Crypto Academy / Season 3 / Week 1 - Homework Post for @allbert | A world of Wallets and Exchanges
It is really interesting to learn some basics in an organize way after spending 4 years in crypto world. Gaining knowledge with experience and by learning any organize lesson is completely different things. Even though knowing about wallet and exchanges it was really an interesting and informative read.
After going in depth in lesson here I am submitting my homework task and hope it would be up to the required standerd.
Task 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).
Wallets and exchanges are completely two different things. Exchanges also have internal wallets but those wallets are completely different in terms of security and other aspects.
Wallets
Wallets are exclusively designed to store and hold assets and if the wallet key is with you you are the owner of the asset.
These can be categorized as cold wallets and hot wallets according to their security levels. Wallets can be a physical device as well as virtual in the mobile or computer as an app.
Exchanges
Exchanges are designed to sell and buy assets. There are two types of crypto exchanges that exist currently, centralize and decentralize. Centralize exchanges have the facility to store coins in an internal wallets and it is mandatory to transfer coins from personal wallets to the exchange wallets.
In decentralizing exchange, no wallet available in the exchange platform and trading happens directly from buyer's to seller's wallet. These are safer than centralized exchanges.
Differences between wallet and exchange
S No | Wallet | Exchange |
---|---|---|
1 | Store asset | Trading and store the asset |
2 | Can be virtual as well as physical device | Only virtual |
3 | No legal documents required to open the wallet | Legal documents like identity proof etc required to open the account |
4 | Wallet key can not be recovered | Exchange password can be recovered |
5 | Highly secure | Low-security level |
6 | High withdrawal fee in most of the wallets | Nominal withdrawal fee in exchange wallet |
7 | Comparitevely less user-friendly interface | Easy to use interface and fast transaction |
8 | Not convenient for daily traders | Very convenient for regular traders |
Operations should be performed in wallet and exchanges (In terms of fee)
Although wallets are exclusively designed to store the asset, some wallet provides the swap facilities. It means you can convert one coin to another coin. In such wallets, coins can be exchanged without transferring them to any exchange but the swapping fees of coins are quite high as compared to the exchange trading fees. So for trading purposes, exchanges should be used instead of wallets.
The asset should be stored in a wallet always if you are a holder as they are far safer than exchange wallets. The fee for withdrawal is high in most wallets but for hodler security is more important so, despite the higher fees, assets should be kept in your own wallet of which key do you possess.
For the short term traders, coins should be kept in the exchange's internal wallet to save withdrawal fees and easy operations.
Task 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?
There are several important reasons that we must have more than one exchange account. Here I am trying to enlist few most important reasons.
Trade volume and liquidity
For regular traders, liquidity is the most important part of any exchange. If you are holding several coins in a single exchange then there are chances that not all coins have high liquidity and volume. So according to coin holding, the exchange should be chosen accordingly.
Sometimes we want to liquidate our particular asset urgently but if liquidity is very low in the exchange it becomes difficult to liquidate the asset. To avoid such a situation another exchange account is a must.
There is also a concern of price if liquidity and volume is very low. Price vearies significantly from other high volume exchange.
For safer play
Having multiple exchange account is always a safer play, as in the case of exchange hacking or any security breach you all asset won't be at risk.
Lucrative offers and new listing
Not all exchanges provide offers on all coins. Also, any new coin does not list on all the exchanges at the same time. So to avail offer time to time and dealing in newly listed coins multiple exchange accounts always have an advantage.
Trading and withdrawal fees
Different exchanges charge different trading fees on different coins. It all depends on the facility they provide and the liquidity they have in their exchange. By having multiple exchange account we can compare the fee and save the trading as well as withdrawal fee.
No of assets listed on any exchange
The more the No. of coins listed on the exchange more useful it becomes but even after that some big exchanges do not prefer to list new coins which are not popular. So to trade in such coins having another exchange account is a must.
Trading pair
It is also an important aspect for any trader or investor. I generally do prefer USDT pair with any crypto so choose my exchange accordingly.
My exchange accounts
I do have multiple exchange accounts like Bittrex, Binance, Poloniex, Wazirx etc. But I do prefer to trade in Binance due to liquidity and the No. of coins listed in it.
