13 Differences Between Crypto Wallet and Exchange

What are the differences between crypto wallet and exchange? In the crypto industry, two of the most important things that are needed are a cryptocurrency exchange and a crypto wallet to make a successful trade.

These two are ideally the most important tools that help in crypto trading as well as managing digital currency, and ideally, they work together.

When you buy crypto coins for the first time, you will have to make a choice between a crypto wallet and a crypto exchange.

Typically, the dedicated crypto wallets and those that are integrated into the crypto exchanges have stark differences between them though people usually get confused with one another.

Therefore, though both will let you store your coins, you should know the difference between the two to use them more efficiently.

For example, Binance, Kraken, Coinbase are some of the major crypto exchanges while Trezor, Ledger, Electrum, Wasabi and their likes are few of the notable wallets.

The crypto investors and traders will need to choose crypto exchanges and wallets to help them in their venture since both of them will help in fulfilling the necessities of the ecosystem.

Therefore, it is elementary that the crypto investors know the exact reasons to use a cryptocurrency exchange and at the same time maintain a reliable crypto wallet.

Here in this article you will come to know about the differences between the two so that you know the workings and importance of each along with the significant advantages of both. This will prevent you from making costly mistakes.

13 Differences Between Crypto Wallet and Exchange

Differences Between Crypto Wallet and Exchange

A crypto exchange ideally is a place where you can trade your crypto coins and store them as well.

On the other hand, a crypto wallet is a space that will allow you to store your crypto assets more securely even if you do not use it actively.

Most of the major crypto exchanges have their own separate wallet apps as well but these are not the same. Check out Differences Between Crypto Coin and Token.

Here is a more detailed look at the differences of the two that will help you to decide which specific wallet you should go with for trading your crypto assets.

1. Definition

If you go simply by the definition of the two, a crypto wallet is a set of keys that will allow full control over your funds as well as your private key. Ideally, these crypto wallets are specific programs that will allow you to store your crypto assets.

A crypto exchange, on the other hand, is a platform that generates the keys and has full control over it instead of the users while moving funds in and out of the wallet. These are essentially a website that allows trading as well as converting crypto coins much easily.

2. Storing Methods

The way in which your crypto assets are stored also differentiates a crypto wallet and crypto exchange. A crypto wallet is a digital wallet or a piece of software that holds the public and private keys to the coins instead of the cryptocurrency itself. These wallets typically help you to prove your ownership of the coins.

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The crypto exchanges come with hot wallets which are hosted online and your coins are linked directly to your account. These wallets on the exchange allow trading them freely or transferring them to other exchanges or wallets. However, as said earlier, you will not have access to the keys.

3. Working Process

A crypto exchange works as a platform where you can buy and sell crypto coins and other digital assets. Offering different charts and tools, a crypto exchange is a place where you can review the prices of the crypto coins before you buy, sell, or convert them into cash using the platform.

A crypto wallet, on the other hand, is one that makes it actually possible to trade the crypto coins. You can use your crypto wallet to send or receive the coins you trade through the exchange. It is something that secures your crypto assets.

4. Needs

Choosing between a crypto exchange and a wallet should be based typically on your needs. This means that, if you are mainly into trading crypto coins, you may go with the trading platforms for storage of your coins since you will need them frequently, often in the same day.

These are typically suitable for the crypto day traders, swing traders, and momentum traders.

On the other hand, if you want to store your crypto assets for a long time and sell those at a high price to make profits, storing them in a crypto wallet should be the perfect decision. Therefore, crypto wallets are suitable for investors.

5. Backup and Management

If you store your coins on a crypto exchange platform, you will not need to create a backup or secure it, though the risk of hacking cannot be eliminated.

However, with a crypto wallet, you can store your coins without requiring relying on any other platform or person. However, you will need to create a backup and also keep it secure as well as need to spend some additional time in its management.

6. Risk Factors

Choosing a crypto wallet will be much safer and more secure than a crypto exchange but then it is just a set of public or private keys. This means that if you lose these keys you lose the ownership of your coins and seldom can recover them.

As for the wallets on exchanges, if the security measures of the platform are not adequate to protect your keys, you may lose all your money because someone else may gain access to your funds by hacking the account.

7. Ownership

If you have the keys to a crypto wallet, you automatically gain the ownership of the coins it can access.

However, when you store your coins on the exchange platform itself, it will not give you complete ownership of them unless you actually withdraw the coins to your own wallet.

