Once you decide to invest in or trade Bitcoin, you will encounter terms like Bitcoin wallet and Bitcoin exchanges. For a beginner, such words can make Bitcoin investing and trading seem like a complex undertaking. However, you will realize that trading or investing in Bitcoin is not difficult after understanding how a Bitcoin wallet differs from a Bitcoin exchange.
What is a Bitcoin Wallet?
Also called a crypto wallet, a Bitcoin wallet is a program or software for storing, sending, and receiving Bitcoin. In a real sense, people don’t store Bitcoin anywhere. Since Bitcoin is digital, people hold its representation in private keys in their crypto wallets. A private key allows a Bitcoin user to sign a transaction. A private key is mathematical evidence that a person owns a specific Bitcoin amount. Perhaps, the best way to understand a private key is to perceive it as a secret code that a person needs to spend Bitcoins.
Anybody with a wallet’s private key can spend the funds in it. For instance, another person can transfer the Bitcoins in your wallet to their Bitcoin address using your private key. Thus, they will have your Bitcoins in their wallet secured with their private keys. Essentially, you would lose access to your Bitcoins if somebody transfers them to their wallet using your private key, which is why Bitcoin users should secure their wallets and private keys at all costs.
But attackers shouldn’t be your only concern. Losing private keys and the wallet means you will never access your Bitcoins. Therefore, backing up your Bitcoin wallet copies is also essential. Perhaps, you should back up the keys the way you do with vital data on your computer.
Also, you require a private key to sign Bitcoin transactions. Bitcoin’s acceptance as a payment method is increasing globally. Therefore, some people store Bitcoin in portable wallets, like smartphones and use them in day-to-day transactions. On the other hand, they hold large Bitcoin amounts more securely.
What is a Bitcoin Exchange?
A Bitcoin exchange is a service or website where people can purchase Bitcoins using fiat money like Euros and US dollars. As the name suggests, Bitcoin exchanges allow users to convert Bitcoins to fiat money and vice versa.
For instance, you can sign up at a platform like Allin1Bitcoins, fund your account with fiat money, and buy Bitcoins. What’s more, you can exchange Bitcoin for other virtual currencies. Without a Bitcoin exchange, many people won’t access Bitcoins. That’s because not everybody can afford to set up a Bitcoin mining rig.
Perhaps, worth noting is that some Bitcoin exchanges provide wallets on their websites. These are like web-based wallets where users can store their Bitcoins. That means when you purchase Bitcoins on such platforms, they don’t go to your crypto wallet address immediately. Instead, the Bitcoin exchange holds them in your wallet with them. Nevertheless, you can still transfer Bitcoins from your crypto exchange account to your wallet address.
For some people, a crypto exchange wallet enables them to take advantage of favorable market conditions. That’s because it’s web-based, meaning they can access the funds faster and trade Bitcoin on the crypto exchange.
Final Thoughts
A Bitcoin wallet is a software that allows cryptocurrency users to store and claim digital asset ownership. A crypto exchange is a service or a website where users purchase and sell Bitcoin or convert digital currencies into fiat money. Some crypto exchanges have digital wallets where users can hold their tokens. However, storing Bitcoins in such wallets is not advisable because criminals can hack the platform leaving you with losses. Thus, Bitcoin users should limit the number of Bitcoins they keep in their crypto exchange wallets.