Other than this I feel it has a user-friendly interface and most important I can link my Binance account to the Indian exchange Wazirx. The advantage of linking is that I can transfer USDT from Wazirx to Binance free of cost. This facility makes my fiat investment in crypto easy.
Binance also provides a wide range of trading pairs in all coins which is an advantage for me.
This global exchange provides different trading options like spot, margin, future and P2P, thus having an account on Binance I can avail myself of all trading options in one place. Binance also provides various fiat currencies options to trade and invest.
Task 3
What are better? Wallets or exchanges.?
Wallets and Exchanges both have their advantages, disadvantages and uses, so it is very difficult to say that one is better than another. Differences between them we have discussed in task 1 here I will try to describe advantages and disadvantages of wallet and exchange in their particular uses like storing and trading assets.
Use of wallets for storage and trading crypto - Basically wallets are designed to keep safe our assets so made highly secure and private as can be handled by private key or seed phrases. Some wallets also provide swapping facilities between two cryptos which is a type of trading we can say. It happens inside the wallet in a secure way. This ty
pe of trading or swapping is useful for investors only as it has some limitations like limited nos of pairs, low liquidity and high transaction fees.
Here I can say Wallets are the best for Hodlers and long term investors where they can hold their asset in a very secure manner and also can swap if required.
Uses of exchanges for storage and trading crypto - Exchanges are designed for trading of any asset. They provide a smooth and fast trading experience than any swapping or trading in any wallet. Trading fee in exchange is low as compared to trading fee of wallets. Internal wallets are only useful for fast trading for traders.
Exchanges also have internal wllets to keep asset for trading purposes. As we discussed above that internal wallets are not as secure as other wallets so keeping asset in exchange wallet for long term is not safe. Using exchange's internal wallet as a primary wallet to hold asset is not at all a good idea.
It is also true that most of the exchanges have different schemes for passive income if we hold our asset in their internal wallets and invest in their scheme but still it is not advisable until and unless you have urgent requirment for passive income against your crypto.
So here Exchanges are far batter than wallets for trading crypto rather than holding crypto.
In a nutshell we can say wallets are better for holding asset and exchanges are better for trading crypto
Task 4
Create an account in a wallet and in an exchange of your choice and show screenshots of the process.
For this task I was just searching the top crypto exchanges list in which I do not have an account. According to Coin Market Cap https://www.kraken.com/ is at no 4 and as I do not have account with this exchange so now will open an account.
Opening an account with exchange https://www.kraken.com/
- Landed on https://www.kraken.com/, option to creat account found there.
- To create an account filled email ID, user name, country and password.
- Received verification code in email, after verification account was activated. Now they have 3 types of account available. Starter, Intermidiate and Pro.
To verify as a starter only personal information is required and starter account holder have no access to bank transfer and only can deal in crypto.
To Varify as a Intermediate ID is required and account holder can deal in bank transfer also.
To verify as a Pro required financial information and account holder should have intermediate status.
- Right now I just want to get verified as a starter so filled my information required and verified.
- Now I am verified as a starter and can deposit unlimited crypto, withdraw up to $5k worth of crypto per day, can trade in crypto but can not do bank transfers.
Opening an account with Coinbase wallet
I created wallet in following steps as shown below in screen shots.
- On google play store search coinbase wallet and downloaded.
- Opted for create new wallet.
- Accepted terms and conditions.
- Picked username
- Selected privacy preferences.
- Ready for backup.
- Seed phrases noted down.
- Created password.
- Wallet is created and ready for use.
Creating account at any exchange and creating wallet is as easy as creating an account on any social media. No any formalities required. in case of wallet seed phrase or private key is very important and must be stored safely online as well as offline.
Conclusion
Wallet and exchange are a very basic requirements in crypto dealing. It was very interesting to know about both in such a detailed manner. Such type of information are very helpful for those who are very new to the crypto world. Our crypto assed is only safe when we have private key with us and newbies generally do not understand the importance of keys.
I am really thankful to prof @allbert for delivering a very basic but important lesson in such an interesting and explanatory way.
Hello and thanks for participating in the Steemit Crypto Academy season 3.
Thank you professor for your valuable feedback.