Crypto exchange vs wallet: what is the difference?

An exchange is a marketplace, and a wallet is a keyring. A crypto exchange is a business where people buy, sell and swap cryptocurrencies. A crypto wallet is an app or device that stores the secret keys controlling coins on a blockchain. The confusion arises because exchanges also hold coins for their customers, and often label that balance a "wallet."

What does an exchange do?

A centralized exchange, such as Coinbase, Kraken or Binance, matches buyers with sellers and connects crypto to the banking system. Customers open an account, usually pass an identity check, deposit money and place orders.

Trades on the exchange do not touch the blockchain. The company pools customer coins in wallets it controls and tracks who is owed what in its own internal records. When you buy bitcoin there, the exchange updates a number in its database. A blockchain transaction happens only when coins are deposited or withdrawn.

What does a wallet do?

A wallet holds private keys, the secret numbers that authorize spending, and uses them to sign transactions sent directly to a blockchain. It needs no account and no permission to create. It does not set prices or match trades.

Trading from a wallet is still possible. A decentralized exchange, or DEX, is a set of programs on a blockchain that lets people swap tokens straight from a self-custody wallet. Nobody takes custody of the funds, and there is typically no identity check. The trade-off is that there is no support desk, the user pays network fees on each trade, and fake tokens and malicious sites are common hazards.

Is an exchange account a wallet?

It is a custodial wallet, meaning the company holds the keys and the customer holds a claim against the company. That brings conveniences: a password that can be reset, customer support and instant trading.

It also means the balance is only as sound as the business. When FTX failed in November 2022, customers could not withdraw, and their claims went into a bankruptcy process that ran for years.

A self-custody wallet reverses the position. No company can block access, and no company can restore it if the owner loses the keys.

How do coins move between the two?

Moving coins off an exchange is called a withdrawal. The customer pastes in an address from their own wallet and chooses a network. The exchange then sends a real blockchain transaction, usually charging a fee. Moving coins onto an exchange is a deposit to an address the exchange provides. The steps, and the common mistakes, are set out in how to send and receive crypto.

Many people use both: an exchange to convert between crypto and ordinary money, and a wallet to hold coins under their own control.