Guide to Storing and Exchanging Cryptocurrencies
There are several ways to obtain cryptocurrency. The most popular method is to exchange fiat currency, such as the United States Dollar, or other cryptocurrencies, like Bitcoin, for it. This exchange of one store of value for another is done on an exchange. There are two types of exchanges: centralized and decentralized.
Centralized exchanges utilize an internal closed system to match trades. They operate for profit and are usually user-friendly, making them a common starting point for purchasing cryptocurrency.
Since centralized exchanges hold the private keys to your cryptocurrency, you technically do not own them—the exchange does. It’s crucial to trust the exchange you use.
Some popular centralized exchanges include:
Decentralized exchanges utilize a peer-to-peer system and smart contracts to match orders. With no central entity, governments cannot track transactions or impose taxes and regulations forcefully. With decentralized exchanges, you hold your private keys, granting you the ability to spend your cryptocurrency without relying on a central entity. To use a decentralized exchange, you must have a wallet.
Some popular decentralized exchanges include:
Each blockchain offers a specific way to hold its assets, commonly referred to as wallets. These wallets may be provided by the blockchain’s development team or third-party providers. For example, a list of Bitcoin wallets can be found here. Some cryptocurrencies built on existing blockchains can use the same wallets as their underlying blockchain. For instance, Dai is a stablecoin built on Ethereum and can be held in any ETH Wallet.
Some popular software wallets include:
While software wallets are convenient and easily integrate with websites or apps, they are considered less secure since they are connected to the internet. To mitigate this risk, some users prefer hardware wallets. Hardware wallets are physical devices that typically connect to a computer via USB. Here are some examples of hardware wallets:
For users with significant holdings or those seeking an alternative medium to store their digital currency, paper wallets offer a more traditional solution. They involve printing out the unique code that allows you to access and transfer your cryptocurrency. When making a transaction, you scan the QR code on the paper. More information on paper wallets can be found here [b].
Some popular paper wallet generators include: