Centralized Exchange (CEX)
Similar to when US dollars are exchanged for euros or British pounds, centralized exchanges (CEX) are marketplaces for exchanging crypto and fiat currencies that function like traditional stock and commodities exchanges. A CEX is usually owned and operated by a centralized entity that typically has some measure of control over every account as well as the transactions those accounts engage in.
All transactions on a CEX must be approved by the CEX, which requires all users to place their trust in an exchange operators' hands. Coinbase and Binance are examples of CEXes that, so far, have not betrayed the trust of their customers. FTX was another CEX that infamously went down in flames due to the alleged negligence of its founder Sam Bankman-Fried and his colleagues. Many of FTX’s customers may never recover their losses.
CEXes are similar to the cashier at a casino. Customers come into the casino, exchange some fiat for casino chips, head out onto the casino floor to gamble with their chips, and then return to the cashier to convert their chips back into fiat currency.
Although CEXes are often used to exchange different cryptocurrencies for one another, they are also the most popular jumping-off point for individuals or organizations looking to exchange fiat for cryptocurrency and vice versa. Once they’ve exchanged their fiat currency for cryptocurrency, those individuals or organizations can:
In contrast, Decentralized Exchanges (DEX) act as autonomous decentralized applications (dApps) running on smart contract-enabled public distributed ledgers. Sometimes referred to as “protocols,” the smart contracts that power DEXes allow participants to make many of the same cryptocurrency exchanges that can be made with CEXes, but without the involvement, help or support of a central entity. Most if not all DEXes are unable to make trades involving fiat currency since there’s typically no central entity that can safekeep its users’ cash.