Centralized exchanges (CEXs) are large-scale cryptocurrency trading platforms that operate in a similar way to traditional asset exchanges like stock exchanges. According to a 2021 analysis by global accountancy KPMG, exchanges are the most valuable firms in the crypto industry.
Meaning Of CEX
Centralized exchanges (CEX) are platforms that allow users to buy and sell cryptocurrency for fiat currencies such as the US dollar or digital assets like BTC and ETH. They act as trustworthy brokers in deals and frequently serve as custodians, storing and safeguarding your funds.
Leading exchanges make every part of the digital asset trading experience easier, from security to fair market pricing, regulatory compliance, consumer protection, and access to a wide range of digital assets. As of September 2020, centralized exchanges are responsible for 95 percent of digital asset deals, totaling $228 billion USD every month.
Examples Of Centralized Exchanges
According to traffic, liquidity, and trading volumes, the following are the top centralized cryptocurrency exchanges.
- Huobi Global
Binance is an online Centralized exchange where users can trade cryptocurrencies. It supports most commonly traded cryptocurrencies. Binance provides a crypto wallet for traders to store their electronic funds. The exchange also has supporting services for users to earn interest or transact using cryptocurrencies.
2. Huobi Global
Huobi is a Centralized exchange that is headquartered in Seychelles. It is renowned for the sheer number of cryptocurrency trading pairs available – nearly 400. It also a token that can be used to trade for other cryptocurrencies on the platform
Coinbase is a Centralized exchange where you can buy popular coins like Bitcoin, Ethereum, and Litecoin. Not every coin is supported on Coinbase, but there are more than 90 different types of cryptocurrencies on the platform.
Kraken is a Centralized exchange in San Francisco where people can trade different cryptocurrencies. Participants can buy or sell cryptocurrencies using U.S. dollars, Canadian dollars, euros, and Japanese yen, among other fiat currencies. On the Kraken exchange, you can buy and sell popular virtual currencies like Ethereum (ETH) and bitcoin (XBT), as well as newer ones like EOS (EOS) and Monero (XMR) (XMR).
Bitfinex is a cryptocurrency exchange supporting a large ecosystem of cryptocurrency products and trading options, including spot trading, margin accounts, derivatives, and paper trading. With a mix of features suitable for both beginner and expert crypto users.
Crypto.com is an exchange for trading, investing, staking, wallets, non-fungible tokens (NFTs), and more. It is based in Singapore. This exchange lets you buy and sell more than 250 different currencies, has reasonable fees and gives discounts to people who own a lot of Crypto.com Coin (CRO).
KuCoin is a worldwide Centralized exchange that enables 8 million customers in 207 countries and territories with Spot trading, Margin trading, P2P fiat trading, Futures trading, Staking, and Lending. KuCoin ranked 5th on CoinMarketCap.
FTX Exchange is a Centralized exchange that focuses on trading. It has a wide range of products, such as derivatives, options, volatility, products, and leveraged tokens. The exchange is based in the Bahamas and has access to a wide range of cryptocurrencies and advanced trading tools.
Gemini is a privately-owned Centralized exchange that allows users to buy, sell, trade, and securely store bitcoin, ether, and about 40 other cryptocurrencies. It was launched in 2015 by Cameron and Tyler Winklevoss. Gemini has a tiered service with separate interfaces and fee structures for casual investors and hardcore traders.
Services Offered By CEX
You can purchase and sell cryptocurrencies on exchanges in a variety of ways. You can use a “market order” to purchase or sell cryptocurrencies at the current market price. You can also place a “limit order,” which allows you to specify a specific price for buying or selling an asset.
The order will be executed when the asset’s price reaches the price you specified. Furthermore, some exchanges provide experienced traders with specialized trading platforms that include features such as margin trading.
To store cryptocurrency, exchanges also provide digital wallets. When you choose to store your cryptocurrency on an exchange, you are putting your trust in the exchange to keep your private keys safe and secure. This means you won’t have to be concerned about misplacing your wallet or private key.
However, you should always conduct your own due diligence to ensure that the exchange employs adequate security measures to safeguard your cash. Financial institutions and investment firms who want to invest in cryptocurrencies but don’t want to manage their own private keys might use custody services provided by several exchanges. The majority of these assets are held in cold storage.
How The Centralized Exchange Is Regulated
The regulations that govern centralized exchanges vary greatly depending on the jurisdiction in which they operate. In certain jurisdictions, cryptocurrency enterprises are regulated by a single financial regulator.
Regulation in the United States is more fragmented; some concerns, such as licensing, are handled on a state-by-state basis, while other areas of exchange policy, such as KYC data gathering and AML difficulties, are governed by federal law. To stay compliant, exchanges must collaborate with a range of federal and state actors.
Trading On CEX
Most CEXs will verify your identity and conduct Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terrorism Financing (CFT) checks before allowing you to trade on a centralized exchange. These critical measures assist exchanges in preventing illicit behavior on their systems.
You can deposit funds onto the exchange via wire transfer, ACH transfer, debit or credit card, or cryptocurrencies such as bitcoin (BTC) or ether after your identification has been satisfactorily validated (ETH). You can start trading once you’ve funded your account.
