What’s the difference between a wallet and exchange?

Please read before continuing: Technical Explanation of Bitcoin, Private Keys, List

Just because you bought bitcoin, doesn’t mean you have a wallet.

An exchange is the website where you traded dollars for bitcoin. You linked your bank account or debit card to the site, and clicked “buy”. Now you log in to your account, and you see you have a balance of bitcoin. But this does not mean you have a wallet.

An exchange is more like a bank. You give the bank your dollars and they store it for you. You have nothing in your wallet anymore because you deposited it with the bank. In our case, you are allowing the exchange to hold your bitcoin for you, and you trust they will give it back when you ask for it.

To help understand the difference between an exchange and a wallet, remember bitcoin is not “stored” anywhere. Your balance of bitcoin exists solely on the shared list, but you can spend your bitcoin by providing your private key. When you see your bitcoin balance on an exchange, they are the ones who have the private key to unlock it. A wallet is software or a device that stores your private keys for you, which puts you in complete control of your bitcoin.

Does it really matter if I have my private keys?

The answer to this question may be different for everyone. Keeping your own private keys comes with great responsibility. You are the only one with access to your bitcoin, so if you lose your keys, they are gone forever. If you leave your keys with an exchange, you have to ask them when you want to spend your bitcoin. An exchange could lock you out of your account, they could get hacked, or they could even steal your bitcoin for themselves. The question is, do you trust an exchange more than yourself? If the answer is yes, a wallet may not be for you. If the answer is no, learn more about wallets here.