What is a crypto exchange?

What is a crypto exchange?

Crypto exchanges are platforms where users can trade digital currencies for other assets, including cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and regular currencies, like U.S. Dollars and Euros.

Exchanges are an essential part of the crypto ecosystem because most traditional investment firms do not offer cryptocurrencies in their portfolios. Without exchanges, you would have to find another person willing to trade crypto and agree at an exchange rate. Then, you would have to send the coins directly to each other’s cryptocurrency wallets — a somewhat convoluted process.

Crypto wallet vs exchange

Crypto wallets and exchanges are both essential tools used to manage cryptocurrencies. Wallets are meant to keep your crypto funds safe, whereas exchanges are trading hubs where users convert fiat currencies to digital ones and buy or sell crypto based on current market rates.

Crypto exchangesCrypto wallets
Facilitate trading between usersHold the private keys that are necessary to access cryptocurrency on the blockchain
Convert fiat currencies into digital currenciesAre offered by exchanges and independent developers.
Are available 24/7, unlike traditional investment firmsCan be an online-only platform, a physical storage device, or incorporate both aspects.

Many crypto exchanges operate their own wallets, so users can start trading crypto as soon as they open their account without having to worry about getting a digital wallet of their own. These are known as web-hosted wallets, and their incorporated exchange is responsible for their security measures.

Serious traders are encouraged to keep an independent cryptocurrency wallet to deposit any coins they aren’t actively trading. This is because you could lose all your digital assets if the exchange is hacked.

Although you’ll be responsible for securing, backing up, and managing your own funds, independent digital wallets are a much safer alternative for safeguarding the bulk of your crypto.