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Crypto wallet vs crypto exchange. Which is better and when should I use them?
Upstream Oct 18, 2021 Definitions
Crypto wallet vs crypto exchange. Which is better and When should I use either?
If you’ve found the Upstream blog the chances are you’ve just got into crypto and you’ve got more than a few questions! Well, you’re in the right place if you’re looking for content that’s aimed at you and explains crypto in a way that makes it easy to understand.
In this article we focus on crypto wallets vs crypto exchanges and explain which is better, why you might use one over the other and when each of them can come in handy.
If you’re not much of a reader you can watch the video below ? where Dave explains everything really, really well!
What is a crypto exchange?
Online exchanges are where most people buy and sell their cryptocurrency. On an exchange you can create an account, transfer money from your bank account and convert it into cryptocurrency. You can even buy crypto by using your debit or credit card. Crypto exchanges charge a small fee per transaction which varies depending on the exchange you’re using and the currency you are buying.
You could think of exchanges like digital banks. But, unlike a bank, if you lose access to the exchange you lose your cryptocurrency! Better remember that password!
What exchanges are there?
Coinbase is great because they make it very simple to buy, sell or convert cryptocurrency right from an app on your phone. It’s perfect for beginners or casual crypto users.
Binance is a little more involved than Coinbase because as well as buying crypto with your bank account or credit card, you can also do a lot of other things. You get full access to price charts, spot and margin trading, futures and staking services. We’ll cover these features in more detail in another blog.
Using multiple exchanges
Here at Upstream we found it is best to have accounts with multiple exchanges. The main reason being that not all exchanges have every coin on the market available to buy or trade. Having access to multiple exchanges gives you a wider scope for your crypto investments and more options to move your crypto around if you need to.
What is a crypto wallet?
Exchanges are a great place to buy and trade with your cryptocurrency. But if you plan on HODLing, or keeping your crypto for a long time, we recommend moving it to a secure wallet.
Leaving crypto on the exchange comes with risk because you do not own the private keys. There is a saying in crypto: “Not your keys, not your crypto” which means if you don’t have the keys, your investment is at risk because you won’t be able to withdraw your finds if the exchange is hacked or goes offline.
With ownership in mind, the main thing to look for when selecting a crypto wallet is private key ownership. Owning the private key to your crypto wallet means that you and only you have full responsibility for and control over your cryptocurrency investment. Don’t worry it’s not as scary as t sounds! Trusting yourself with ultimate responsibility and the rewards that come with that can be an amazing experience!
The Yoroi wallet is a fantastic example of a wallet where you are the true custodian of your cryptocurrency. When you set up the wallet you are given a 12-word passphrase that needs to be entered in order to set up or recover your wallet. These phrases, in the particular order they were given, are your private key. We can’t stress how vital it is to keep physical copies of these in an extremely safe place. By owning the private key you are in control of your crypto and can access it at any time.
There are some great wallets out there. Deadlaus is another great example, but whatever you do, make sure you are in control of your investment by selecting a wallet where you hold the private key.
The benefits of a wallet where you hold the private key
- Perfect for HODLERS – Long term secure storage of your investment
- Greater security – No risk if the exchanges are hacked or unaccessible
- You are in control – You hold the keys
There are some disadvantages of wallets too though. For example you can’t sell or convert your crypto from a wallet. You’ll need to move your coins back onto an exchange before you can do that and this can incur a transfer or network fee. If you’re HODLing and believe in the long-term value of a project you may not worry too much about short term price fluctuations but if the market crashes and you need to sell quickly, having your crypto in a wallet adds an extra step to that process.
Generally, when the market crashes, the waves of FUD inevitably come and many people flock to exchanges to sell their crypto. This leads to increased traffic which can cause the exchanges to crash. This sometimes means you need to wait longer to cash out. This is where a strong strategic buy out plan comes into play. You will need one of these to realise profit and maximise your investment, but we will get to that on another blog.
So in summary you’re going to come across both crypto exchanges and crypto wallets somewhere along your cryptocurrency journey and to make the most of your investments you’re more than likely going to need to use both.
An exchange is a great tool for buying and trading crypto. A wallet is a secure place to store your crypto safely for longer periods of time and stake it if possible!
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