Serious traders are encouraged to maintain a separate wallet to deposit cryptocurrencies that they are not actively trading. This is because you could lose all of your cryptocurrency if the exchange gets hacked.
Although you will be responsible for securing, backing up and managing your own funds, standalone digital wallets are a safer alternative to protect the bulk of your cryptocurrency.
How do crypto exchanges work?
The way cryptocurrency exchanges operate depends on the type of platform they have. Most cryptocurrency exchanges are known as central exchanges, which act as intermediaries, acting as intermediaries between buyers and sellers.
Users can deposit funds on exchanges to buy cryptocurrencies or deposit their cryptocurrencies to trade in other currencies, known as cryptocurrency trading. Traders can expect to pay a fee for converting one cryptocurrency into another, as when exchanging regular currencies at a bank (for example, converting US dollars into euros).
In exchange for digital currencies, exchanges may accept a variety of payments, including credit card payments, direct bank transfers, credit or debit cards, money orders, and even gift cards.
Dedicated cryptocurrency exchanges will allow you to withdraw your crypto funds and transfer it to another wallet of your choice. Others, especially those focused on other assets, like stocks – including Robinhood and eToro – only let you buy cryptocurrency but don’t let you transfer it from their web wallets.