What is a Centralized Exchange (CEX)?
Centralized Exchanges are cryptocurrency marketplaces where trading is facilitated between users by an order book maintained by aggregated order systems where the custody of deposited funds on the exchange is taken over by the company.
A centralized crypto exchange is a place where people can buy and sell digital money, like Bitcoin or Ethereum. But unlike a regular bank, it's not controlled by the government. Instead, it's controlled by a single company, like a big boss. This company holds the digital money for all the customers, and controls the buying and selling process. It's like a big store where you can buy and sell digital money, but the store is in charge of making sure everything is fair and safe.
Simplified Example
A centralized exchange can be compared to a traditional bank, where people deposit their money and the bank is in control of their funds, with the ability to freeze accounts and impose restrictions on the use of the money. Similarly, on a centralized exchange, users deposit their cryptocurrencies and the exchange is in control of their funds, with the ability to freeze accounts and impose restrictions on withdrawals or trading.
History of the Term Centralized Exchange
The term "Centralized Exchange" or "CEX" arose alongside the advent of cryptocurrencies and the need for platforms facilitating crypto trading. While there's no singular attribution of its coinage, it became prevalent around the early 2010s. These exchanges, centralized in their operation, gained traction for their user-friendly interfaces and liquidity. Mt. Gox, established in 2010, was one of the pioneering exchanges that popularized the concept, allowing users to trade Bitcoin. Centralized exchanges manage trading activities through a central authority, often facing criticism for their vulnerability to hacks or regulatory control. However, their ease of use and familiarity with traditional finance systems contributed to their widespread adoption in the cryptocurrency landscape.
Examples
Binance: a large exchange based in Malta, which allows trading of a large variety of cryptocurrencies.
Coinbase: A US-based exchange that allows buying, selling, and storing of cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
Kraken: A San Francisco-based exchange that offers trading of various cryptocurrencies, including Bitcoin, Ethereum and Litecoin.
Bitfinex: a Hong Kong-based exchange that offers trading of various cryptocurrencies, including Bitcoin, Ethereum, and Litecoin.
Related terms
Exchange: Exchanges are the platform for trading cryptocurrency, allowing users to buy and sell different digital assets.
Decentralized Exchange (DEX): A decentralized exchange (DEX) is a type of cryptocurrency exchange that operates on a decentralized platform, meaning that it is not controlled by a single entity.