Greetings dear students, my name is @allbert
, and let me welcome you to this new season of Steemit Crypto Academy and especially to the classes that I have baptized as Crypto Gears. (Partly because I am an engineer and partly because I firmly believe that the concepts that we will touch in my classes are the engine that moves this world of cryptocurrencies).
For me, it is an honor to be part of this new stage and to accompany you in the development of what will be a life change for you. As I usually do, my first recommendation is: forget the grades, just worry about learning, and understanding each of the concepts that the teachers give you here, because I am sure that this way it will be more profitable for you.
This day I wanted to reinforce some concepts that may not be new to you, but that perhaps you still do not fully understand. So without further ado, Welcome to my world... A world of Wallets and Exchanges.
Image Edited by me in Powerpoint
If you did last week's assignments I'm sure you understand what a Wallet is and what an Exchange is, you understand how it works in general and maybe some of you already have an account. However, 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.
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.
These are virtual applications that allow us to access a kind of global exchange market, and through which we can exchange my tokens with other Exchange users.
We 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. Source
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 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. Source
In functions, wallets have been designed only for holding, or accumulate, while the exchanges have been designed to perform trading operations at market price or trading with long term positions.
Wallet: Holding and store.
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 the strengths and weaknesses.
- 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.
- 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.
- 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.
- 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, 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 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.
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.
Homework Task (Season 3/Week-1)
Before starting your answers this week, make sure you have read this publication at least twice and understand the differences between the two concepts.
1- Explain differences between wallets and exchanges as well as mention which operations should be performed in an Exchange and which operations should be performed in a wallet (in terms of fees).
2- In your own words, Why You think people should have more than one exchange account?. Do you have an exchange account? and Why that specifically?
3- What are better? Wallets or exchanges.?
4- Create an account in a wallet and in an exchange of your choice and show screenshots of the process.
-Make sure you post in the Steemit Crypto Academy
-Your article should be at least 300 words.
-Refrain from spam/plagiarism, it won't be tolerated. This task requires screenshot(s) of your own experience. Use images from copyright-free sources and showcase the source, if any.
-This homework task will run from 00:00 June 28th to 23:59 July 3rd, Time UTC.
-Users having a reputation of 55 or above, and having a minimum SP of 250(excluding any delegated-in SP) are eligible to partake in this Task. (Must not be powering it down)
-Add tag #allbert-s3week1 #cryptoacademy
among the first five tags. You can also use other relevant tags like your country tag. Also, tag me as @allbert
in any part of your post.
-Those who include the real examples/screenshots add a watermark on it with your username.
Feel free to join the comment section if you have any doubt about Homework Task.