What is a wallet?
Just like the wallet you use to hold your physical fiat currency, you will need a digital wallet to hold your cryptocurrency. These digital wallets hold the public and private keys necessary to authenticate your access to your currency on the blockchain. There are two types of digital wallets: hot storage and cold storage.
Hot StorageHot storage keeps your public and private keys in the cloud and requires a connection to the internet to access. As with any connection to the internet, these are suspectable to hacking and theft. Since hot storage is usually handled by a third party, hackers might be able to take advantage of security vulnerabilities in the company's software. You can manage your own hot storage either on a computer or your mobile phone but will need to handle your security.
Cold StorageWant more control over your digital assets? Cold storage is an encrypted USB drive that allows you to connect to a device to authorize sending currency to another wallet. Since cold storage wallets are the single source of where your private key is stored, losing the device can lead to not being able to access your money.
What is the difference between a wallet and an exchange?
While a wallet is a storage device, an exchange acts as a marketplace to purchase new coins. To convert your standard fiat currency into a cryptocurrency you will need to use an exchange. Simply add money from a bank account and choose which currency you want to purchase. Exchanges such as Coinbase, Binance, or Robinhood offer a wallet through their platform. However, if you want to maintain control over your coins you can transfer from one of these exchange wallets to a hot or cold storage wallet depending on what is best for you.