The bulk of users’ cash are held offline in hardware “cold storage” wallets and crypto-wallets that are not connected to the internet by reputable exchanges, while some CEXs cover assets held in online (or “hot”) wallets. Multi-signature wallets, which require numerous individuals to sign a transaction before funds can be accessed, are also commonly used by exchanges. It’s critical to look into an exchange’s security background before entrusting your assets to it.
DEX Vs CEX
The terms DEX and CEX stand for decentralized and centralized exchange, respectively. They’re both platforms where crypto users can smoothly trade, purchase, and sell bitcoin.
CEX offers advantages like assured liquidity, crypto-to-fiat conversion, and ease of use, but it also raises questions about security, user ownership, and anonymity.
DEXes provide entire ownership of coins and control over private keys, as well as the ability to employ governance tokens and complete anonymity, but they are more difficult to learn and use for novices, do not accept fiat payments, and have limited liquidity.
Advantages Of CEX
Some of the advantages of CEX include
Even for crypto rookies, CEX’s user interfaces are simple to understand, and the processes and procedures can be swiftly assimilated. CEX also makes trading options accessible in a simple and straightforward manner.
2. Faster transaction
CEXs can handle $217 billion in transactions each day, processing each one quickly and almost in real-time. This allows traders to react quickly without having to wait for the market to change. Because CEX is managed by a centralized organization, it is capable of processing hundreds of orders per second.
3. Very functional
CEX is a cryptocurrency exchange that also offers other services such as margin trading, crypto derivatives trading, exchange staking, and margin lending in addition to crypto trading.
4. High trading volume and high liquidity
CEX has a higher trading volume than DEX since it is well-known and used by a large number of active users who purchase and sell their assets. High trade volume also means high liquidity. The capacity of an asset to be converted into cash or other cryptocurrencies is referred to as liquidity. Liquidity is significant for a variety of reasons, including the fact that it makes a cryptocurrency exchange less susceptible to market manipulation.
5. Supports fiat trading
Fiat to crypto on-ramps and off-ramps are supported by centralized exchanges, making it easier for users to get started with cryptocurrencies by simply exchanging their fiat money for bitcoin.
Disadvantages Of CEX
There are also some disadvantages associated with CEX. Let’s discuss some of them.
1. Government regulations
Regulators, third-party suppliers, and regulatory rules all have a say in how centralized exchanges operate. As a result, operators must collect considerable data about their consumers in order to avoid money laundering (KYC). This consistency runs counter to the fundamental concept of cryptocurrency.
2. Possibility of hacking
CEX’s trust-based approach is based on holding their users’ crypto assets and incorporating wallets as part of their system (custodial services). The user has no influence over this technique. As a result, users must have complete faith in exchanges to keep their funds safe. CEX is a prime target for cybercriminals as a result of this circumstance.
The Facts Of CEX
New centralized bitcoin exchanges pop up on a regular basis. However, not all of them will succeed, and these trades frequently fail. A variety of elements influence the success or failure of a transaction. Trading volume, on the other hand, is an important aspect of success.
In general, the bigger the trade volume, the less probable that the exchange would experience volatility and market manipulation. The importance of volatility cannot be overstated. The price of a specific token or coin can fluctuate between the time it is initiated and the time it is completed due to the time it takes for transactions to be completed. The less likely this volatility will be a problem, the bigger the trade volume and the faster the transaction may be performed.
Security is also an important aspect of a good centralized exchange. While no exchange is fully safe from harmful behavior such as hacking, some are more secure than others.
It’s far from certain how an exchange will react to a cyber-attack. Some exchanges have made strenuous efforts to compensate customers for their losses, while others have had less success. As a result of these attacks, some have closed their doors.
A centralized exchange remains the most popular way for investors to enter the bitcoin sector. When choosing an exchange, consider a variety of aspects that will influence the user experience, such as the types of pairings traded, the amount of trading volume, and the security measures in place to protect clients.
What’s the biggest advantage of using a centralized exchange?
When it comes to transactions and trading, centralized exchanges provide an extra layer of security and reliability. Centralized exchanges provide greater levels of comfort by facilitating transactions through a well-developed, centralized platform.
What is the main benefit of Decentralised exchanges over Centralised exchanges?
Decentralized exchanges differ from centralized exchanges in that they allow users to keep control of their assets by running their important functions on the blockchain: they take advantage of the technology that underpins cryptocurrencies to provide a safer and more transparent trading environment.
What are better centralized or decentralized exchanges?
You can choose either decentralized or centralized exchanges depending on what you want and the number of risks you can handle.
Despite the fact that 99 percent of bitcoin transactions still proceed through centralized exchanges, this trend is expected to shift in the next years. For cryptocurrency users to realize their full potential, they must switch to decentralized exchanges, which aligns with the decentralized structure of blockchain itself.
People are becoming more educated and the majority of the technology challenges we face now will most likely be overcome very soon.
Centralized exchanges will migrate to decentralized technology sooner rather than later, but improvements will need to come from both sides. Users should learn how to protect themselves, and systems should provide better safety measures, as well as training on common location issues and good practices.
Finally, we believe that centralized and decentralized exchanges will coexist since they each provide unique benefits.