Centralized Exchange (CEX)

A centralized exchange, or CEX, is a business that operates a crypto trading venue. Users create an account, verify their identity, deposit money or crypto, and trade on an order book maintained by the exchange. The exchange holds the assets in its own wallets and tracks who owns what in an internal database, much like a brokerage account.

Centralized exchanges offer features that are hard to get elsewhere: bank deposits and withdrawals, customer support, high trading speed, and advanced products like margin and futures. They also handle the technical complexity, so a beginner never has to deal with gas fees or seed phrases unless they withdraw to their own wallet.

The main risk is custody. If the exchange is hacked, mismanages funds, or goes bankrupt, customers can lose access to their assets. This happened with Mt. Gox in 2014 and FTX in 2022. The phrase not your keys, not your coins summarizes the concern. Many users keep only what they are actively trading on an exchange and move the rest to self-custody.