What is the difference between a crypto exchange and a crypto wallet?

A crypto exchange is a company that lets you buy and sell crypto, much as a broker does for shares. A wallet is the tool that holds the keys controlling your crypto.

When you buy on an exchange and leave the coins there, the exchange holds the keys for you. This is called custodial storage. It is convenient, but you are trusting the company: if it is hacked, goes bust or freezes withdrawals, your coins can be stuck. The collapse of FTX in 2022 showed how quickly that can happen.

A self-custody wallet, either an app on your phone or a small hardware device, keeps the keys with you. Nobody can freeze it, but nobody can rescue you either. Lose the recovery phrase and the coins are gone for good.

Many people use both: an exchange to buy and sell, and a self-custody wallet for anything they plan to keep. Whichever you choose, check that an exchange is licensed where you live. In Pakistan, virtual asset service providers fall under the Pakistan Virtual Assets Regulatory Authority (PVARA), and its website lists its notices and the firms it has dealt with.