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Centralized Cryptocurrency Exchanges are those exchanges that act as a trusted third party for storing assets and transactions by users. It differs from the idea of decentralized crypto exchanges in that the decentralized ones are not managed by any entity. Hence, centralized crypto exchanges (CEX) are trusted by users for performing crypto-related tasks on their platforms. Whereas decentralized crypto exchanges are ‘trustless’ entities that manage cryptocurrencies generally through smart contracts.
The centralized crypto exchanges offer direct access to purchase crypto assets with fiat money. The CEX also provides for the purchase of cryptocurrency with other cryptocurrencies. These are the most common types of cryptocurrency exchanges prevalent in the market. However, centralized cryptocurrency exchanges are often marred by security attacks involving loss of money. Instances of hacking on CEX lead to fear and uncertainty in the crypto ecosystem, as potential losses could involve millions of investors.
To make it easy for liquidity and transaction fee payments, many exchanges also operate exchange tokens. Just like other cryptocurrencies, the exchange tokens also grow in value as per demand in the market. An example of such tokens is the Binance Coin (BNB) offered by the Binance exchange.
Since the space is dominated by centralized cryptocurrency exchanges, regulators are likely to further increase regulatory pressure on them. Instances of exchanges losing money in hacks have in recent times increased, attracting more regulatory scrutiny. Certainly, centralized cryptocurrency exchanges would be a central part of legislation in the cryptocurrency industry. This could ultimately benefit the crypto investors in terms of the safety of funds.
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