Crypto Academy / Season 3 / Week 1 - Homework Post for [Crypto Professor @allbert]

Introduction

When it comes to physical assets, we talk about financial institutions like banks and physical wallets to hold this asset. Particularly, I will be talking about digital assets, and my research is base on cryptocurrency. When we start looking from a digital(online) point, we will be talking about digital wallets and exchange platforms.

What is cryptocurrency

It is a digital asset that is used online for the exchange of goods and services back by a cryptography mechanism. Cryptography is the mechanism that comes into play giving it transactions a high level of security online. The most interesting about cryptocurrencies is the profit that comes from predictions and investments done by investors. Some companies who produce goods and services have gone as far as creating their token(cryptocurrencies) as means of exchange for their services. The technology backing cryptocurrency is known as the blockchain, which is a decentralized system connecting more than one computer to record and validate transactions. With individuals holding cryptocurrency or planning to own cryptocurrency, how to keep and used it is very important. Moving into wallets and exchanges will enlighten us.

What is a cryptocurrency wallet?

A wallet is a software application that permits you to store your digital assets(token). The technicality behind a cryptocurrency wallet is not that easy like it seems in just saying it store token. This because cryptocurrencies are not stored in the wallets, but used wallets to have access to the token. They are two types of wallets, cold and hot wallets. A hot wallet is online while a cold wallet is offline, the cold wallet is more secure than a hot wallet when it comes to the risk of hacking.

Wallets are categorized with more than one key, which the wallet owner holds for the management of transactions. Wallets are identified with public key/address for transactions( withdrawal and transfers) of tokens and private key for validation. Both keys are important and need to be kept secure since it the only means to manage your wallet. The private key must be extremely secure because any person holding your private key can steal from you to another wallet which will be secured by another private key. What I mention is just an attack, losing your private key will mean losing every asset in your wallet.

Example

• Blockchain wallet
• Sugi Wallet
• myEtherwallet
• Jazz Wallets

---

What is a cryptocurrency exchange platform

A cryptocurrency exchange is an online platform that offers the services of buying and selling cryptocurrency, also allowing converting fiat currencies like dollars and the euro into cryptocurrency. The volatile nature of cryptocurrencies pushes the market rates to fluctuate making this platform look exactly like the stock market platforms.

Cryptocurrency exchanges have wallets hosted on the platform, which when you create an account, and then you have access to your wallet. The exchange platform managed your private key, which is a big concern. You have access to your public key in most cases as your account is secure with a username and password. What happened with the exchange platform is that you give the commands. and the platform validates your transaction with your private key. Transactions speed is not the best since a third party is involved in validating your transaction and take over your account transactions.

The good thing about the exchange platform is that everything is simplified, and you have access to all account information. Easy access to you balance price monitoring, buying, and selling activity in your wallet. In case you lost your password, you can reset and get a new password. Another way we can say cryptocurrency exchange platform server as cryptocurrency online banks.

Example

• Poloniex
• Bittrex
• eToro
• Kraken

Summary different

With the similarity both hold assets, they have differences in functionality.

Different	wallet	exchange
Security	High	Low
Trading	Can not be traded(only be transfer)	Buying and Selling of cryptocurrencies
Transaction speed	Fast	Slow(thrid-party)
Access	Anytime	When the platform is live
Converting	No	Yes(convert fiat currency)
Storage period	Long term	Short term

The reason for this difference is base on:

• Wallet control

Like I mentioned above, both wallet and exchange can hold cryptocurrency. The major problem is who is in control of the funds in any of the platforms. With the wallet, you control your funds and transactions done in your wallet. This will give it a high risk of being hacked as compared to an exchange platform that managed your fund transactions. A simple understanding is that you can easily secure your money in your hand than another person's hands.

• Wallet responsibility

I mentioned above that most of these cryptocurrencies are been created by the companies offering goods and services. Going ahead to create wallets to hold the assets put them in responsibility in the case anything happened to the wallet. But it comes to managing your funds, you take responsibility for any mistake during transactions. This situation is different from the exchange platform as it will be a great startup for someone new in crypto. The exchange platform is ready to take responsibility to manage your fund but not ready for any responsibility if the platform is down.

• Fees

It but normally, exchange platform are third party applications offering services to it account holders. These services will cost a fee for the running of the application online. Like I always tell my friend's financial transactions need to cost a fee.

• Converting
• Buying
• Selling
• transferring

These four activities in an exchange wallet will cost you a fee to complete the execution.

I will not forget to hint that with a wallet no fee need in the transfer of tokens, a good example is the steemitwallet which im very sure we have all done a transfer from one account to another. To the best of my knowledge, no fee is charged for these transactions.

Well, as mentioned by @allbert, which I strongly support that it is advisable to manage more than one exchange accounts. As of this moment of this homework task, I managed four exchange accounts with a portfolio in two. Why did I do

• Sharing my holding into two different exchange accounts increase my chances of losing my asset in case any of the exchange platforms is been hacked. Remember having your assets in exchange is base on trust.
• I noticed this exchange platform have different fee charges to transactions done on the platform, like anyone I think you used that as an advantage to deal with that has low fee charges.
• Of recently after one of the courses of this week by prof @imagen, I noticed not all exchange platforms offer the opportunity to stake your PoS stakable coins. That is a limitation to a holder of stakable coins. I received earnings on the Poloniex platform because I hold stakable coins.

---

What is better

When we talk of assets, the top of the table will be how secured. I have said a lot above, but I don't think we should have a problem picking. Everyone wants to have control over his or her assets, and as it stands only a wallet can give the opportunity. Secondly, giving that wallets are directly hosted on the blockchain for transparent transactions gives a feeling of security as you validate the transaction. With these two points, I will place wallets over the exchange platform.

myEtherwallet

• Visit website https://www.myetherwallet.com/

• Set you log in method
  I choose Keystore file which i will download and used to log into my wallet.

My wallet

Note: when creating a wallet, it is advisable to read every sentence.

Kraken

• Visit Website https://www.kraken.com/
• Valid active email for verification

• Check email for code

My exchange account

Remember you will ba asked to verify your account, and a confirmation email sent to you

Conclusion

I will still end up saying if you are an advanced crypto holder, the wallet will be the best platform to hold your asset. But if you are new, start with an exchange wallet for now. This is just easy the complications in creating the different accounts. As you can see from the screenshots, creating a wallet need a more experienced and care in order to follow all instructions well. Like i keep mentioning that security level with wallets is advanced.

Thanks, @allbert for giving me more understanding of wallets and exchange platforms.