Blockchain technology came into the world and brought cryptocurrencies with it. Cryptocurrencies are like digital money. Blockchain changed how things work by making a system where no one person or group controls everything. Instead, it lets everyone involved keep track of things.
People are paying more attention to places where you can trade cryptocurrencies, like Centralized Crypto Exchanges (CEX). These places are like hubs where people can buy, sell, and trade cryptocurrencies. They’re getting more popular.
But there’s also something called decentralized exchanges. These are like an alternative to centralized exchanges. They work differently and are becoming more popular too.
Centralized exchanges are the ones most people know about. They’re like regular businesses where you can trade cryptocurrencies. But they offer more than just trading. They might have customer service and account help too.
Definition of Centralized Crypto Exchanges (CEXs)
A centralized crypto exchange is a safe place where people can trade their digital money. It’s like a marketplace where buyers and sellers can do transactions securely. These exchanges also help keep the digital money flowing smoothly by supporting different types of tokens.
When you make a trade on one of these exchanges, it’s all done electronically and recorded on the blockchain, which is like a digital ledger for cryptocurrencies.
Before a new type of token can be traded on a centralized exchange, it has to pass some tests. They look at things like how well-known the token is, how much it’s worth, and what it can be used for. These exchanges also provide lots of information to help traders make smart decisions about their investments.
Unlike traditional markets where brokers often get involved, centralized exchanges cut out the middleman. That means all the trades happen directly between buyers and sellers through the exchange’s own system.
Are Centralized Exchanges a Reliable Option for Decentralized Crypto Assets?
Blockchain and cryptocurrencies want to cut out middlemen. But when a company runs a crypto exchange, it’s not totally decentralized. These exchanges let you buy, sell, and trade digital assets for a fee.
They also keep your private keys, which some people don’t like. So, some prefer decentralized exchanges. These give you full control over your digital stuff.
But decentralized exchanges still have fees. And they differ from centralized ones because of how they handle your keys.
Centralized exchanges take care of your cryptocurrencies for you. Decentralized ones let you control your keys and wallet security.
So, they might be safer. But using them means knowing a lot about crypto. Centralized exchanges are easier for anyone who can use a computer or stock app.
Working of Centralized Exchanges
A centralized crypto exchange operates by receiving and matching buy and sell orders, while also serving as a custodian of user data.
It provides liquidity, charges fees for data access, and allows listing of native tokens after vetting.
Users maintain control of their assets in their wallets and interact directly with the exchange for trading.
Most Noticeable Highlight in Working of Centralized Exchanges
To understand how centralized crypto exchanges work, we also need to look at how they follow rules.
These exchanges handle lots of money and serve many people worldwide. So, they need permission from the governments where they operate.
They also have to follow laws about stopping terrorism financing, checking who their customers are, and preventing money laundering.
Plus, they have to be open about how they run things. They also have to follow certain steps to make sure prices of assets are not unfairly changed.
Is a DEX better than Centralized Exchanges?
In 2022, centralized exchanges faced some problems that made people worried about using them. This worry came after FTX, a big centralized crypto exchange, collapsed.
People started thinking about trying decentralized exchanges (DEXs) instead. The growth of DEXs is also connected to the DeFi movement, which is becoming more popular.
DEXs are like online marketplaces where people can trade directly with each other. They don’t have a central authority controlling everything, and all transactions are done automatically through blockchain technology.
DEXs also don’t have to follow strict rules like centralized exchanges do. They generally have lower fees for transactions too. Instead of using traditional order systems, DEXs use smart contracts and other advanced tools to make trading smoother and faster.
Centralized exchanges, on the other hand, have rules and regulations to follow, making them safer and more transparent.
They also tend to work faster because they have market makers who ensure there’s enough money flowing through the system. However, they usually charge higher fees and don’t protect user privacy as much as DEXs do.
Important Traits of Centralized Exchanges
The debate between centralized and decentralized exchanges is a big part of the crypto world. But if you want to use a centralized exchange, you can check out a list of them and pick one based on what you need.
There isn’t one exchange that’s perfect for everyone, so you should choose one that matches your goals. For centralized exchanges, look for ones that are easy to use and don’t charge too much. It’s also good if they show real-time prices for cryptocurrencies.
