The centralized exchange (CEX) platform is where cryptocurrency transactions are carried out with the help of an intermediary. It is an escrow-based crypto exchange platform in which a set amount of fees is collected at both the entry and exit points and delivered to the centralized exchange owner.
With the introduction and rise to fame of blockchain, cryptocurrencies became a trend. Nowadays, they are everything that people talk about. Every conversation starts with a cryptocurrency and ends with a cryptocurrency! Following the inception of cryptocurrencies, centralized exchanges have also become quite normal, especially because every transaction needs to go through a proper system and infrastructure that must be followed and completed.
Some traders still use decentralized exchange while some traders use the centralized exchange. Today, we have decided to focus on the latter:
Getting To Know Centralized Exchanges
Centralized exchanges (that are also known as CEXs) can be defined as organizations that are responsible for the coordination of cryptocurrency trading on a large scale. They utilize a business model that is similar to conventional asset exchanges such as stock exchanges. In simpler words, exchanges are just like marketplaces that come in handy, especially when a large number of people are trying to trade the same kind of asset at the same time.
Some famous centralized exchanges include Kraken, Gemini, Coinbase, and Binance.
Centralized exchanges work by clearing trades and they keep digital order books to keep track of orders, prices, and volumes. They also help match different sellers with different buyers and then announce the current market prices according to the last price an asset was sold for. Centralized exchanges also offer supplementary services, including asset custody which normally requires a user to deposit their asset before the trading can actually happen and someone can buy the product.
Centralized exchanges are still more common as compared to decentralized exchanges. According to KPMG, 95% of the exchange happening in crypto trading is via CEXs. The largest cryptocurrency exchange, at the moment, is Binance (You can check out our article on how much it costs to build an app like Binance) which processes more than 20 billion U.S. dollars in transactions daily as compared to the biggest decentralized exchange platform called Uniswap where only 2 billion U.S. dollars are processed in transactions.
How Do CEXs Work?
CEXs receive orders from their clients that can be institutional or individual. Then they match the buyers with sellers and vice versa. Moreover, CEXs also work as market makers by offering liquidity to the tokens that have support from their platforms in order to enhance the speed of execution. These exchanges often provide information to market participants for analyses because they deal with orders’ data all the time. Normally, the exchanges get a fee from those analysts.
Centralized exchanges also offer a layer of decentralization to their users as they are not required to visit a broker anyway. Instead, the users’ assets are kept in a wallet and they can be exchanged whenever a user wants to trade them.
The most notable feature of CEXs, however, is the regulation. Since they deal with billions of dollars frequently, they must be authorized by their local governments to be able to provide their services.
Top Centralized Exchanges
- Huobi Global.
- Coinbase Exchange
Centralized Exchange (CEXs) vs. Decentralized Exchange (DEXs): Which One Is Better?
Both have their own pros and cons, so there is no straightforward answer for who’s the winner when you compare both of them.
CEXs are regulated with a higher degree of transparency and safety and they work within a boundary of strict laws in order to keep the investors and all other parties protected. Their execution speed is higher, and they also provide liquidity to ensure a seamless exchange of all instruments.
On the other hand, if we talk about DEXs, they have anonymity, direct access (via blockchain), and cheaper fees.
So, if you want to know which one will be better for you, we recommend to consult our blockchain coders before choosing the one that suits you the best according to the features and factors that are the most important to you.
Wrapping It Up
Over the past few years, centralized exchanges have gone from being unregulated platforms to becoming secure, regulated, and some of the most trusted entities out there, that are now the backbone of the digital asset ecosystem. Their successful journey has made centralized exchanges important for buying, holding, and selling cryptocurrency.
All in all, centralized exchanges have always been a very important role player in connecting new users (and even experienced ones) with cryptocurrency, and they will always remain a viable onramp as the cryptocurrency industry continues to grow by leaps and bounds.