One wonderful thing about crypto is that no matter how much you know or don't know about it, it's an open world for everyone.

Today I want to talk to you about two fundamental aspects of this world: the management and knowledge of wallets and exchanges. But I don't want to do it from a theoretical point of view as there are many sites but from the perspective of my own personal experience.

When we start in the crypto world it is common to confuse both concepts. In my case, I always asked myself these questions: "Why do both exist, why not just one?"

I must clarify that during this adventure the concepts of Wallet and Exchange are ones that you will hear all the time because ultimately these applications are the ones that allow us to interact in the world of Cryptocurrencies. These applications will fulfill the functions of safes and cryptocurrency brokers.

Clarification: In cryptocurrency trading, we do not operate with brokers, but with Exchanges.

1-Concepts, differences and functions.

Wallets

They represent the safes for our cryptocurrencies, they are applications or in some cases physical devices whose main function is the secure storage of token information. Their main classifications are hot wallets and cold wallets, which will determine their security level.

Exchanges.

These are virtual applications that allow us to access a kind of global exchange market, through which we can exchange my tokens with other Exchange users.

I must clarify that every Exchange account is assigned a Wallet within the Exchange, (for this reason it is often confusing). However, as we will learn later, this wallet inside the Exchange is not very secure.

Differences and Functions:

Among some differences we can say that although in both cases the creation of an account is as simple as creating a Social Network account, each has different validation methods.

In the case of wallets, the system assigns you a phrase called "seed phrase", which is a series of random words that the system will ask you for in a specific order to validate that you are the legitimate owner.

_{Tronlink wallet account seed phrase.}

In other cases, a wallet is not even an application, but a pure USD device where cryptos are stored.

In the case of Exchanges, the system validates by asking you to enter legal documents such as an identity card, passport, or driver's license. I must clarify that most Exchanges require this information in order to permit withdrawals and to increase the level of the account.

_{Binance account ID Verification.}

In functions, wallets have been designed only for holding or accumulating, while the exchanges have been designed to perform trading operations at market price or trading with long-term positions.

Remember:

Wallet: Holding and store.

Exchange: Trading.

Finally, for both cases, you should not forget that the transfer method is the same; through a code that each Exchange or wallet will give you to transfer your cryptos.

2- Pros and Cons.

To understand a little better how both work, let's look at their strengths and weaknesses.

Wallets Pros.

A higher level of security. In the case of cold wallets or offline wallets, the security is higher since it is impossible for a hacker to access your cryptos to steal them.

Wallet Cons.

It does not allow trading or exchanging cryptocurrencies.
-In the case of some online wallets it is allowed to perform Swap operations but the fees are high.
In the case of crypto storage devices, they are expensive, and in the case of some offline wallets, they are difficult to use.

Exchange Pros.

Their interfaces are generally user-friendly, so they are easy to access and easy to use.
They have an internal wallet that allows immediate trading.
They allow the exchange of the vast majority of cryptocurrencies on the market.

Exchange Cons.

Low level of security compared to wallets. In fact, there are several cases of hacks to famous exchanges. Read this Article

3- If I have an exchange account, why should I need a Wallet?

The answer to this question you may be asking yourself is simple: Security.

When we are starting in the world of Cryptocurrencies we may have a small portfolio, less than 50$, (in my case it was 5$), with which the risk of losses is almost null or negligible.

However, as our portfolio increases so does the risk of being hacked, especially when we manage amounts of thousands of dollars. In this case, wallets are necessary, which as we have seen have a better level of security.

In fact, to use Decentralized Exchanges, which have better exchange rates, it is necessary to have a wallet with which they are synchronized.

A secure exchange operation can be as follows:

_{Image Edited by me in Powerpoint}

We start in our wallet and transfer the balance of the cryptocurrency we want to exchange to the internal wallet of our Exchange account. Let's imagine that we want to exchange BTC (Bitcoin) for ETH (Ether). Then inside the Exchange, we perform the BTC / ETH exchange operation.

The new cryptocurrency we just obtained (ETH) will be stored inside the Exchange wallet. Finally, we can choose to leave it there or as I recommend to transfer it back to our external wallet.

4- Should I have just one exchange account or Many?

When we are starting out it is logical that we only handle one exchange, however, I recommend my students to handle not only one additional wallet but several exchanges.

Again security plays a key role, but this time factors such as fees, volume, and variety are important.

In the case of security, it is logical to understand that the more diversified and distributed our money is, the better. This is about not having all your eggs in one basket, thus reducing the risk of losing all your crypto assets due to a hack or loss of password.

On the other hand, not all Exchanges allow the operation of all kinds of Cryptocurrencies, in fact, there are some specialized cryptocurrencies that are only found in some exchanges. It is up to us to investigate which exchanges are more convenient.

_{This token is called Sharetoken I have only been able to obtain by performing a swap operation in Trustwallet. https://trustwallet.com}

There are some exchanges that have low volume in some kind of tokens. In other words, volume is the availability or liquidity that exists to exchange a cryptocurrency in a given exchange. The lower the volume, the higher the fee rates, for this reason, it is good to have several options of Exchanges that allow us to choose the rates that best suit us.

In my case, I manage 4 exchanges (FTX, Binance, Poloniex, MetaMask) as well as 2 wallets.

Conclusion

The concepts of wallets and exchanges are easy to understand, however, it is common to confuse them and even get to think that one or the other is useless. A very common mistake is to think that having an Exchange account is not necessary to have a wallet.

In fact, both instruments are designed to perform specific functions and allow us to manage our crypto assets in a more specialized, effective, and secure way.

The correct management of both accounts (wallets and exchanges) will allow you to make better use of your resources and not fall victim to potential dangers in the world of cryptocurrencies as hacking or high fees.

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How I started in CryptoWorld