Misusing your crypto exchange wallet could cost you a lot.
- 1Misusing your crypto exchange wallet could cost you a lot.
- 2What is a cryptocurrency exchange?
- 3What is a centralized exchange platform?
- 4What is a cryptocurrency wallet?
- 5How to create a wallet on an exchange platform
- 6Important Tips on Cryptocurrency Portfolios on the Exchange
To facilitate cryptocurrency trading on a cryptocurrency exchange, a wallet is required. Fortunately, cryptocurrency exchange wallets are created automatically when a user account is set up on one of those platforms. However, accessing it, and using it correctly, can cause a lot of confusion for new cryptocurrency traders. Here’s everything you need to know about wallets on centralized cryptocurrency exchanges.
What is a cryptocurrency exchange?
A platform for exchanges, or Exchange, of cryptocurrencies is a service that allows the trade of cryptocoins such as Bitcoin, Litecoin, Ethereum and Ripple among others.
These exchanges work much like a traditional stock exchange where users can buy or sell their cryptocurrencies as prices rise and fall to make a profit or to obtain cryptocurrencies as part of a long-term investment strategy.
What is a centralized exchange platform?
A centralized cryptocurrency exchange platform is an exchange that is often hosted on web servers at one location. Like a website, if the exchange’s servers go down, then the entire exchange may go offline. Some examples of centralized cryptocurrency exchanges are Binance, CoinSpot, and GDAX. The most popular crypto websites, such as Coinbase and CoinJar, are also considered centralized exchange platforms.
The opposite of a centralized exchange is a decentralized exchange. Cryptocurrency trading services on a decentralized exchange are usually hosted in the cloud or facilitate direct transactions between users without actually having any cryptocurrencies. Examples of decentralized exchanges are ShapeShift and BitShares.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a place that stores a unique digital code that allows access to cryptocurrencies. It is a popular misconception that wallets contain the real cryptocurrency. Actually, they act more like a key that unlocks the cryptocurrency stored on its respective blockchain. If a wallet is lost, the cryptocurrencies can be recovered using a new wallet and the unique codes that were generated when the original wallet was installed.
Cryptocurrency hardware wallets are actual physical devices, while software wallets can be an application on a smartphone or mobile device, a program on a computer, or an online storage service. If you use Coinbase and you have Bitcoin or some other type of cryptocurrency in your Coinbase account, your cryptocurrency is being stored in an online software wallet. This is the same type of wallet that is used by most centralized exchanges.
How to create a wallet on an exchange platform
There is no need to create cryptocurrency wallets on a centralized exchange, as the wallets for each currency are automatically created and connected to new accounts when a user signs up.
However, creating the wallets and using them correctly can be difficult for beginners. Here’s how to find your new exchange wallets and use them correctly.
For this example, we will use Binance, which is one of the most popular exchanges. The process for finding and using a wallet is usually similar for other services.
- Log into Binance from your official website using your email address, password, and the two-factor authentication that you have set up.
- In the top menu, you will see the word Funds, Funds . Mouse over this link to bring up a drop-down menu.
- In this new menu, click Balances.
- Now you will see a long list of all the different cryptocurrencies that Binance supports for trading. Each of these cryptocurrencies has its own individual wallet on Binance that is connected to your specific account.
- Find the cryptocurrency whose wallet you want to access and click on the Deposit button, deposit, on the far right of it.
- Now you will be taken directly to the specific coin wallet. The wallet will indicate the amount of money, if any, that you have in the wallet and the amount of money that you are currently investing in an active operation on the platform. Below the balance information is a long series of numbers and letters referred to as the Deposit Address. This is the wallet address of this currency and you can use it to send cryptocurrencies to this wallet from another.
Important tips about cryptocurrency wallets on the exchanges
As with most cryptocurrency services, users are solely responsible for using and protecting their funds. If a mistake is made, an organization such as a bank will not be able to recover funds or reverse a transaction as with traditional finance. Here are several important tips to keep in mind when trading cryptocurrencies and using your wallet on an exchange.
- Protect your account. A password alone will no longer sufficiently protect your account or funds. Make sure to enable two-factor authentication using SMS and an authentication app. The options to add these additional security measures will be shown to you after logging into Binance and other exchanges.
- Cryptocurrencies must match your wallet. Just send Litecoin to a Litecoin wallet, Ethereum to an Ethereum wallet, Ripple to a Ripple wallet, etc. Sending one cryptocurrency to another’s wallet will end in an error and a loss of funds that cannot be reversed. Always verify that you are using the correct wallet and currency.
- Check your Bitcoins. There are numerous cryptocurrencies that use the Bitcoin brand, but none of them is Bitcoin. Bitcoin, Bitcoin Cash, Bitcoin Gold, etc. They are all different currencies and sending one of them to a wallet associated with the other will result in an error and loss of coins. Do not send Bitcoin to a Bitcoin Cash wallet and vice versa.
- Use a centralized cryptocurrency exchange wallet for trading, not storage. Online exchanges are often the target of hackers, so it is not a good idea to use them as a primary location to store your cryptocurrencies beyond what you need for an exchange. When a trade is complete, it is always best to send your funds to a secure hardware or software wallet .