Crypto for Beginners: Wallets vs Exchanges

The ever-growing world of cryptocurrency is full of questions and answers. Especially for those of you who are just getting started. In this series we discuss the most important things to understand as you explore crypto! This piece describes everything you need to know about the difference between wallets, and exchanges as well as how they’re used.

Wallets

Wallets are square one when it comes to owning and using cryptocurrency. Specifically, they keep your private passwords known as “keys”. Keys are necessary for accessing your cryptocurrency. If you want to have any interaction with cryptocurrency, you’ll need a wallet.

Wallets come in many different forms, each of which serve a different purpose.

Hardware wallets

Hardware wallets, AKA cold storage wallets, or air-gapped wallets, are designed to offer a medium-high degree of security. Some of the most popular varieties of these include Ledger and Trezor. These wallets look like memory sticks or mp3 players. To send and receive crypto with a hardware wallet, it needs to be connected to a computer or cellphone. Only when a button is pressed on a hardware wallet will it unlock the cryptocurrency keys for a specific amount of cryptocurrency which is stored in its memory. The idea behind the hardware wallet is to offer a healthy balance between security and convenience.

Online Wallets

Online wallets, or hot wallets, are wallets that store your keys in an app or some other type of software. Although they are extremely convenient, online wallets pose a greater security risk to your crypto keys, as they are easier to hack. When selecting an online wallet, be sure to pick one from a credible company or exchange. Some of the better online wallets include Crypto.com, Gemini, and Coinbase. Regardless of which online wallet you decide to use, be sure to enable two-factor identification. It’s also a good idea to keep most of your funds in a more secure wallet.

Using an online wallet is relatively easy. Online wallet interfaces are similar to the type of interface you would expect from a traditional online bank account. They make it simple to manage, send, control, interact, shop with, and browse decentralized applications with your crypto.

Paper Wallets

Paper wallets are the least commonly used type of wallet; however, they are by far the most secure. With a paper wallet, your crypto keys are written on a physical medium to be stored in a safe place. This medium can be pretty much anything, but usually paper wallets are printed on paper as the name suggests.

Exchanges

Cryptocurrency exchanges are websites or services where cryptocurrency investors can buy, sell and trade crypto. They are also used to convert digital currency into fiat currency. These exchanges are not dissimilar to the exchanges you find in places like airports; except instead of exchanging your native currency for foreign currency in a building, you are exchanging your digital currencies for other digital and fiat currencies.

Like wallets, cryptocurrency exchanges also come in several forms. Some exchanges perform multiple functions. Classic exchanges and peer-to-peer exchanges are the two most common varieties.

Classic Exchanges

The Classic cryptocurrency exchange process is like the way trading works in a stock exchange. You can exchange your assets for other assets by placing a limit order or a market order. When you place a limit order, it goes to an orderbook where it waits there until it’s matched with another order. Placing a limit order means that you’re waiting to hit a target price that is either specified, or even better.

Market orders on the other hand, come with higher fees, however they are instantly matched with the buyers and sellers’ requests, that are already available in the exchange’s depth of market.

Peer-to-Peer Exchanges

In a peer-to-peer exchange, there is no orderbook. Often, there is no middleman and trades are made directly and confidently made between individuals or companies. In the peer-to-peer system, there is no direct effect on the underlying asset

Decentralized Exchanges

Decentralized exchanges, or DEXs are a new take on how the exchange process works in cryptocurrency and is an integral component of decentralized finance, AKA DeFi. Although they work similarly to centralized exchanges, they lack a central point of failure. DEXs are not run by any company which is in charge of its assets, rather computer programs called smart contracts are implemented to automate transactions and trades.

DEXs have a big advantage over centralized exchanges. As they are run by a community of active participants, instead of a company, there is no possibility of a security breach assuming the smart contract is well written.

Conclusion

There are Killer Whale Products for every level of trader. As you become more familiar with cryptocurrency, rest assured you will have plenty of room for growth within the Killer Whale Pod! If you continue making smart investment decisions, such as using Killer Whale Signals and Strategies, you can graduate from using the Killer Whale Free Strategy to services such as Killer Whale Elite Signals sooner than you know it!

“Fortune favors the bold”

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