A centralized exchange is an exchange platform on which you can buy, exchange or sell an asset by using an intermediary. This will connect buyers and sellers. Crypto exchanges are one of the cornerstones of the cryptosphere.
Concretely, it is a specialized interface is set up, with all the necessary functionalities so that transactions can be done easily and above all, in complete security. Discover the specificities to know about a centralized exchange!
Centralized exchange: definition
An exchange is above all a platform that enables transactions of assets, including cryptocurrencies. It is possible to buy and sell Bitcoin, Ether or even altcoins or even to buy NFT (Non-Fungible Token) against fiat money, or quite simply to exchange it against other cryptos.
The term ” centralized is used to refer to platforms that use an intermediary to arbitrate decentralized finance (DeFi) transactions. In other words, a person or entity connects the buyer and seller.
As opposed to the centralized exchange, a decentralized exchange allows the buyer and the seller to be in direct relation, without the need for an intermediary.
Today, centralized exchanges or CEX (Centralized EXchange) are more common than DEX (Decentralized EXchange). Indeed, they represent nearly 95% of the existing crypto exchanges on the market. The best known and largest of all CEX is Binance.
How a centralized exchange works
The functioning of a centralized exchange is relatively simple :
- An individual owns fiat currency (USD, EUR, GBP, etc.)
- He wants to buy crypto-currencies
- He will connect to a centralized exchange to find a seller
- The seller is also registered on the platform while waiting for a potential buyer
- The CEX will connect the two parties so that the transaction is possible
As an intermediary, the centralized exchange will arbitrate the transaction by ensuring the transfer of the amount to the seller’s account. It will also ensure that the crypto-currencies are clearly visible in the buyer’s wallet.
In addition, the CEX verifies that the buyer actually has the sum in his account and that the seller does indeed own the cryptocurrencies.
Why choose a centralized exchange?
Some are wondering today which exchange to choose? The centralized exchange is still very successful, firstly because these platforms are subject to strict regulations established by the countries where they operate.
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This form of regularization provides security and assurance to its usersespecially on the side of novice traders.
Conversely, DEXs are not governed by any authority, so their legality has long sparked debate.
Centralized exchanges display a great ease of use. In addition, they offer complete options to their users. Some allow not only to buy, sell and exchange cryptos, but also to store them. There are even platforms that offer their customers the possibility of make money through things like staking and yield farming (yield farming).
In short, the platforms attract beginners thanks to their ergonomics and their complete character, and this explains their preponderance on the market today.
Centralized exchanges: pros and cons
Advantages of centralized exchanges
Here are the 5 main advantages of centralized exchanges:
Disadvantages of centralized exchanges
Here is a list of the 2 disadvantages of centralized exchanges:
- Overall higher fees
- Often complicated registration process
Conclusion: centralized exchanges, an all-in-one solution
As you will have understood, centralized exchanges are cryptocurrency platforms that seduce thanks to their versatility and ease of use. They are real aggregators of services related to cryptos and DeFi. Not only will you be able to carry out your transactions, but also use them to invest in NFT, do staking or as a wallet.
These online platforms are ideal for beginners and investors who want to make their life easier. In return, the fees will be a little higher than on other platforms, and you will only have access to the tokens and services offered by each platform. So, for specific investments, you will first need to check that this service is available on the exchange of your choice.