Crypto Private wallet vs Exchange wallet

Crypto Private wallet vs Exchange wallet: Some people use many cryptocurrency wallets to store your digital assets. Others crypto traders leave their funds on a secure cryptocurrency exchange. but what distinguishes one from the other?

Cryptocurrency private wallet vs Exchange wallet

There is one key difference between using a cryptocurrency private wallet vs exchange wallet account to store and manage your digital assets. when you use a cryptocurrency wallet, you and only you're in complete control over what happens to your Bitcoin. but once you keep your crypto on an exchange wallet account, sometimes referred to as an exchange wallet, you share control of your cryptocurrency with the exchange itself.

Private wallet vs Exchange wallet

On an Exchange Wallet, You Don’t completely control Your Cryptocurrency

So what does that mean? There are a couple of analogies that can facilitate clarify, but maybe the most illustrative is that the bank vs wallet analogy. set aside the fact that your U.S. dollars are just IOUs the government promises to honor.

When your money is sitting in a saving account, your access to it and what you can do with it (withdraw, spend, etc.) is set by the bank’s policies. moreover, banks can use the money you deposit to issue loans or make investments. In a short note, within a bank, you don’t completely control your money at every moment.

And the same is true once you store your cryptocurrency on an exchange. when it comes to private wallet vs exchange wallet, the exchange controls the crypto coins and basically promises that you own a share of the exchange’s assets. but this leaves investors with exchange wallet accounts open to risks. anything that impacts the exchanges hacks, network issues or financial problems, like when OKCoin was broken into also impacts your funds and your ability to use them.

Why do cryptocurrency traders leave themselves open to such risks? Convenience. Keeping crypto on an exchange helps you to quickly trade digital funds for different crypto and fiat. Given the benefit of users, the fact that most major exchanges will set up your exchange storage for you, several investors just leave their funds on exchanges without giving it a second thought.

You control Your Cryptocurrency private wallet

With cryptocurrency private wallets, control over your digital assets is entirely yours. when different a wallet vs exchange, think of a crypto wallet as the equivalent of having money with you. you can access it wherever you have it with you and use it with anyone who can accept it. like a physical wallet holding money, if you lose it you’re out of luck.

How that works in the digital realm is somewhat completely different. A cryptocurrency wallet isn’t necessarily a physical device, although it can be a specialized hardware device, like John McAfee’s “unhackable” wallet.

Instead, a cryptocurrency wallet is a software program that stores and secures files containing your private’s good to know about what is cryptocurrency and understand how blockchain technology works. but essentially, every cryptocurrency transaction involves a public key and one or more private keys that “sign” off on the exchange. Your private keys are proof that you—or whoever controls your keys—owns a certain amount of crypto and can, therefore, use it to complete transactions.

As such, your private keys are the most necessary part of your cryptocurrency holdings. Lose them, and you lose your crypto coins holdings until you know how cryptocurrency wallet recovery works.

And this brings us back to the issue with using a crypto wallet vs exchange storage already mentioned. If your wallet is on an exchange account, you don’t control the private keys—the exchange does. and that introduces the problem of trust that cryptocurrency is supposed to do away with. That’s why using your own private wallets, maintaining multiple wallet backups and keeping them secure offline is a must for anyone seriously investing in digital currency.

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