Crypto Academy Season 3 | Intermediate course homework task for [ @allbert ]-Task 1: A world of Wallets and Exchanges .
Explain differences between wallets and exchanges as well as mention which operations should be performed in an Exchange and wh
Wallet
A wallet is a software programe to hold and send/recieve digital tokens in the form of cryptos by making use of public and private keys. Wallets are analogous to banks that store our money and keys are analogous to our banking details . Public key can be compared to bank account number or name that can be shared with any one whereas private keys are just like our transaction password or OTP, that if shared with anyone can put your funds in danger.
There are different types of wallets classified on the basis of different parametres . On the basis of exposure to internet, they are of two types like hot wallet and cold wallet. On the basis of controlling authority, they can be centralized or decentralised and on the basis of the number of cryptos that they can hold, they can be single chain or multichain wallet.
Let me briefly mention these wallets. Hot wallets refer to those that are web based and therefore have access to internet . Hot wallets are considered as less secure because they are susceptible to attack by online hackers.
Cold wallets refer to those wallets that do not have access to internet . Cold wallets are considered as secure because they are not exposed to internet and therefore are not susceptible to attacks by by hackers.
Hardware wallets like Trezor and Keepkey are examples of cold wallets.
Centralised wallet refer to those wallets where your funds are under the control of a third party. For example , exchange based wallets are centralised . For example, wallets native to binance and poloniex are centralized.
Decentralized wallet refer to those where you have absolute authority over your funds , there is no third party that can regulate your funds.
Single chain wallets are those that are specific to a particular Crypto like Bitcoin wallet or Ether wallet. Multi chain wallets are those which can store and send/receive multiple cryptocurrencies. For example , Metamask and Trust wallet etc.
Exchange
An exchange is a digital market where you can exchange your cryptocurrencies for other or cryptcurrency for fiat and vice versa. So it is just like a middle man that makes transactions possible between market makers and market takers. All exchanges are web based and multichain that allow market maker and taker forces to interact and perform different modalities of transaction like spot, future and P2P etc .
Exchanges can be centralized or decentralized. Centralized exchamges are controlled by third party like coin base, kraken etc. They are more user friendly and reliable. Decentralized exchanges are not controlled by amy third party amd therefore execute P2P transaction like Barterdex and Blocknet etc. They are anonymous and more secure than centralized exchamges.
Difference between Exchanges amd Wallets.
- Wallets are intended to be used for storage of assets where as exchanges are meant to buy/sell assets, exchange one crypto to other and fiat to crypto and vice versa.
Funds can be kept on exchanges too but the difference is in control of funds. Funds on wallet are absolutely under your control whereas funds stored on Exchange are under control of third party unless the exchange is decentralized.
Wallets are controlled by keys especially private key. If you lose access to private key, it means you lose access to your funds. There is no way to reset your private key . On the contrary, if you forget password of your exchange account, you can reset it through multiple ways.
Operations performed.
Wallets are primarily used for storage of funds while as exchanges are primarily used for trading purposes. Wallets caanot be used for trading purposes however exchanges can store assets too.
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?
Advantages of having multiple exchange accounts.
Mitigating Risk.
Exchanges being online market place are accessible to miscreants, so hacking is always a possibility. By keeping multiple exchanges one can distribute funds among them and therefore in case of any adverse event like hacking, only a portion of funds may be lost.
Arbitage Trading
Fluctuation in price of assets on exchanges is quite common and therefore keeping assets and multiple accounts may help one take advantage of the price variability and may transfer friends from exchange with lesser value of asset to the exchange with higher value of asset and can therefore be benefited . Such type of trading is known as
arbitage trading.
Benefit from features
Although there are no significant differences among the features among different exchange platforms but undoubtedly there does exist some differences like leverage, trading fee, liquidity , trading volume etc. By having multiple exchange accounts one can take advantage of features as per their preference or convenience.
What are better? Wallets or exchanges.?
Basically wallets and exchange are intended to be used for different purposes so we cannot emphasize superiority of one over the other. Comparison can be done among exchanges or among wallets based on the features that they offer
As wallet and exchange are not the same thing , therefore they cannot be compared to each other
However , i would say that, as for storage of funds is concerned wallets are superior than exchange and as for trading is concerned, exchange is the only option.
Create an account in a wallet and in an exchange of your choice and show screenshots of the process.
Let me demonstrate how to create an account on poloniex exchange. Keep attention towards sreps.
- Go to official website of Poloniex ttps://m.poloniex.com or Download Binance app. Let me create account with the help of app. Open app and click on create account option.
- Next we need to enter our email and choose a password. A password must be at least 8 characters long. Enter and confirm the password , then tick the box of terms and conditions.
A verification email will be sent to the given email address. A window will pop up , click on open email and it will take you directly to the email.
Click on verify email and it well check you to the web or the app of poloniex. I choose to login through the app.
So your email is verified and you have created your account. Now you need to enter your login credentials to login to your account.
- Now we can verify our account by submitting different details
Creating wallet account
For the sake of completing this task, I choose to open account in trust wallet through mobile app . Download the app and open the app to see the below interface.
Click on create new wallet and next click on the box that ask to agree "terms and conditions".
Next it will provide recovery phrase which we should write down because in the subsequent step, we have to enter that in the order in which it was provided . Enter phrase and click on done.
- With this we are done and land into wallet.
Hello and thanks for participating in the Steemit Crypto Academy season 3.
Thanks for review.