8. Control

Storing your digital coins in your wallet will also allow you to have more control over your digital assets which will give you more peace of mind because you will know exactly where your coins are stored.

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While, on the other hand, if you leave them with the custody of the crypto exchanges, there is no doubt that you can make trades instantaneously without needing to make a transaction and the coins bought will be credited to your wallet on the exchange platform.

However, this also means that you will have less or no control over them.

9. Security Aspect

The security measures of the wallets on an exchange may not be quite adequate to protect your crypto assets stored in it. However, several crypto exchanges now have bolstered their security measures. Even then, the risks of hacking and cyber attacks still remain.

On the other hand, the crypto wallets come with security features that are of almost the same degree as the traditional banks which is why these wallets can offer more control over your own crypto coins.

Just like a bank can freeze an account, the wallets have similar ability due to the principle maxim of ‘not your keys, not your coins,’ applicable on them.

10. Knowledge

To store your crypto holdings in a separate wallet, you will need to have a very sound understanding of the public and private keys, the types of wallets, and other allied security aspects of crypto.

On the other hand, storing your crypto coins on an exchange seems to be a very good idea if you do not want to have adequate knowledge of the above mentioned aspects.

11. Chances of Going Down

Almost all exchanges have gone down in the past and therefore, storing your crypto assets on them is really not a very good idea.

However, if you still choose this route, make sure that the exchange offers insurance coverage on your crypto holdings and they use cold storage methods themselves. This will add an extra layer of protection and peace in mind.

In contrast, since there is a less chance of the crypto wallets to go down, you will not need to worry about these aspects, provided you do not lose the keys yourself.

12. Number of Coins Dealt

It is always better to store your digital coins in a much safer wallet, especially if you deal with a large number of crypto coins instead of leaving them in the custody of the crypto exchanges like most people typically do.

On the other hand, if you deal with a much smaller number of crypto coins but on a regular basis, storing them on a crypto exchange is quite a feasible option.

However, make sure that you take all the necessary actions and measures to safeguard the passwords and the other methods of authentication, even though chances of hacking cannot be eliminated completely.

13. Designed for

The exchange wallets are designed to provide more convenience to the users since these are precisely integrated to the buying and selling functionality of the platform. These are very simple to use.

A crypto wallet is specifically designed to provide more security and ease of access but you will need to create a backup system because these can be susceptible to failures, especially if you use a flash drive or a hard drive.

Which is Better: Crypto Wallet or Exchange?

This may be a justified question but the problem is that there is no one-size-fits-all answer to it. The decision or choice between a crypto exchange and a wallet is solely a personal matter and preference.

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Though it is hard to compare between a crypto exchange and a crypto wallet simply based on the differences mentioned above, it is a better idea to choose one according to your needs.

However, if you look at the matter more technically, there is no need to go through the hassles of downloading a hot wallet program on your desktop or store the coins in a cold wallet.

There are several reliable crypto exchanges that allow the users to store their assets in a wallet on the exchange itself, and most people do that exactly, though the crypto experts and financial advisors will suggest against it.

There are lots of good reasons to say so and one significant reason is that these exchanges are not protected by any regulatory body such as a bank and therefore your coins will be unsafe and vulnerable to attacks.

Therefore, to be better off, you should not rely on this option entirely and sooner or later you must move your coins to a more secure and your own form of storage.

However, if you choose a crypto wallet to store your coins, make sure that you assess the risk factors and your tolerance based on your goals. You should do some homework and make your choice based on how exactly you are going to engage your coins and where.

There are a few things that you should keep in mind in this aspect such as:

  • Never fall prey to the alluring ads and promising solicitations that you may get in your inbox.
  • Always choose ones that are more popular and more mainstream because these will usually come with fewer risks.
  • Go for those that are time-tested because these wallets will be more reliable. This is because the security team will implement the latest security practices.
  • Update your wallet on a regular basis if it runs on software to do away with the old versions of it.
  • Choose a crypto wallet with a two-factor authentication and other sophisticated authorization methods.
  • Never share your wallet keys with anyone just as you do not share the PIN of your debit card or your Social Security number.

Finally, always use a strong password which is a mix of upper and lower cases and symbols and is hard to guess. Also, update it on a regular basis and do not use one specific password for multiple accounts.


One of the primary decisions to take in a crypto trading journey is whether to use a crypto exchange or a crypto wallet. Now that you know the differences between the two, it will surely be much easier for you to make a quick decision.