What is Centralized Exchange (CEX)?

Back to Glossary

Centralized exchanges are cryptocurrency exchange platforms that act as intermediaries between buyers and sellers of digital assets. Crypto exchanges usually have payment systems in place that make it possible for crypto traders to conduct digital assets exchange or crypto to fiat currencies exchange, creating a form of a hybrid exchange platform.

In cryptocurrency, there are two types of cryptocurrency exchange. There are decentralized exchanges and centralized exchanges. Irrespective of the type of cryptocurrency exchange, all exchanges charge a certain percentage as a trading fee irrespective of the trading volume. They facilitate payments by working with commercial banks that enable users to do direct bank transfers or use credit cards.

How it Works

Centralized platforms are generally custodial. They hold user funds and digital currencies of crypto investors in crypto wallets and act as the central authority that authenticates all transactions. Centralized exchanges can improve user experience over time, guarantee additional security for crypto assets, and provide a wide range of featured services.

Additionally, they work with government agencies and centralized authorities to ensure that their platform is not a tool for malicious activity.  They carry out Know Your Customers and Anti-Money Laundering procedures to ensure that all customers are fully compliant with Anti-Money Laundering (AML) Laws.