When picking a centralized exchange, consider how much trading is happening there and if it’s safe. So, what’s most important when choosing a centralized crypto exchange?
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Trading Volume
Understanding how centralized crypto exchanges work can help you see why trading volume is important.
More trading volume means less sudden changes in prices, which makes it harder to manipulate the market.
This is important because cryptocurrencies can change in value quickly. When there’s a lot of trading, transactions can happen faster, which helps avoid big changes in prices.
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Security
One important thing about a Centralized Crypto Exchange (CEX) is how safe it is. When all the assets are kept in one place, it can be easier for hackers to attack. No exchange is completely safe from hacks or fraud.
But some exchanges are better protected than others. How safe a CEX is depends on how they handle security issues.
Some exchanges have managed to help users get back their lost assets after security problems, but others have failed and shut down because of security issues.
Renowned Centralized Crypto Exchanges
The options for blockchain programmability have ensured that almost anyone could develop a cryptocurrency exchange.
Most of the popular cryptocurrencies have users worldwide, and they are decentralized assets. You can choose centralized exchanges for purchasing or selling crypto assets with proper knowledge about cryptocurrencies.
On the other hand, every entry in a centralized crypto exchange list does not serve as the best option for all users.
The best course of action for choosing centralized exchanges would focus on exchanges with good reputations. Here is an outline of the popular centralized crypto exchanges you can find now.
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Coinbase
The most popular entry among examples of the best centralized crypto exchange would be Coinbase.
It is one of the most commonly used centralized exchanges in the United States. Interestingly, the CEX is a massive, publicly-traded company with its stocks listed for trading.
At the same time, the platform ensures desired usability for beginners as well as new crypto traders. However, the transaction fees could be accounted as one of the foremost setbacks of Coinbase.
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Binance
Another notable mention among renowned centralized crypto exchanges refers to Binance.
It is the biggest cryptocurrency exchange in the world and has come up with Binance.
US as a subsidiary for operating in the United States only.
Binance.US would work in accordance with the securities and trade laws of the United States.
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Kraken
The next popular choice in a centralized crypto exchange list is Kraken. One of the most noticeable highlights of Kraken is the assurance of low fees.
In addition, Kraken also supports a broad range of cryptocurrencies alongside offering a robust rewards program. However, Kraken is a suitable option for intermediate and expert cryptocurrency traders.
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Gemini
The list of renowned centralized crypto exchanges also includes Gemini. It is one of the largest crypto exchanges and has its own stablecoin. Apart from the reputation of its stablecoin, Gemini also features trusted rewards programs. While Gemini offers significant advantages for crypto transactions, it imposes the burden of high costs.
Read more: How to move crypto to cold storage?
How Can You Use a CEX?
The highlights of a guide on Centralized Crypto Exchange (CEX) and their working must also showcase the methods for using them.
Beginners can use the following steps to interact with a centralized exchange.
Step 1
Start with a review of the top exchanges on the basis of transaction fees, supported cryptocurrencies, security features and trading volumes.
Step 2
Based on your understanding of ‘how do centralized crypto exchanges work‘, you have to create an account on the CEX. You can create the account by using your email and setting a unique password.
Subsequently, you must complete the KYC verification steps for offering your personal information to the exchange.
Step 3
In the next step, connect the wallet to the centralized exchange and transfer funds to the CEX. The wallet is an important part of paying and receiving cryptocurrencies through the CEX.
Step 4
Once you set up the wallet on the centralized exchange, you can begin your first transaction. Make sure that you check the crypto token before purchasing.
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Final Words
Centralized crypto exchanges are places where you can buy and sell digital currencies. They have a lot of potential.
People often talk about how these exchanges are too centralized, meaning they have too much control. But decentralized exchanges are different.
They don’t have rules from regulators. So, if centralized exchanges keep growing, more people might start using crypto.
There are other reasons to choose centralized exchanges too, like they’re more open about what they do.
This could help more people start using crypto in the future. If you want to know more about centralized exchanges and how they fit into the world of digital money, you should learn more about them now.