As a crypto trader, there is a pressing need for security and a specialized platform for effective trading; that’s where Wallet and Exchange come in. As long as crypto is concerned, a crypto wallet and a crypto exchange are a prerequisite to getting started with crypto. Oftentimes, users get confused about their differences. While they both are crypto holding platforms, there exist some highly distinctive differences between a wallet and an exchange. This article will help a newbie identify what a wallet and an exchange are. And how they operate using two popular apps as a case study. Let’s explore the difference between crypto wallet and exchange.
What is a Crypto wallet? And how does it work?
Firstly, a crypto wallet is for storing crypto coins. A decentralized application. It is a decentralized application because its users have full authority over all marketing activities within the app. A crypto wallet is a must-have for every crypto investor. Its building process requires a pair of cryptographic keys (public and private keys) and algorithms (for instance, ECDSA). In addition, it often uses APIs and open-source libraries for effective blockchain interaction and development. A crypto wallet consists of a key recovery phrase or private as it’s the only key access. Nevertheless, these recovery phrases could be 12, 18, or 24 key recovery phrases. On the other hand, a Private key consists of a long string of letters and numbers mixed to constitute a private key.
Cryptographic Keys:
A pair of cryptographic keys is used in the building process. These keys are what make it well-secured for all users. Below are further explanations.
- Public Keys: In other words, described as a wallet address that enables others to send you cryptocurrencies.
- Private Key: In other words, referred to as a secret password or digital signature. It enables an individual to spend cryptocurrency.
Cryptographic Algorithms:
These are a set of rules or procedures during problem-solving operations or calculations. Mainly used in computing operations.
- ECDSA: ECDSA (Elliptic Curve Digital Signature Algorithm) is a unique algorithm for generating and verifying digital signatures. This ensures the authenticity and unification of transactions.
APIs and Open-Source Libraries:
- Application Programming Interface (APIs): APIs allow wallets to connect to the blockchain network and also interact with various networks.
- Open-Source Libraries: Refers to already built tools and code that simplify the development.
In addition, some wallets have vital features like sending and receiving tokens, transaction history, cryptocurrency prices, and charts. They also provide QR codes for transaction activities. These include wallets like Trust Wallet, MetaMask Wallet, Coinbase Wallet, Blue Wallets, and many more. Moreover, a wallet can be either software-based (apps or browser extensions) or hardware-based(Hardware devices, e.g., Ledger Nano). Every example listed above is an example of a non-custodial wallet (owners are in Control).
What Is a Crypto Exchange? And How Does it Work?
Then, a crypto exchange is a trading platform for different cryptocurrencies. We have centralized (for instance, Binance) or decentralized (like Uniswap and more) exchanges. Furthermore, an exchange is made up of sophisticated blockchain technology, strong databases, various programming languages, and frameworks that serve as the foundation. This, in conjunction, facilitates secure and efficient trading of numerous cryptocurrencies.
FUNDAMENTALS OF AN EXCHANGE
- Blockchain: Blockchain technology is fundamental as it ensures transparent and secure trading transaction records.
- Trading Engine: These are vital machines that match buy and sell orders, verify balances, and process transactions in the platform.
- Databases: All transaction history and other critical information are important. Therefore, stored using robust databases like PostgreSQL or MongoDB.
- Programming Languages and Frameworks: Computers use programming languages to carry out tasks. The famous programming languages for backend development are Python, JavaScript (Node.js), and Ruby on Rails. Also, HTML, JavaScript, and CSS frameworks (including Angular.js, React.js, or Vue.js) for frontend development.
- Wallet: However, an exchange is a trading platform but nevertheless there is a built-in wallet. A centralized wallet for storing cryptos(controlled by a third party).
Difference between wallet and exchange: Some Features of Exchanges
- Registration and KYC Verification: Obviously, there are secure registrations and KYC verifications (e.g. Binance).
- Security Feature: There are implementations of 2-factor authentication code, SSL encryption, and regular security audits.
- UI (User Interface) and UX (User Experience): A user-friendly and instinctive interface for trading and management of assets.
- Order matching: A buy and sell order matching mechanism to facilitate transactions.
- Transaction Processing: A system responsible for verifying and recording transactions on the blockchain.
