In the cryptocurrency world, it can be difficult to distinguish between a crypto exchange and a crypto wallet, as they each have their own advantages and disadvantages.
Cryptocurrency exchange: what it is, its advantages and disadvantages
A cryptocurrency exchange is a digital currency platform that allows users to buy, sell and exchange various cryptocurrencies: Bitcoin, Ethereum, etc.
A crypto exchange is a middleman that connects buyers and sellers. The user signs in, confirms his identity, and deposits money into his account. Next, he can request orders to buy or sell cryptocurrency, a special algorithm at the exchange will select buyers.
DEX and CEX
Two types of cryptocurrency exchanges are prevalent: DEX and CEX. We will discuss each of them in detail below.
DEX (Decentralized Exchange) is a cryptocurrency platform that operates on a decentralized blockchain network. DEXs do not have a central manager responsible for transactions and funds, instead, clients are able to directly trade with each other using smart contracts (programs that automatically execute transactions when certain conditions are met).
The most popular DEXs: Uniswap, Curve, PancakeSwap, and OKX.
Advantages:
➕ They are less susceptible to hackers.
➕ Do not have to go through the KYC/AML procedures, which promotes greater customer privacy.
➕ Allow users to directly trade with each other without a third party.
➕ Has a greater variety of tokens, which increases the number of ways to trade them.
Disadvantages:
➖ They have lower volumes of trading.
➖ The time of processing and confirmation is slow.
➖ Some advanced features of trading are lacking.
➖ It's more difficult to utilize and requires more technical understanding.
CEX (Centralized Exchange) is a platform that also allows users to buy, sell, and exchange digital assets in a centralized manner, but unlike DEX, it operates on a dedicated network and is managed by a single organization. CEX has more oversight over the transactions that occur on the platform as opposed to decentralized exchanges.
The most popular CEXs: Binance, WhiteBit, Coinbase, Kraken.
Advantages:
➕ Increased trading volume, which leads to greater accessibility.
➕ Fast processing of transactions and confirmation times because of the centralized nature of the platform.
➕ A broader range of trading features, including margin trading and API integration.
➕ A user-friendly interface that is simple for beginners to understand.
Disadvantages:
➖ Centralized administration, which makes them more susceptible to hackers.
➖ The mandatory procedure of KYC/AML that may adversely affect user privacy.
➖ High commissions responsible for commerce and other services.
How to choose between CEX and DEX?
If you contrast these two varieties of cryptocurrency exchanges, CEX is more popular among those who are just beginning to comprehend the world of cryptocurrency and the way it is traded, because it has a proven record of safety and support. Additionally, CEX provides a greater number of trading opportunities and a more diverse selection of pairs of cryptocurrency trading.
As you become more familiar with the process of trading, you will gain a greater understanding of how it functions and the risks it carries. You can then explore DEX in more detail. DEXs are typically more frequented by experienced cryptocurrency enthusiasts who value decentralization and direct p2p trading without outside participants.
Ultimately, you must decide between CEX and DEX based on your personal preferences and goals. Some advanced users may combine both types of exchanges, depending on the specific requirements of their situation.
Crypto wallet: what it is, its advantages and disadvantages
A cryptocurrency wallet is similar to a digital bank account that allows you to store, send, and receive cryptocurrency. To receive a cryptocurrency, you give the sender your wallet number, then enter the recipient's number and send the cryptocurrency.
Custodial and non-custodial crypto wallets
There are various types of cryptocurrency wallets, including non-custodial and custodial. Let's discuss each of them in detail.
A custodial cryptocurrency wallet is a digital wallet that is owned by a third party service provider and contains the user's private keys. This implies that the user is unable to have complete control over their cryptocurrencies, as the service provider can access the private keys, which are stored in the wallet, and thus the funds are accessible.
Examples of custodial crypto wallets: Coinbase, Binance, Kraken.
Advantages:
➕ Easier to employ;
➕ Provide enhanced customer support and security;
➕ A beneficial option for those who are new to managing their personal keys.
Disadvantages:
➖ The funds are saved by a third party,
➖ More susceptible to hackers.
➖ A limited list of available cryptocurrencies or tokens;
➖ Mandatory KYC/AML, which does not guarantee secrecy and anonymity.
A non-custodial cryptocurrency wallet is a form of digital currency storage that includes a private key for each user. The wallet user is in charge of all of their cryptocurrencies, and can access them at any time.
Examples of non-custodial crypto wallets: MetaMask, MyEtherWallet, Exodus, and Ledger Nano S.
Advantages:
➕ Users are able to manage their own private keys and finances.
➕ They are more anonymous, because it is not mandatory to pass through the KYC or AML process;
➕ Support a larger variety of cryptocurrencies and tokens;
➕ The funds will be unaffected by hackers.
Disadvantages:
➖ If you lose your keys or password, access to your funds will also be lost.
➖ Less practical for users, who want to utilize it effectively, because effective use is dependent on additional technical knowledge and experience.
How to choose a wallet?
Custodial wallets are frequently employed by novices or people who are not very technologically savvy, because they are generally simple to utilize and require less technical knowledge. Non-custodial wallets are often employed by more advanced users who have a familiarity with managing their personal keys.
Which is better to choose: a crypto exchange or a crypto wallet?
The distinction between a crypto exchange and a crypto wallet is based on your preferences and the degree of knowledge you have regarding crypto and/or crypto trading. If the information above continues to be unknown, then the following scenarios can assist you.
“I'm new to the cryptocurrency field and want to begin to utilize it.”
You can choose a CEX crypto exchange and/or a custodial crypto wallet, these are both most user-friendly in regard to interface, speed of transaction processing and the variety of functions available. Additionally, custodial wallets have a high degree of protection for crypto assets, this is significant.
"Crypto is my way of life, and I'm currently in the search for a platform that will both trade and store things."
Advanced users are most appropriate for a DEX cryptocurrency exchange and/or a non-custodial cryptocurrency wallet; these options have a greater variety of tokens to trade and allow users to trade with each other without the assistance of a middleman. A non-custodial wallet is best suited for people who have experienced crypto and understand its basics.
Conclusion
Of course, we can't make a decision for you, because the choice between a crypto exchange and a crypto wallet is based on your specific wants, preferences and knowledge of cryptocurrencies. As a result, before selecting a platform that meets your needs most effectively, consider the benefits and drawbacks of each platform and understand what you need.
