- 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.
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