A CEX (Centralized Exchange) is a platform where users can buy, sell or exchange cryptocurrencies, but with the participation of a centralized intermediary that manages the platform and holds the funds.

These exchanges operate similarly to traditional stock exchanges, offering tools for trading, investing, and other functions.

How does a CEX work?

  1. Registration and verification:
    Users must create an account and, in most cases, complete a verification of identity (KYC) process, which includes providing personal data and documents.

  2. Deposit of funds:
    To trade on a CEX, you must first deposit your funds, either in cryptocurrencies or in traditional currencies (such as dollars or euros). These funds are held by the platform.

  3. Operations through order books:
    CEXs typically use an order book system where buyers and sellers post their offers. The exchange matches these orders to complete transactions.

  4. Withdrawals:
    When you finish trading, you can withdraw your funds in the form of cryptocurrencies or convert them to traditional money and send them to your bank account.

Advantages of CEXs

  1. Ease of use:
    Centralized platforms are more intuitive and easier to use, especially for beginners. They offer simple interfaces to buy and sell cryptocurrencies.

  2. High liquidity:
    CEXs usually have a large number of users and transactions, ensuring that you can buy or sell cryptocurrencies quickly, even in large volumes.

  3. Advanced features:
    They offer tools like margin trading, futures, staking, and loans, making them attractive to more experienced traders.

  4. Support for fiat currencies:
    CEXs allow deposits and withdrawals in traditional currencies, facilitating access for those who do not have cryptocurrencies.

  5. Additional security:
    Although they are not without risks, many CEXs invest in security infrastructure such as insurance for funds or protective measures against hacks.

Disadvantages of CEXs

  1. Loss of control over funds:
    By depositing your cryptocurrencies in a CEX, you no longer have full control over them. You depend on the platform to protect your assets.

  2. Risk of hacks:
    CEXs are frequent targets of attacks due to the large amount of funds they manage. Historical examples include the hacks of Mt. Gox and Bitfinex.

  3. KYC and lack of privacy:
    Mandatory verification processes require you to provide your personal data, which can be a problem if you value anonymity.

  4. Dependency on the system:
    If the platform suffers interruptions, regulatory lockouts, or even bankruptcy, you could lose access to your funds.

Some of the most well-known CEXs are:

  • Binance: It is the largest exchange in the world, known for its wide variety of cryptocurrencies and trading tools.

  • Coinbase: Popular in the United States, focused on being beginner-friendly.

  • Kraken: Offers advanced services such as futures trading and high security.

  • KuCoin: Known for offering a large number of altcoins and innovative trading options.

How does a CEX differ from a DEX (Decentralized Exchange)?

In a CEX, you deposit your funds and the platform acts as an intermediary in all operations, making it easier to use and with greater liquidity.

However, you lose direct control over your cryptocurrencies. In a DEX, you trade directly from your wallet without intermediaries, but it is usually more complex and has less support for traditional currencies.

Conclusion

A CEX is an excellent option for beginners and for those seeking ease of use and quick access to their cryptocurrencies.

But it means you must trust a centralized entity to protect and safeguard your funds.

If you decide to use a CEX, it is essential to choose reliable platforms and withdraw your cryptocurrencies to a personal wallet if you plan to hold them long-term.

As they say in the crypto world: "Not your keys, not your coins"

(If you don't have the keys, you don't have the coins).


$BNB