Centralized exchanges (CEX):

A centralized crypto exchange (CEX) offers a widespread method of trading. You transfer your funds to the exchange platform, either in cryptocurrency or fiat, and they then manage the trading for you.

This means that you allow them to control your funds, in order to execute transactions on the blockchain network. From the user’s point of view, it may seem that users have control over their funds, but in the blockchain network, the funds are controlled by the manager of the exchange platform.

What are Centralized Exchanges (CEX)?

Centralized exchanges (CEX) are exchanges based on a central entity, which help trading, exchange or swapping of cryptocurrencies on behalf of the traders on the blockchain, with the feature that they manage the trader’s money. In simple words, the centralized exchange is, in essence, a platform through which parties can safely exchange digital assets.

Exchange platforms give you private keys to your wallet on the platform and perform transactions without you having to sign them with private keys. In the stated case, the wallets that are on that platform can be considered as custodian wallets. It is also worth mentioning that custodian wallets are crypto wallets that are owned and custodied by a third party that holds the private key, which enables them to perform any transaction on behalf of the owner of the wallet.

All transactions in these exchanges are completed electronically. They are also recorded in the corresponding blockchain that powers the particular digital assets being exchanged. Because all crypto assets must be validated before being listed, these exchanges efficiently select which tokens can be exchanged. They also provide investors and other parties with access to transaction-related data and other CEX services.

What are the Main Benefits of Centralized Exchanges?

As mentioned above, centralized cryptocurrency exchanges act as a third party between a buyer and a seller. Since they are managed and regulated by a company, centralized exchanges offer more security and reliability. About 99% of all crypto transactions go through centralized exchanges.

1 – User-friendly
Centralized exchanges allow novice investors to trade and invest in cryptocurrencies, by offering a familiar and friendly option. In contrast to using crypto wallets and peer-to-peer transactions, which can be complicated, clients of centralized exchanges can sign into their accounts, check their account balances and perform transactions through applications and websites.

2 – Reliable/Secure
Centralized exchanges provide extra security and reliability in terms of trading and transactions. By helping the transaction through a developed, centralized platform, centralized exchanges offer higher levels of support.

What are the Risks of Centralized Exchanges?

1 – Hacking risk
Centralized exchanges are typically operated by companies that are responsible for their users’ holdings. Typically, large exchanges hold billions of dollars worth of Bitcoin and other cryptocurrencies, making them a target for hackers and thieves.

For instance, Mt.Gox, which was once the world’s biggest cryptocurrency exchange company, reported the theft of 850,000 Bitcoins, leading to its suspension. Thus, the hacking threat is one of the significant risks involved in centralized exchanges.

2 – Transaction fees:
Centralized exchanges usually charge high transaction fees for their services and convenience, which can be particularly high when trading large amounts.

What are the Most Popular Cryptocurrency Exchanges?

Luno’s headquarters are in the United Kingdom, and it operates in many countries, such as Malaysia and Australia.

Coinbase, with its head office in the United States, is one of the largest CEXs. It operates in 100+ countries.

Binance is the largest crypto exchange globally, with average daily trading of well over 1 trillion USD. Binance originally had its headquarters in China, but it moved to the Cayman Islands due to the tightening of cryptocurrency regulations in China.