Crypto wallet and crypto exchange are two different applications, crypto wallet is a place where we store assets or coins, it can be a piece of software and hardware. It has various types like cold wallets (physical bitcoin, secondary storage devices), and hot wallets (Metamask, coin base, and edge wallet).
Moreover, a crypto exchange is a liquidity platform where we can trade, sell, and buy crypto. Examples are Binance, Coinbase, and Kucoin. Crypto exchange is also called a custodial wallet and it is less secure than a crypto wallet, so storing coins or tokens directly on the exchange could be risky.
Crypto Wallet Vs Crypto Exchange
As we discussed above, a crypto wallet is a secure shell for crypto storage, similarly, it provides a private key and allows full control of it. Through this approach you may secure your account; securing an account means securing the crypto. There are various types of crypto wallets:
- Hot Wallet: Online wallets store coins on internet-connected devices including mobile phones, laptops, tablets, and many more gadgets. Hot wallets are frequently the target of cyberattacks since they are online-only services. Examples include Edge Wallet, Coinbase Wallet, and MetaMask.
- Cold Wallet: We store cryptocurrencies on hard drives and USB flash drives, which are often known as offline wallets because they are not connected to the internet. Although there is less chance of a cyberattack due to the internet's decreased connectivity, data is still at risk; we could lose our data due to disc corruption or key loss. Therefore, we must be cautious. Paper wallets, actual bitcoins, and backup storage systems are some examples.
Now let’s talk about the crypto exchange, also called a custodial wallet. It is controlled by a third entity, and it is less secure than a crypto wallet. It stores cryptocurrency directly on the exchange, examples include Bitgo, Free Wallet, Binance, and BitMex.
The big difference is that crypto wallets achieved security not 100% but more than exchanges. The best-recommended approach is to always use a crypto wallet for storage.
Threats to Hot Wallet, Cold Wallet, and Custodial Wallet
As we discussed above in detail about these wallets and concluded crypto wallet is more secure but still there are some security threats as security is an illusion and cannot be achieved 100%.
Threat to Hot Wallet: As we know it works online and stores a private key in the browser or maybe somewhere on the internet, here key stealing is the biggest threat to hot wallet.
Threat to Cold Wallet: Although, a cold wallet is never connected to the internet. It stores data separately from the internet over secondary storage, however it is also under threat too which is device misplacing, disk corruption, and many more.
Threat to Custodial Wallet: Also called crypto exchanger, data is saved directly on the exchange and your private key is under the control of a third authority. Moreover, they can sniff your data and can get access anytime, moreover, in case of any cyber-attack on the third-party platform you may fully lose your currency.
Crypto wallet and crypto exchange are two different applications, a crypto wallet is a place where we store assets or coins, it can be a piece of software and hardware. Moreover, a crypto exchange is a liquidity platform where we can trade, sell, and buy crypto. The big difference between them is that crypto wallets secure crypto of course not 100% but yes sure more than a crypto exchange.