People are starting in the world of cryptocurrencies but who have certain doubts about the differences between a wallet and a cryptocurrency exchange; in this article, we will explain each of these terms and mention their main differences.
A cryptocurrency wallet or purse is a kind of “bridge” that allows the administration of cryptocurrencies, software, or hardware with which you can perform operations of receiving and sending cryptocurrencies, making use of the blockchain network of a cryptocurrency. Thus, a wallet is one of the most important elements in the cryptographic world and blockchain technology.
How does a wallet work?
A wallet’s operation is based on cryptography; therefore, its design is important since its objective is to operate and manage cryptocurrency funds. Although the term “purse” or “wallet” seems similar to the one we use to store our physical money, when it comes to cryptocurrencies, what is stored in them is not money as such, but public and private keys, since Cryptocurrencies are a kind of “record of operations” contained within a blockchain that is operated through interconnected nodes around the world and in a decentralized way.
What is an Exchange?
A cryptocurrency exchange is a kind of “exchange house,” a conversion point at which cryptocurrency exchanges are made in exchange for Fiat money or other cryptocurrencies. In this type of “online exchange house,” the market price is generated assigned to the value of cryptocurrencies based on supply and demand. The name “exchange” or cryptocurrency exchange refers to a mostly virtual space in which cryptocurrency buying and selling operations are carried out.
What is the purpose of an Exchange?
The purpose of an exchange is to allow the user to participate in the market for buying and selling cryptocurrencies. Thanks to the Exchange, it has been possible to stimulate economic and financial life in cryptocurrencies, which has allowed today, making exchanges of Fiat money to cryptocurrencies (or vice versa) something simple, fast, and that can be done from anywhere in the world.
Now that we have a clearer definition of these terms, we will mention five notable differences between a wallet and an Exchange:
Basically, the main difference between a wallet and an exchange is the usefulness of each of these tools. A wallet is used to store and control our cryptocurrencies; that is, it is a kind of “wallet.” On the other hand, an Exchange is used to carry out financial operations (buying and selling) with cryptocurrencies, making exchanges, either for Fiat money or for other cryptocurrencies. As we mentioned earlier, an Exchange operates as a kind of “online exchange house.”
A wallet works as a kind of “wallet” in which cryptocurrencies can be stored, something that cannot be done directly on the website or application where it is acquired. On the other hand, an Exchange works as a kind of “online bank account” in which the money is safe, and when the person wants to use it, they only have to indicate the place where they want to mobilize or transfer.
Another difference is the type of connection; However, there are several types of wallets. To have our cryptocurrencies safe, it is not required to have an Internet connection (although this applies only to cold wallets). While in the case of an exchange, there is no possibility of carrying out online operations without having an Internet connection.
If a person loses their wallet password, the money cannot be recovered since there is no possibility of resetting the password. On the other hand, in an Exchange, you have the possibility of resetting the password without any problem, and the money remains intact.
Possession of assets
In a wallet, the holder is the owner of the cryptocurrencies it contains. Only that person can use the cryptocurrencies at any time, in addition to the fact that it is tough for a third party to access without authorization, thanks to its high level of security. On the other hand, in an Exchange, you do not have possession over the cryptocurrencies since the Exchange holds and manages the funds on our behalf.
Wallet and Exchange
It is important to note that many companies offer a “double service,” allowing the user to have a cryptocurrency wallet and have the possibility of buying and selling cryptocurrencies (in addition to being able to exchange for Fiat money and vice versa). Many doubts about wallets and exchanges are due precisely to this “duplication of services,” which generally tend to complement each other and be offered together.
At Mercury Cash for example, we offer both services.
What do you think about this topic? Are there any other differences between Wallet and Exchange that you want to mention?
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