How to Set Up a Cryptocurrency Wallet Inside a Centralized Exchange

Misusing your crypto exchange wallet could cost you. Literally

Asian man with glasses trading cryptocurrency
Setting up a wallet on a cryptocurrency exchange isn't as hard as it looks.  TERADAT SANTIVIVUT / E+

To facilitate cryptocurrency trades on a centralized exchange, a wallet is required. Thankfully though, cryptocurrency exchange wallets are usually automatically created when a user account is setup on the platform. Accessing it however, and using one properly, can cause a lot of confusion for new crypto traders. Here's everything you need to know about wallets on centralized cryptocurrency exchanges.

What is a Cryptocurrency Exchange?

A cryptocurrency exchange is a service that allows for the trading of cryptocoins such as Bitcoin, Litecoin, Ethereum, and Ripple among numerous others.

These exchanges function in much the same way as a traditional stock exchange where users can buy or sell their cryptocurrencies as the prices rise and fall to make a profit or to obtain crypto as part of a long-term investment strategy.

What is a Centralized Cryptocurrency Exchange?

A centralized cryptocurrency exchange is an exchange that's often hosted on webservers in one location. Much like a website, if the exchange's servers go down then the entire exchange can go offline. Some examples of centralized cryptocurrency exchanges are Binance, CoinSpot, and GDAX. Popular crypto websites such as Coinbase and CoinJar are also considered to be centralized exchanges.

The opposite of a centralized exchange is a decentralized exchange.

The cryptocurrency trading services on a decentralized exchange are usually hosted in the cloud or facilitate direct trades between users without actually holding any cryptocoins themselves. Examples of decentralized exchanges are ShapeShift and BitShares.

What is a Cryptocurrency Wallet?

A cryptocurrency wallet is a place that stores unique digital code that grants access to cryptocoins.

It's a popular misconception that wallets hold the actual cryptocurrency. In reality, they act more like a key that unlocks crypto stored on its respective blockchain. If a wallet is lost, the cryptocoins can actually be recovered by using a new wallet and the unique codes that were generated when the original wallet was setup.

Cryptocurrency hardware wallets are actual physical devices while software wallets can be an app on a smartphone, a program on a computer, or an online storage service. If you use Coinbase and have Bitcoin or some other cryptocoin in your Coinbase account, your crypto is being stored in an online software wallet. This is the same sort of wallet that is used on most centralized exchanges.

How to Create a Wallet in an Exchange

There is no need to create cryptocurrency wallets on a centralized exchange as wallets for each currency are automatically created and connected to new accounts when a user signs up.

Locating the wallets and using them correctly can be difficult for first-timers though. Here's how to find your new exchange wallets and use them correctly.

Note: For this example, we'll use Binance which is one of the more-popular exchanges. The process for finding and using a wallet will be similar for other services.

  1. Log into Binance from its official website using your email address, password, and any two-factor authentication that you may have setup.
  2. In the top menu, you'll see the word Funds. Move your mouse over this link to make a drop-down menu appear.
  3. On this new menu, click on Balances.
  4. You will now see a long list of all of the different cryptocurrencies that Binance supports for trades. Each one of these cryptocoins has its own individual wallet on Binance which is connected to your specific account.
  5. Find the cryptocurrency whose wallet you wish to access and click on the Deposit button to the far-right of it.
  1. You will now be taken directly to the coin-specific wallet. The wallet will list how much, if any, currency the wallet holds and how much is currently participating in an active trade on the platform. Under the balance information is a long series of numbers and letters referred to as a Deposit Address. This is the wallet address for this currency and you can use this to send cryptocoins to this wallet from another one.

Important Crypto Exchange Wallet Tips

As with most cryptocurrency services, users alone are responsible for using and protecting their funds. If a mistake is made, an organization such as a bank won't be able to recover funds or reverse a transaction like with traditional finance. Here are several important pieces of advice to keep in mind when trading crypto and using your wallet on a centralized exchange.

  • Protect your account. A password alone won't sufficiently protect your account or funds anymore. Make sure to enable two-factor authentication via SMS and an authentication app. The options to add these extra security measures will be shown to you after logging in on Binance and other exchanges.
  • Cryptocoins need to match their wallet. Only send Litecoin to a Litecoin wallet, Ethereum to an Ethereum wallet, Ripple to a Ripple wallet, and so on. Sending one cryptocurrency to another's wallet will result in an error and a loss of funds that can't be reversed. Always double-check that you're using the correct wallet and currency.
  • Check your Bitcoins. There are numerous cryptocoins that are using the Bitcoin brand but none of them are Bitcoin. Bitcoin, Bitcoin Cash, Bitcoin Gold, etc are all different currencies and sending one of them to a wallet associated with the other will result in an error and lost coins. Don't send Bitcoin to a Bitcoin Cash wallet and vice versa.
  • Use a centralized cryptocurrency exchange wallet for trades, not for storage. Online exchanges are often the target of hackers so it's not a good idea use them as a primary location for storing your crypto beyond what you need for a trade. When a trade is completed, it's always best to send your funds to a secure hardware or software wallet.
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