- Data Reporting: Qualitative report of real-time data on prices, rates, and commissions.
- Customer Support: Additionally, exchanges offer assistance to every user within the platform regarding all trading activities.
Undoubtedly, the exchange gives users lots of trading advantages.
Difference Between wallet and exchange
There are so many differences between Exchanges and Wallets.
| Feature | Crypto Wallet | Crypto Exchange |
|---|---|---|
| Purpose | Stores cryptocurrencies | Facilitates trading of cryptocurrencies |
| Control | User has full control (decentralized) | Controlled by a third party (centralized) |
| Security | User manages private keys | Security is managed by the exchange |
| Ease of Use | Can be complex to set up and use | More user-friendly, suitable for beginners |
| Leverage Trading | Not supported | Supports leverage trading |
| Built-in Wallet | Dedicated wallet for storage | Has a built-in wallet but controlled by the exchange |
| Risk | User risk is only based on their security practices | Higher risk if exchange is hacked or faces liquidation |
| Functionality | Storing, swapping, bridging, staking, NFT trading | Buying, selling, spot trading, leverage trading, P2P trading, NFT trading |
| Regulation | Not regulated | Subject to regulations and KYC requirements |
| Data Storage | No third-party storage of user data | Stores user data and transaction history |
| Security Features | Uses private keys and recovery phrases | Implements security features like 2FA, SSL encryption |
CRYPTO WALLETS
Importantly, it is vital for us to get to know some of these wallets. Following this, here are some crypto wallets you may know: Listing in no particular order;
- Trust Wallet
- MetaMask Wallet
- Coinbase Wallet
- Rabby wallet
- Blue Wallet
- Ledger Nano (Hardware Wallet)
- Trezor (Hardware Wallet)
- Exodus Wallet
- Atomic Wallet
- Electrum Wallet
- MyEtherWallet (MEW)
- Guarda Wallet
- Crypto.com DeFi Wallet
- Edge Wallet
- Phantom Wallet (for Solana)
- Zengo Wallet
CRYPTO EXCHANGES
Also, here are examples of some crypto exchanges you may know: Listing in no particular order;
- Binance
- Coinbase
- Kraken
- Bybit
- KuCoin
- OKX
- Gate.io
- Bitfinex
- Huobi
- Crypto.com Exchange
- Bitstamp
- Deribit
- MEXC Global
- Phemex
Decentralized exchanges
- dYdX (Decentralized)
- Uniswap (Decentralized)
- PancakeSwap (Decentralized)
- SushiSwap (Decentralized)
Similarities of Wallet and Exchange
In as much as there are lots of differences, there are also key features they both have in common.
- Storage: Both can store large amounts of cryptocurrency
- Security: Both ensure the security of data within the platform
- Interface and Blockchain: Both have means of interacting with blockchain. This provided means allows the management and transaction of digital currencies.
CONCLUTION
In summary, these two are vital in the crypto world and offer an unlimited user experience worth engaging with. The key point to note from the above article is that an exchange is basically a trading platform. Where you can conduct all kinds of crypto trades;
- buy and sell
- spot trading
- leverage trading
- premarket trading
- NFT trading
- P2P trading, etc
Hence, one is advised never to leave their cryptos on exchanges. As the popular saying goes,’ not your key, not your crypto. ‘ Should an exchange face any kind of liquidation, users stand the chance of losing their entire crypto holdings on that exchange.
However, wallet on the other hand can be concidered as a place where you hold crypto. In simple terms, it is a crypto storage facilities. Nevertheless, other defi activites are also permitted on wallet: These includes but no limited to;
- storing
- swapping’
- Bridging
- staking
- NFT trading, etc
NEVER SHARE YOUR PRIVATE KEY OR KEY RECOVERY PHRASE WITH ANYONE. Anyone with access to your wallet key can log in and perform transactions such as draining the entire wallet.
Lastly, share with someone who may need this, and let us know what you think in the comment section. Check out other posts below.
- Step-by-Step Guide on How to Participate in Ava Protocol Airdrop
- Bitcoin Surges to $88,000 amid market Volatility
- Guide on: How to Participate in GPUNetwork Airdrop
- how to do layeredge POH verification
- How to Recover Crypto Sent To Wrong Address/Network
