’s you convert real world currency into a virtual/digital currency such as bitcoin, ethereum etc.
Exchanges are normally based on Peer-to-peer method which helps buying and selling cryptocurrencies between person to person.
What do cryptocurrencies get for helping us out?
Obviously money, when you sell or buy a coin through their exchange, they charge a small commission per transaction like 0.2% of the total worth of the transaction.
Some exchanges comes with wallets so that the user doesn’t have to use another wallet for storing their cryptocurrencies. These exchanges are often preferred by people for trading since it is hassale-free.
A perfect example of these exchanges would be WazirX
WazirX is a cryptocurrency Exchange platform that comes with a wallet for storing cryptocurrency.
Cryptocurrency wallets vs Exchanges: The Key differences
- Wallets are used to store cryptocurrency securely. Since they come with a unique address, it is easier to send or recieve cryptocurrency. Mostly sellers use wallets to accept payments via cryptocurrency for anonymity or for providing convenient payment methods for the buyer.
- Exchanges are used to convert real word currency into cryptocurrency by buying crypto from other person holding the crypto you need. Exchanges are great for trading cryptocurrency.
- The thumb rule is to trade cryptocurrency using Exchanges and withdrawing them to a wallet.
It is often said that wallets provide better security when compared to Exchanges for storing cryptocurrency.
Cryptocurrency wallets provide complete access to your cryptocurrency. You will have full control over the currency you own.
On the other hand, Exchanges doesn’t provide full control over your digital currency. Your cryptocurrency is stored on their secure servers. If someone good enough hacks into your exchange,there is a good chance he can steal huge amount of cryptocurrency.
Here is an article that covers the topic in depth. I would recommend checking out the article once you have good idea on the differences between cryptocurrency wallets and exchanges.
As I have already mentioned in the above case, Exchanges have full control over your digital currency. They can do anything with it (Not actually tho 😛 ).
If they update their terms such that they can take take 5% of your total cryptocurrency as tax, They absolutely can. This is unlikely to happen but yes it can happen.
Which one I prefer the most?
I’m a short term trader means I love to risk my money. I trade whenever I get some profit and I’m not the guy who invests on cryptocurrency for long term savings.
Hence I just buy a cryptocurrency from my favourite exchange platform WazirX and sell it after sometime.
But If you are looking to invest on cryptocurrency for long term savings, You should definitely use a secure cryptocurrency wallet.
If you usually use international services which require payment through cryptocurrencies, again Wallets shine here.
In the battle of Cryptocurrency wallets vs Exchanges, No one is a clear winner. Both wallets and Exchanges come with their own advantages and disadvantages.
It depends on the purpose of the end user. Since I’m a short term trader, I would definitely prefer Exchanges.
If you are a long term investor, It would be a good choice to store your cryptocurrency on a secure wallet 🙂