What Is a Centralised Exchange?
A centralised exchange (CEX) is an organisation that facilitates the exchange of cryptocurrency assets. It is owned and run by a central authority figure or company in a centralised manner.
Centralised exchanges typically have an order book, which is how they facilitate trades. For example, a trader puts in an order when they wish to sell a token at a particular price. Another trader then sets an order to buy the asset at the same price. The CEX will connect these two traders so that a trade can be completed on both ends. This is how the order book works, cataloguing every buy and sell order and connecting traders to facilitate these requests.
When trading on a CEX, users should understand that no actual exchange of assets occurs. When users deposit their funds into a CEX, it takes custody of these assets, handling everything. The funds do not get converted and returned until the user withdraws them.
To this day, CEXs are one of the most popular ways to trade cryptocurrency. Since only one main point of authority exists in a CEX, it makes transactions quicker and is one of the easiest and fastest ways to make trades.
Although a CEX has its benefits, it has disadvantages, as well. It can be a target for hacks, as malicious actors know a lot of money is held in a CEX. Since these exchanges are centralised, if something happens to the central authority point, it can cause service issues. Another disadvantage is that CEXs typically face the most regulation and censorship from governments.
For more information on centralised exchanges, read our University article What Is a Centralised Exchange (CEX)?
