What are Centralized Exchanges (CEX)?

• Centralized Exchanges are online digital platforms that allow to purchase, swap or sell crypto currencies.
• They are usually owned by a centralized team or a company
• They are custodial in nature. They manage your funds. When you upload money, it goes into their bank account, with a record of your deposit into their database.
• You can trade coins and tokens (or digital Assets) on Centralized Exchanges
• But you don’t hold those digital assets, they do.
• Wallets are provided by the exchanges
• Private keys are stored and managed by the exchanges themselves.
• They are kind of middle-man or intermediaries helping buy and sell cryptos
• May allow to transfer out assets to external wallets, often with fees.
• Price shown will be based on OrderBook
• Trading/Swapping does not happen on blockchain, It occurs within their database.
• CEX pool user’s cryptocurrencies into Wallets controlled by CEX itself
• Number and kinds of cryptocurrencies listed are limited
• They can limit your trade, they can halt your trade, they can lock your account
• They can be hacked.
• But they may have production support when you need some assistance.

What are the benefits of Centralized Exchanges?

• Easier for new investors to get into crypto
• They have better user experiences
• They are regulated and carry out legal and regulatory aspects such as KYC (Know Your Customer) checks and AML (Anti-Money Laundering) procedures
• User don’t need to manage and safeguard Wallets and Keys
• Listed assets are usually vested, so they are more secure and trustworthy
• Digital assets can be changed into Fiat (US dollar for example) Usually have high volume and high liquidity

What are the drawbacks of Centralized Exchanges?

• They are centralized, which can cause
  • Limitations of transactions
  • Censorships on accounts
  • Opposite of Decentralization
  • Intermediaries are making money.
• You don’t own the fund or the wallet
• The fee structure might be expensive
• You don’t manage the private keys, they do
• They can be hacked and you could lose your money.