Crypto Wallet vs. Exchange: What Are the Differences?

Bitcoin, the world’s first cryptocurrency, was first released in 2009. Back then, it was given away for free. Over the past few years, bitcoin has evolved into an entire cryptocurrency industry, worth more than $3 trillion globally.

Crypto is here to stay. Are you ready to start investing? If so, you’re going to need to know the difference between some of the terms that are thrown around in the crypto community. Crypto wallet? I thought crypto was virtual.

Crypto exchange? Is that like the stock market? Knowing the difference is confusing for newcomers.

Crypto wallet vs. exchange, what are the differences, which one do you need to use, and when? Keep reading our Crypto exchange and crypto wallet guide down below to learn how to start investing in cryptocurrency today.

What Is a Crypto Exchange?

A crypto exchange is where every crypto investor needs to start. It’s the on-ramp into the realm of cryptocurrency.

This is the website where you will trade your fiat currency (like US dollars) for cryptocurrency, like bitcoin, Ethereum, Solana, and hundreds of others.

Centralized exchanges are those that are licensed to operate in a given country. In the US, centralized exchanges include companies like Coinbase, Binance, Kraken, Gemini, and a handful of others.

To use one, you need to create an account that includes verifying your identity. This is required by the government, as part of an effort to reduce financial crime, such as fraud and money laundering.

Once verified, you can link your bank account, or use a debit card to add funds to your exchange account. Then, you choose which cryptocurrency you want to buy, and the exchange will match you up with a seller, just like on a stock exchange.

Now you have cryptocurrency.

What Is a Crypto Wallet?

Crypto wallets are places where you store your cryptocurrency. Most people use software wallets, which are browser extensions or software applications.

A crypto wallet allows you to self-custody your cryptocurrency, meaning that you are in complete control of it. By removing your cryptocurrency from an exchange into your own wallet, your funds are less susceptible to attacks from hackers.

For those planning to hold their funds long-term, this is the best option.

Crypto Wallet vs. Exchange

Most crypto investors use both a crypto exchange and a wallet. The exchange allows you to purchase cryptocurrency using your fiat.

When you buy it, it sits in a crypto wallet on the exchange. However, even though the wallet is tied to your online account, the funds are still held in custody by the exchange.

A wallet allows you more control over your cryptocurrency by holding onto the private keys yourself. As is often said in the crypto world; not your keys, not your crypto.

Plus, wallets make it easy to move crypto around, send it to others, and even spend it at online or local retailers.

Getting Started With Crypto

Crypto wallet vs. exchange, which do you need first? You can’t buy crypto without an exchange, so your first step is to choose an exchange and create an account.

In the beginning, it’s fine if you hold your funds on an exchange. But most investors recommend having at least one separate wallet for your assets, especially as you acquire more and more.

Looking for more crypto tips and tricks like this? Visit our blog now to keep reading.