For budding investors, many terms in the crypto world are confusing. When they find new terms that look the same, they are facing difficulties in distinguishing them. As a crypto exchange developing company we have the responsibility to clarify such confusing terms in the digital space.
Crypto exchange and crypto wallet development are some of the common and also confusing terms used in the digital environment. Most traders came across these elements of cryptocurrency trading. Both enable seamless crypto trading. But more than these, both are different parts of the ecosystem.
As a trader, investor, or entrepreneur in the crypto space you need to know the difference between these elements. Knowing it can help them to understand trading platforms well, choose the best investing methods, and build a seamless workflow with crypto trading tools. Through this blog, you can get points on the differences between the two. Let’s dive into the content.
What is a Cryptocurrency Exchange?
Before looking into the key differences between cryptocurrency exchanges and crypto wallets, you need to know their proper definition. In this part, you can check about the crypto exchange as a platform.
The crypto exchange is nothing but an online platform that allows you to buy and sell cryptocurrencies like Bitcoin, Ethereum, Dogecoin, Ether, or other cryptocurrencies and tokens. The price of the cryptos and the tokens are determined based on the current market fluctuations at that time.
Such an online platform can be a website or an app. Nowadays, a maximum of crypto exchanges can be accessible in the form of mobile applications and also web applications. The platforms allow traders to do conversion of fiat money into digital currencies. For example, a person can get Bitcoins or other digital currency that is equivalent to the corresponding USD or other fiat currency in the world. Besides this, traders can also revert this process; which means through the exchanges you can convert the crypto coins into fiat currency and that can be credited directly into your bank account.
Types of Cryptocurrency Exchange
Simply crypto exchange is the place where trading of cryptocurrency has taken place. Usually, it can be classified into the following types.
- Centralized Exchanges (CEXs),
- Decentralized Exchanges (DEX) and
- Hybrid Exchanges (HEX).
Centralized Exchanges (CEXs) - A centralized crypto exchange is a platform on which the trading of cryptocurrency can occur under the supervision of a centralized body. The central body can be a government or a private exchange. Simply, a CEX is an exchange that is created and run by a company or government. Most budding traders hope the centralized exchanges are reliable for their investments and security. WazirX, Binance, and Coinbase are some examples of centralized crypto exchange platforms.
Decentralized Exchanges (DEXs) - Despite the centralized exchanges seeming good for beginners, the actual purpose of the crypto is decentralization. The most beneficial and secured transactions can be done through decentralized exchanges (DEX). Recently, the rise of decentralized finance (DeFi), the P2P model, and decentralized applications (dApps) on blockchains are supporting the development of DEXs. Uniswap, Pancakes Wap, and others like these can be considered as DEXs
Hybrid Exchanges (HEX) - Hybrid exchanges are developed and designed to overcome the limitations of CEXs and DEXs. By aiming for the best features of both CEX and DEX, hybrid exchanges are developed. So, it is more seamless than the other two exchanges. Qurrex, Eidoo, Legalos, and others like these are some examples of hybrid exchanges.
However, nowadays crypto exchange is one of the successful businesses in the crypto space. So, the entrepreneurs are focusing on cryptocurrency exchange development to provide buying and selling of cryptocurrencies. But what is a crypto wallet? Let’s check.
Crypto Wallet: What is it and How it Works?
Merely, a crypto wallet is just a technological solution or a software program that allows users to store digital currencies in an online storage facility for cryptos. It helps traders to transfer and receive crypto by using their private keys.
A private key is a fundamental element of a crypto transaction which is a secret number that is used in cryptography, similar to a password. In cryptocurrency, private keys are also used to endorse transactions by ensuring the blockchain address of every trader. That’s why it should be kept securely. Hackers and cybercriminals usually target private keys by using malware and other ways.
If such cyber attacks are successful, then they can steal private keys and they can spend access to the crypto-coins of the victims. The private key is usually stored in the crypto wallets through which the users can access their funds. It adds a layer of security to keep the crypto savings safe.
Crypto wallets are different from normal wallets, as they technically don’t store cryptos. That means your holdings are stored on the blockchain, but the private key that is needed to access the holdings is stored in the wallets. Simply, such a key is the proof of ownership of digital money. That’s why if anyone loses their private keys, they’ll lose access to their digital assets,
Wallets can be anything that you used to save the primary key safely. For example, the keys can be written on a physical medium like paper and stored in a safe place. But in this digital world, it's not a popular way to store such crucial data, and digital money can only be used on the internet, the wallet should be in the digital form to ensure high feasibility.
Hardware wallets are one of the ways to store the keys in a digital form. For example, a thumb-drive device connected to a computer to use your crypto primary key. The idea is to try to balance security and convenience. But it’s not a solution to keep the private key as it couldn't be operative by everyone and anywhere.
So, as a permanent and easy solution to save private keys, online wallets are crafted: in this method of storing the data, the keys will be stored in an app or software which is protected by two-step encryption and other security measures. It allows the users to send, receive, and trade the cryptos easily by using any online payment system, or brokerage. Two main types of crypto wallets are commonly in practice at this present, they are hot wallets and cold wallets.
Difference Between Crypto Wallets and Exchanges
So far now, you’ll get all the elementary details on the crypto exchange platforms and the wallets. Now, let’s get to know the difference between wallets and exchanges in the crypto world. Despite both begging two essential factors for its success in the crypto-industry, each one has its uniqueness and fulfills the individual needs and expectations of the users.
- For instance, through an exchange traders can buy and sell cryptocurrencies. But with the wallet, the users couldn't directly participate in the trading.
- In the exchange platform for a crypto space, traders can convert fiat currency into cryptocurrency easily. But most wallets couldn’t provide such services to their users.
- From a crypto exchange platform, traders can send their cryptocurrencies to a wallet. From the wallet, any user can also transfer digital money for trading through an exchange.
- The wallets can provide more security for your cryptos, as it is crafted to be a storage facility by preventing hackers from stealing your primary key. Compared to wallets, the reliability of the exchanges in the security measure is doubtful.
- Through a crypto wallet, the users can access their tokens or cryptos at any time they want. But in the exchange platform they may have very few conditions for accessing cryptos in some cases.
- In a wallet, the user can hold their crypto assert for a long-term or short-term as they want. But they couldn’t gain the benefits of trading cryptos through it.
So, these are the important differences between a cryptocurrency exchange and a wallet. However, from the perspective of a user, the crypto exchange and the wallet are useful to gain the benefits of storing and trading. If you are an entrepreneur, by developing both crypto exchanges and wallets you can earn money through commissions and other fees from the users. For all beneficial aspects, knowing the differences between the exchanges and the wallets will be helpful.
Through this blog, you may get to know the differences between exchanges and wallets. We hope it can reduce the complexity of investing in cryptocurrency, especially for beginners. At the same time, budding entrepreneurs should know more about exchanges and wallets. If you are one of them who has an idea to develop a crypto wallet or an exchange. We at CryptoApe can help you.
As we have more years of experience and have great crypto platform developers, we can craft a robust solution for multiple purposes like exchanges, wallets, launchpads, token generations, and others. We can provide you with the development of crypto wallets and exchanges ranging from simple-to-use apps to more complex security solutions. All you need to do is stay with us for further updates, data, recent trends, and information on cryptos.