In this article I will explain a crypto wallet exchange, centralised vs decentralised and if you should keep your crypto on an exchange.
What is a crypto wallet Exchange?
A crypto wallet exchange is a clash of terminologies in my opinion as a crypto wallet and a crypto exchange are two separate things. A crypto wallet manages private keys and gives the user the power to spend and receive crypto assets. A cryptocurrency exchange is platform for trading crypto. There are a lot of terms and nuances to understand in the crypto space. You use a crypto wallet like Metamask to connect to a decetralized crypto exchange like Pancakeswap or when using a centralised exchange you know the vendor controls the cryptocurrencies in your account wallet. If you understand what I just said congratulation you have a good understanding of crypto wallets and crypto exchanges. If on the other hand what you did not understand please take your time become familiar with the crypto space. A crypto wallet exchange is a terminology gotcha as people have done searches for this term are lead to links for crypto wallets or crypto exchanges.
What is a Cryptocurrency Exchange?
A cryptocurrency exchange or a digital currency exchange is a platform to trade cryptocurrencies. A user can buy and sell cryptocurrency, swap one crypto for another or even use fiat money to buy crypto. Some cryptocurrency exchanges also offer users the ability to connect their bank account to withdraw or deposit fiat money. Some offer wire transfers , I can remember using the SEPA system to fund my cryptocurrency account many years back. A cryptocurrency exchange or a digital currency exchange works in a similar way to the bureau de change we have in the UK or other money exchanges around the world.
Centralised Exchange Vs Decentralised Exchange
In principle all cryptocurrency exchanges offer users the ability to trade cryptocurrencies. The first crypto exchanges were centralised based on the evolution of the crypto space, no trades registered on the blockchain. In my opinion the pressure to have decentralised crypto exchanges were in part the fact that governments, banks and financial institutions had a hard time trying to control, regulate or even legislate for crypto in the early days. This proved the point about decentralised technologies being tamper proof. This in turn lead these government institutions to focus on the centralised crypto exchanges with regulations and laws. Now centralised crypto exchanges are subject to the financial regulations and laws of govern the territory they operate in.
In the operation of a centralized exchange a third party will fund,secure and monitor all transactions. A user will be obligated to provide their personal information before they can access the system( verification process ). The exchange will provide users with crypto wallets and be obligated to follow the financial regulations of the territory. In some cases this may require a license to operate. Centralised crypto exchanges usually have higher liquidity, more tools and offer a wider range of cryptocurrency. They offer new users the easiest onboarding process and the easier crypto journey so they are very popular in general.
A decentralised crypto exchange known as a DEX works in a similar way to a centralised crypto exchange. A decentralised exchange does not use a third party to secure or monitor transactions. To access a DEX a user must first have a supported crypto wallet this is a fundamental difference from a centralised exchange where the reverse is true. All transaction on a DEX are on the blockchain
Centralised Crypto Exchange
- Security : To avoid hackers, rigorous security measures are implemented.
- Popularity : Very popular as they have a low barrier for entry.
- Features : Usually has all the up to date new features.
- Liquidity : High volumes of liquidity on centralised exchanges.
- Speed : Transactions can be executed in under a second.
- Regulation : Based on the financial jurisdiction a centralised exchange will adhere to the regulation and conform to all compliance. This will result in the need to be licenced to operate.
- Control : The control is in the platform’s hands.
Decentralised Crypto Exchange
- Security : There is no risk of hacking or other security threats.
- Popularity : Not very popular has a higher barrier entry. A lot to learn before you get started.
- Features : Usually has a limited feature set.
- Liquidity : Low volumes of liquidity on decentralised exchanges.
- Speed : Transactions can take a while to complete.
- Regulation : Its near impossible to regulate a decentralised exchange. They do not require a license to operate.
- Control : The control is in the hands of the user.
Should I Keep Crypto On An Exchange
Your crypto would be lost if the exchange were to be hacked or if your account was to be compromised.
Because cryptocurrency exchanges do not provide SIPC or FDIC insurance, safe cryptocurrency storage is critical.
Within cryptocurrency forums, the phrase “not your keys, not your coin” is frequently used.
Keeping substantial sums of cryptocurrency in any hot wallet, particularly an exchange account, is not recommended.
A crypto wallet Exchange is a platform that enables users to buy, sell and trade cryptocurrencies. Crypto exchanges are essential in the crypto market because they provide a venue for buyers and sellers to interact with each other.
Crypto exchanges are typically divided into two categories, centralized and decentralized. Centralized exchanges are those which have a single point of control over funds or assets. Decentralized exchanges, on the other hand, have no single point of control.