Cryptocurrency Explained: What's the Difference Between an Exchange and a Wallet?

Both Exchanges and Wallets are used to trade crypto, but they aren't the same thing either.

By Edited by Gadgets 360 Newsdesk | Updated: 8 August 2021 12:30 IST

Cryptocurrency Explained: What's the Difference Between an Exchange and a Wallet?

Photo Credit: Unsplash

Cryptocurrency exchanges and wallets both play different roles in the ecosystem

Highlights

A crypto exchange lets you buy and sell cryptocurrencies
A crypto wallet allows you to safely store your cryptocurrency
You'll want to use both if you're planning on investing in crypto

What's the difference between a crypto wallet and a crypto exchange? Both these tools are useful when trading in cryptocurrency, whether you're buying or selling Bitcoin or Dogecoin or any other token. But they both fill a different part of the ecosystem. Here's what you need to know about both the two, and why you want to use a crypto exchange, and also maintain a crypto wallet.

While cryptocurrency like Bitcoin or Ether are generated when you 'mine' the tokens by solving complex equations, as investors, we are typically just buying and selling the tokens that we use.

And a crypto exchange is where you can do this (and also store your coins), while a wallet is a way in which you can store your investments more securely but won't be using as actively. And in fact, many major exchanges also have their own separate wallet apps. Here's a more detailed look.

What is a cryptocurrency exchange?

A crypto exchange is a platform that lets you buy and sell your Bitcoin, Dogecoin, Ether, or other cryptocurrency tokens at fixed prices and with security.

The exchange is a website or an app that lets you convert your fiat currency (like USD or INR) into cryptocurrency. You can use these exchanges to convert the crypto coins back to fiat currency and into your bank account.

In absence of an exchange, if you wanted to buy a crypto coin, you would have to find another person willing to sell that coin. Then both would have to agree at an exchange rate, then send the crypto to your wallet, which is obviously a little more complicated.

What is a crypto wallet?

A crypto wallet is basically a software program that lets you store crypto coins. Say you bought a certain amount of Bitcoin, a form of electronic currency. Since it has no physical form, how do you safely keep it? This is where you need an online storage facility. A crypto wallet will do that for you.

A crypto wallet has private keys that allow you to sign transactions. Think of these private keys as secret codes that allow you to spend the crypto coin that you hold. The blockchain is a record of all these transactions.

These private keys are important. If someone steals your private keys (via malware running on your device), they could spend your crypto coin. Also, if you lose the private keys by any other means, you lose all access to your cryptocurrency holdings.

As we've explained before there are two main types of crypto wallets — hot and cold — that refer to how each of these wallets works. Wallets add a layer of security and keep your savings safe.

To learn more about the types of wallets, read our guide to wallets, to help you get started on your crypto journey.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

Affiliate links may be automatically generated - see our ethics statement for details.

Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.