A cryptocurrency trading platform operated by a central company.
Detailed Explanation
A centralized exchange (CEX) is a cryptocurrency trading platform owned and operated by a company that acts as an intermediary between buyers and sellers. CEXs maintain order books, hold custody of user funds, and provide trading infrastructure. Major examples include Coinbase, Binance, Kraken, and Bybit. CEXs require users to create accounts, complete identity verification (KYC), and trust the exchange with their assets. They typically offer higher liquidity, faster execution, fiat currency support, and customer support compared to decentralized alternatives.
Why It Matters
Centralized exchanges handle the vast majority of crypto trading volume and serve as the primary entry point for new users converting fiat currency to cryptocurrency. Understanding how CEXs work, their fee structures, and their risks is essential for anyone buying or trading crypto. The collapse of FTX in 2022 highlighted the importance of choosing reputable exchanges with proof of reserves.
Real-World Example
To buy your first Bitcoin, you might create an account on Coinbase, complete identity verification, link a bank account, and place a buy order. Coinbase matches you with a seller, executes the trade, and holds your Bitcoin in their custody until you withdraw it to a personal wallet.