How Exchange Wallets Work

When you buy cryptocurrency on an exchange like Binance, Coinbase, or Kraken, your assets are stored in an exchange wallet linked to your account. Unlike private wallets, where you control your keys, exchange wallets are custodial—meaning the exchange holds your funds on your behalf.

Pros of Exchange Wallets

✅ Convenience – No need to manage private keys; ideal for quick trading.
✅ Integrated Trading – Easily buy, sell, and swap cryptocurrencies.
✅ Beginner-Friendly – Simple UI for managing assets without complex setups.

Cons of Exchange Wallets

❌ Lack of Control – "Not your keys, not your coins." The exchange holds your private keys.
❌ Security Risks – Exchanges can be hacked, leading to potential loss of funds.
❌ Regulatory Issues – Some exchanges may freeze accounts due to regulations.

Best Practices for Using Exchange Wallets

? Use two-factor authentication (2FA) for added security.
? Withdraw long-term holdings to a private wallet (hardware or software).
? Choose reputable exchanges with strong security measures.

While exchange wallets offer convenience, they should primarily be used for active trading rather than long-term storage. For maximum security, consider transferring your assets to a non-custodial wallet where you control the private keys.