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Centralized Exchange (CEX)

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What is a Centralized Exchange (CEX)?

Centralized Exchanges are cryptocurrency marketplaces where trading is facilitated between users by an order book maintained by aggregated order systems where the custody of deposited funds on the exchange is taken over by the company.

A centralized crypto exchange is a place where people can buy and sell digital money, like Bitcoin or Ethereum. But unlike a regular bank, it's not controlled by the government. Instead, it's controlled by a single company, like a big boss. This company holds the digital money for all the customers, and controls the buying and selling process. It's like a big store where you can buy and sell digital money, but the store is in charge of making sure everything is fair and safe.

Think of it like a lemonade stand where you can buy and sell lemonade, but the person running the stand is the one who gives you your lemonade and takes your money. In a decentralized exchange, everyone has control over their own money, like a group of friends running a lemonade stand, each person is responsible for their own lemonade and money.

Binance: a large exchange based in Malta, which allows trading of a large variety of cryptocurrencies.

Coinbase: A US-based exchange that allows buying, selling, and storing of cryptocurrencies like Bitcoin, Ethereum, and Litecoin.

Kraken: A San Francisco-based exchange that offers trading of various cryptocurrencies, including Bitcoin, Ethereum and Litecoin.

Bitfinex: a Hong Kong-based exchange that offers trading of various cryptocurrencies, including Bitcoin, Ethereum, and Litecoin.

Simplified Example

A centralized exchange can be compared to a traditional bank, where people deposit their money and the bank is in control of their funds, with the ability to freeze accounts and impose restrictions on the use of the money. Similarly, on a centralized exchange, users deposit their cryptocurrencies and the exchange is in control of their funds, with the ability to freeze accounts and impose restrictions on withdrawals or trading.