It’s no secret that cryptocurrency exchanges have been hacked in the past. In fact, it seems like hardly a week goes by without another exchange being hit. This has led many people to wonder whether it’s really safe to store their coins in an exchange, or whether they would be better off using a wallet instead. Here we will look at the role wallets and exchanges play, their similarities and differences. We will also look at why wallets are better for storing cryptocurrencies.

What is a crypto wallet?

A crypto wallet is a digital or physical device that stores your cryptocurrency’s private keys. Private keys are what allow you to spend or transfer your cryptocurrency, so it’s important to keep them safe. Crypto wallets can come in many different forms, such as software, hardware, or paper. They may also be known as hot and cold wallets.

What is a hot wallet?

A hot wallet is a type of crypto wallet that requires an internet connection to enable access. Hot wallets are generally seen as being less secure than cold wallets (which are not connected to the internet) because they’re more vulnerable to hacks. However, hot wallets can still be secure if they’re properly encrypted and have additional security features, such as 2-factor authentication.

What is a cold wallet?

A cold wallet is a type of crypto wallet that is not connected to the internet. Cold wallets are seen as being more secure than hot wallets because they’re less vulnerable to hacks. However, cold wallets can be difficult to set up and use if you’re not familiar with them.

exchange account, bitcoin wallet

What is a cryptocurrency exchange?

A cryptocurrency exchange is a platform where you can buy, sell, or trade cryptocurrencies. Exchanges are online platforms that allow you to exchange one cryptocurrency for another (or for fiat currency). Stocks like are similar in nature and stock exchanges work just like crypto ones. But there are differences and we will go into them here. 

Exchanges work by matching buyers and sellers of cryptocurrencies. When you want to buy or sell a cryptocurrency, you will place an order on the exchange. The exchange will then match you with a seller (or buyer) who is willing to trade at the price you’re looking for. Once the trade is completed, the coins will be deposited into your account on the exchange.

Some exchanges also allow you to store your coins on their platform, but this is generally not recommended due to security risks.

What are the types of crypto exchanges?

There are two types of cryptocurrency exchanges:

  1. Centralized exchanges: Centralized exchanges are online platforms that allow you to buy, sell, or trade cryptocurrencies. These exchanges typically charge a fee for their services.
  2. Decentralized exchanges: Decentralized exchanges are online platforms that allow you to buy, sell, or trade cryptocurrencies without the need for a third party. These exchanges typically don’t charge any fees for their services.

What are the similarities between a cryptocurrency exchange and a crypto wallet?

The sole similarity between cryptocurrency exchanges and crypto wallets is that both are online platforms that allow you to buy, sell, or trade cryptocurrencies.

Differences between a crypto wallet and an exchange

However, there are some key differences between a crypto wallet and an exchange:

  • Cryptocurrency exchanges typically charge a fee for their services, while crypto wallets don’t.
  • Cryptocurrency exchanges are centralised, while crypto wallets are decentralised.
  • Crypto wallets offer more security than cryptocurrency exchanges.

10 reasons why crypto wallets are safer than exchanges

There are several reasons why wallets are generally seen as being more secure than exchanges. Here are just 10 of them:

1. Wallets aren’t connected to the internet 24/7

This is perhaps the most obvious reason why wallets are safer than exchanges. If your coins are stored offline in a wallet, then they can’t be hacked through the internet. Even if your computer is infected with malware, your coins will still be safe as long as they’re not stored on any internet-connected device.

2. Wallets give you full control over your private keys

When you store your coins on an exchange, you don’t really own them. The exchange owns the private keys, and you’re simply trusting that they won’t lose them or get hacked. With a wallet, you own the private keys and have full control over your coins.

3. You can use multiple wallets for different purposes

If you’re using an exchange to trade coins, then you’re probably going to need to store them on the exchange in order to do so. However, if you’re just holding onto coins for investment purposes, there’s no need to keep them on an exchange. You can store them in a more secure wallet instead.

4. Some wallets offer additional security features

Some wallets, such as hardware wallets, come with built-in security features that make them even more secure than traditional software wallets. For example, hardware wallets usually have a PIN code that’s required to access the coins. This means that even if your computer is hacked, the hacker won’t be able to steal your coins unless they also know your PIN code.

5. Wallets can be backed up

If you lose your wallet or it gets stolen, you can usually recover your coins by restoring from a backup. This is much harder to do with an exchange, as you would need to create a new account and go through the verification process all over again.

6. Wallets can be encrypted

Most wallets allow you to encrypt your private keys with a password. This means that even if someone manages to get their hands on your wallet file, they won’t be able to access your coins unless they know the password.

7. Some wallets support 2-factor authentication

2-factor authentication is an extra layer of security that can make it much harder for someone to hack into your account. With 2-factor authentication, you need to provide not only your password but also another piece of information such as a PIN code or biometric data.

8. Wallets can be used offline

If you’re worried about the security of your coins, you can always store them offline in a cold wallet. This means that they can’t be hacked through the internet, and it’s much harder for someone to physically steal your coins.

9. You can check the security of your wallet

Before you store any coins in a wallet, it’s important to do your due diligence and make sure that it’s secure. There are a few different ways to do this, such as checking the reviews of the wallet or looking for an independent security audit.

10. You can use a paper wallet

If you’re really worried about security, you can always use a paper wallet. This is essentially a piece of paper with your public and private keys printed on it. As long as you keep this paper safe, your coins will be secure.

Conclusion

In conclusion, crypto wallets are safer than exchanges because it gives you full control over your coins and keeps them safe from hacks. Users can also keep different wallets for distinct purposes.

However, exchanges have several associated risks. You could lose your coins if the exchange is hacked. If an exchange is hacked, there’s a chance that you could lose all of your coins. You could also lose your coins if the exchange goes bankrupt. If an exchange goes bankrupt, there’s a chance that you won’t be able to get your coins back.

Furthermore, if an exchange decides to delist a coin, you might be forced to sell your coins at a loss. However, if your coins are stored in a wallet, you can hold on to them until you find a buyer. This is why it’s generally recommended to store your coins in a wallet instead.