Blockchain and Cryptocurrency Beginner - Differences Btw Wallets and Exchanges

Differences Between Wallets and Exchanges

Wallets	Exchanges
Users have full control of their cryptocurrency assets in their wallets	Centralized exchanges have full control of user assets
Wallets are fully decentralized	Most exchanges are centralized
Non-Custodial	Custodial
wallets operates on the blockchain	exchanges operate on centralized servers
There are no downtime on wallets	There are sometimes downtimes on exchanges
Peer-to-peer transaction	Centralized exchanges act as third parties between the buyers and sellers
Cannot be hacked	Centralized exchanges can be hacked
No account creation	Account creation required on centralized exchanges
No KYC required	Some centralized exchanges require users to perform KYC
Provides users with keys	Centralized exchanges do not provide users with keys
Wallets are best for storing cryptocurrency assets	Exchanges arebest for trading and exchanging cryptocurrency assets

Operations performed in a Wallet

In terms of fees, the operations performed on a wallet is mostly storing of cryptocurrency assets and also sending and receiving of cryptocurrency assets from one wallet to another wallet. A wallet which provides users with private keys or seed phrase gives users the full control of their cryptocurrency assets which means that the assets are stored securely on the wallet and can be sent to another destination with full control. Since the transactions are peer-to-peer, the fees are much less compared to performing the same transaction from exchange to wallet.

Operations performed in an Exchange

In terms of fees, the operations performed on an exchange is mostly trading of cryptocurrency assets and exchanging or swapping from one cryptocurrency assets to another cryptocurrency assets. On a centralized exchange, there are order books containing list of open orders from buyers and sellers. The fees are much cheaper to trade internally in centralized exchanges. Buyers and sellers trade from the order book on the exchange. Because of high level of liquidity on exchanges, it is cheaper to perform trading operations on exchanges. On exchanges like Binance, holding BNB even reduces the trading fees which makes trading cheaper.

Importance of having more than one exchange account

In my opinion, the main reason why people should have more than one exchange account is because of diversification, opportunities, liquidity and features.

Diversification - Having more than one exchange account is great for diversification because it allows anyone to spread their assets for better risk management, instead of trusting all their funds and assets on a single exchange account. With this strategy, even though an exchange account is down, you can still have funds on other exchange accounts to perform trading or investing on cryptocurrency assets.

Opportunities - Having more than one exchange account allows anyone to take advantage of opportunities that may arise in the crypto space. We all know that most new cryptocurrencies are mostly listed on smaller and newer exchanges, this means that anyone can buy this new cryptocurrencies from these small exchanges and take advantage of the price increase when the coins gets listed on bigger exchanges like Binance, Coinbase, Kucoin etc. Also, not all cryptocurrencies are listed on all exchanges, having multiple exchange accounts allows anyone to buy cryptocurrencies of good projects with great potentials before it gets more and more attention and increase in price.

Volume and Liquidity - Having more than one exchange account allows anyone to trade on the exchange that offer more liquidity. Liquidity and volume are not the same on every exchange. This means that, exchanges with high volume and liquidity. Some coins have more volume and liquidity on certain exchanges, this makes it better for trading.

Features - Having more than one exchange account allows anyone to make use of specific features on the exchange. Some exchanges have specific features compared to the others. For instance, some exchanges allows trading features like OCO which is a great feature for trading. Depending on the exchange and features, it can help improve trading and help anyone make more profits.