Crypto Exchange vs Crypto Wallet: What Is the Difference?

Exchanges do have security steps in place, like two-factor authentication and encryption. Yet, because they’re centralized, they’re tempting targets for hackers and can be troubled by law or policy changes. Your technical comfort level should match the interface and functionalities of the wallet or exchange.

Our aim is to provide our independent assessment of providers to help arm you with information to make sound, informed judgements on which ones will best meet your needs. DeFi Wallet lacks many common security features, including two-factor authentication, while Zengo lacks support for several popular coins such as Solana and XRP. While there are ways to do this yourself, hardware wallets come preloaded with software and other usability and security features that make the process smoother. If you’re a regular user of applications on the Ethereum blockchain, chances are you’ve come across MetaMask.

As the world of cryptocurrencies continues to evolve, understanding the ecosystem’s core components is crucial. Two pivotal concepts that often cause confusion are crypto exchanges and crypto wallets. While both play vital roles, their functions and purposes differ significantly. Choosing between a crypto wallet and an exchange can be overwhelming, especially for new users.

Wallets, especially cold wallets, can provide enhanced security against hacking and online threats. Exchanges, particularly centralized ones, are more susceptible to hacks and security breaches, like the examples we mentioned above. Choosing between a crypto wallet and exchange is one of the main decisions any trader will need to take. Both allow you to store crypto but it is really up to you to decide which will benefit you in your trading journey in the long run. The public key, also known as your wallet address, is shared publicly and is what others use to send funds to your wallet.

It’s worth noting that centralized exchanges (CEXs) act as intermediaries, while decentralized exchanges (DEXs) enable direct peer-to-peer transactions without a central authority. To illustrate with a familiar example, think of a crypto exchange as a digital version of a currency exchange booth you might encounter while traveling abroad. Just as you would exchange your home currency for the local currency at these booths, crypto exchanges allow you to swap one digital asset for another.

DEXs provide a higher level of privacy because users don’t have to share their personal information with third-party entities. However, DEXs generally have lower trading volumes and fewer trading pairs, leading to lesser liquidity. On the other hand, when your digital funds are kept in an exchange account, sometimes referred to as an exchange wallet, you hand out part of that overall control over to the platform. How much (if at all) you interact with your crypto wallet depends on the kind you use. There are different types of crypto wallets out there with varying combinations of attributes. Some, like the BitPay Wallet, come with added benefits of a free crypto debit card, opportunity to turn crypto into gift cards, plus other ways to spend crypto.

Unlike when you keep assets on a cryptocurrency exchange, with a non-custodial wallet, you don’t have to trust a third party to secure your private keys. On the other hand, crypto wallets can be software- or hardware-based. They allow users to store their private and public keys, thereby giving them full control over their funds. They offer the convenience of making transactions directly from the wallet and Cryptocurrency Explained often include features for managing multiple cryptocurrencies. Though some stock brokers also offer crypto exchanges, crypto trading is not subject to the same investor protections you get when working with traditional investments. Securities Investor Protection Corp. insurance doesn’t apply to cryptocurrency, so if your exchange fails (as FTX did in the fall of 2022), you could lose your investment.

MetaMask has mobile and browser-based wallets, though it does not have a desktop app. You can, however, easily stake tokens using the apps that connect to MetaMask on the web. Just remember that if you’re not a big user of Ethereum and its related tokens, MetaMask might not be much help to you. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Regarding trading, you can either take the DIY approach or use one of eToro’s two hands-off options.

Coinbase is one of the best investment platforms for crypto trading, staking rewards, and crypto storage. The crypto exchange offering nearly 250 coins and tokens and is great for active real investors who can utilize Coinbase’s services, account options, and investment tools. There are a number of excellent crypto wallets, many of which we have reviewed above. The right fit depends on your goals, such as whether you want a hot wallet that connects directly to the internet or if you would prefer a cold wallet to store your keys on an offline hardware device. Wallets are best suited for secure, long-term storage of digital assets, giving users full control over their private keys.

In fact, major exchanges such as Binance and Coinbase will set up your storage automatically. Exchanges are there to conveniently trade cryptocurrency, therefore storing Bitcoin there might be convenient for a short period of time. However, it is highly recommendable to ultimately transfer funds to a wallet where the user is responsible for securing, backing-up and managing his own funds. This is where the importance of knowing the difference between a crypto wallet and exchange comes in handy. In this article, I’ll take a look at how a cryptocurrency exchange wallet is different from a regular crypto wallet and examine whether you should store crypto in a crypto wallet or an exchange. Whether a wallet, an exchange or a hybrid solution is the best choice for you depends on your needs and your level of comfort with crypto.

• You can use your own crypto wallet in many cases to store, trade and carry out transactions using cryptocurrency.
• While it still can’t compete with the pure-play crypto platforms on this list, Robinhood Crypto is a solid choice for those looking for an app that features crypto and stocks all in one.
• Exchanges can be centralized, where a third party controls the platform, or decentralized, where trading occurs directly between users.
• And, while banks are heavily regulated in the US and other countries, it’s important to remember that Bitcoin exchanges are not subject to all the same regulations.
• You should choose a cryptocurrency exchange that aligns with your preferences, like your risk tolerance, time horizon, preferred trading features, and investment goals.

Moving crypto from an exchange to a wallet means that a user will obtain ownership of their private keys. This brings with it a new level of security and sovereignty, but also an additional layer of responsibility. When holding one’s own private keys, a user effectively becomes their own bank, making them responsible for anything that could happen, including total loss of funds. Some crypto exchanges provide users with the option to take out a loan against their crypto, for example.

Traditional exchanges let you deposit coins and leave them in the exchange’s custody, and should you decide to, you can trade the deposited amount instantaneously – without the need for a transaction. While coins purchased are credited to you on the exchange platform, unlike using a wallet, you are not entirely in control of your assets until you actually withdraw them to your own wallet. Using exchanges that also act as wallets still make you vulnerable to fraudulent activity. Worse off your account could be compromised in the unfortunate case of hacking.

Futures trading is available for bitcoin, ether, litecoin, bitcoin cash, and ripple. Robinhood’s cold wallet securely stores you’re coins and tokens directly in the app. Account holders will also have access to crime insurance against cybersecurity breaches and theft (underwritten by Llyod’s syndicates), plus 24/7 customer support. If you use a hot wallet connected to the internet, it could still be exposed to hackers. That’s why it’s essential to use a company with a strong reputation for security. The public key is like your bank account number but doesn’t provide access to your crypto.

In addition to typical software Bitcoin wallets you might run on a PC or phone, there are hardware-based Bitcoin wallets like the Trezor or Ledger. You could also use a paper Bitcoin wallet, which has a public Bitcoin address and private key printed on it. This is effectively an offline Bitcoin wallet, and you could store it in a safe or other secure location without worrying that it could be compromised by malware running on your PC. Of course, anyone who acquired the piece of paper would have the ability to spend your Bitcoin.