In this article, we shall study the definition of centralized exchange (CEX) distinguishing of centralized and decentralized exchanges and cryptocurrency or real currency pairs.
When we talk about Centralized Exchange (CEX), we refer to a crypto platform that coordinates the large scale trading of cryptocurrencies. This exchange is controlled by an independent business.
Meaning of Centralized Exchanges
We have introduced a little on the meaning of centralized exchanges. Its duty is to, ensure the smooth transaction of any product within customers. Now, let us look at what an order is. An order is a proposal to either purchase or dispose a certain quantity of a unique cryptocurrency at a worthy price. In regards to this, centralized exchanges, assemble the orders made by its user. After this is done, it devices a means to carry out those orders. Meanwhile, this is done with the help of a unique program. When this orders are taken, the are recorded in an order book. This book contains all the buy and sell orders, that were made by individuals.
In centralized exchange, users only hand over their assets tho the exchange platform. The do this, when the deposit their money there. Therefore, the exchange takes responsibility of the assets and subsequently give interest to its users. Now, the exchange keeps record of each individual’s IOU. It simply changes them to real currency when its racks each user’s IOUs as they change fingers in trades and solely converts them into authentic forex at the second of withdrawal of funds.
CEX Expansion And Prowess
In recent times, centralized exchanges has spread like wild fire. It is an exchange that used very often for crypto transactions. CEXs record s high efficiency and processing rate. This has made traders to choose it as their crypto trading platform.
Detrimental practices like wash trading and price manipulation are caused by lack of transparency. With this, centralized exchanges do not make their internal operations known to the public. There are no consequences attached to the reliance of CEXs on a central entity.
In 2019, there has been a total loss of over $292 million. This are money deposited by customers. This occurred in just the 12 largest hacks that centralized exchanges have experienced. A centralized exchange is now a lucrative target for potential attackers both from outside and within the organization. Why? Because they’re in charge of assets owned by its users.
Furthermore, they are preys to government censorship. This gives regulators the access to freeze or seize user funds. Not only that, they force the higher rank of the exchange companies to disclose the personal information of their customers. However, customers could loose trades due to technical issues or coordinated attacks. When this happens, the CEX services will be faulty.
Explanation of Centralized Exchanges
They are often easier and safer to use. Even though the fees charged are higher than that of decentralized ones.
It is important to note that, centralized exchanges adopt a business model like that of stock exchanges. Just that it operates on a larger scale when organizing crypto trading.
An exchange creates a neutral ground for traders to trade. It can be interesting when a lot of traders are on the verge of buying and selling the same type of assets. They are not more than marketplaces where buyers and sellers interact with each other. The New York Stock Exchange and the London Metal Exchange are good examples of traditional exchanges that are popular. Centralized exchanges like Binance, Coinbase, Gemini and Kraken have gone global. The are very renowned.
The list of active buy and sell orders comprising of volumes and prices are known as digital order books. They are handled by centralized crypto exchanges. They link buyers and sellers to each other. Current market prices are announced based on a particular asset’s last selling price. Trades are cleared as this is the only way centralized crypto exchanges directly participate in markets.
Crypto Asset Study
However, there are certain recommendations before a trade can be successful. Users must provide their crypto assets in the exchange. Without this, they cannot trade at all. This is known as crypto asset study.
According to a report by KPMG(a global accountancy), the businesses with the highest value attached to them are “exchanges”.
Binance exchange carries out more than $20 billion in daily transactions. Uniswap processes less than $2 billion even though it’s the largest decentralized exchange. In comparison, the money realized from CEXs is higher than that of the DEXs.
KPMG discovered that CEXs dominates 95% of exchange crypto trading. Although, Binance has launched its own DEX. It is still the world’s largest crypto exchange but as a centralized exchange rather. CEXs are still leading decentralized exchanges (DEXs) in the race for fame in Q1 of 2022.
Definition of Centralized Cryptocurrency Exchanges
Most people prefer the centralized cryptocurrency exchange for trading digital currencies. Incase you are unaware, they are online platforms where cryptocurrencies are bought and sold. They are means investors use regularly.
Operations of centralized exchanges may not be right pathway to follow for some investors. Since digital currencies themselves are often portrayed to be decentralized in nature. This will leave them thinking how a centralized exchange will look like and why it is so necessary in the crypto community.
Involving Middle Men
Middle men play an important role in centralization,. This is because, they are incharge of executing transactions. Both buyers and sellers place their trusts on a third party. Thereby exchanging there assets through him/her. Let’s bring it down to the banks we see today. A customer deposits his or her funds into a bank account believing that they would be taken care of.
Bank accounts are created because banks offer security and monitoring that one cannot do alone. This same principle applies to a centralized cryptocurrency exchange. Apart from safe transaction completion, traders also believe that the exchange will find trading partners for them through the network of users.
In terms of cryptocurrency, there is a storage center for it. We store it in digital wallets. Once you forget the 12-phrase password of your wallet, you stand a chance to loose all your coins. However, it is not applicable in terms of a centralized exchange. This is because there will be someone doing that for you.
Distinguishing of Centralized and Decentralized Exchanges
In the crypto market, the worth of every coin has a normal currency counterpart. We use centralized exchanges in trades that involves cryptos against normal currency. A market for another kind of crypto exchange exists. Although the ones mentioned earlier looks like it has amen care of all the possible transaction types.
On the other hand, decentralized exchanges can stand in as a market replacement. They generate an sincere scenario by eliminating middle men. They are usually operate as peer-to-peer exchanges. Therefore, transactions occur on the basis of smart contracts and few swaps. The don’t keep assets under the custody of a third party.
There are also more decentralized exchanges that evolve every time. In the future, they can displace centralized exchanges in terms of finance. The main difference between centralized and decentralized exchanges is the absence or presence of a middle man. In comparison, centralized exchanges are more global and renowned than decentralized exchanges.
Cryptocurrency or Real Currency Pairs
Cryptocurrency or Real Currency Pairs are very important in this topic. Nowadays, it’s easier to have both pairs as cryptocurrencies in a centralized exchange. Customers can only trade one crypto for the other. For example, trading Bitcoin for Ethereum. The exchanges that offers real currencies and crypto currencies as pairs are very few. Here, customers can trade a crypto for real cash. For example, trading Bitcoin for U.S dollars.
Exchanges that offers real currencies and crypto currencies as pairs serve as a direct channel to the crypto market as a whole. The rank as one of the best cryptocurrency exchanges in the world.
Some exchanges like Coinbase, Robinhood, Kraken, and Gemini pose as the perfect suggestions for many investors in the space. This is because they are newbies when it comes to digital assets investment. This is all about cryptocurrency or real currency pairs.
Important Points on Centralized Exchanges
There are various factors that determine the success of an exchange. The most important factor is trading volume. This is how much successful trade recorded. However, new centralized cryptocurrency exchanges emerges everyday. Meanwhile, this new exchanges can close up at anytime. This can be due to lack of sustainability.
On a general note, the levels of trading volume, varies inversely with the volatility and market manipulation. Volatility is an important point to keep in mind. There can be fluctuation in the price of a given token/coin from the start of the transaction to its completion. This happens when the time range for a transaction is to be settled. This change in price might not be an issue if the trading volume is very high and transactions very fast as well.
Security is another important factor to success in the centralized world. Some exchanges are more secure than others. Although none is completely safe from hacking.
Some centralized exchanges exhibit different reactions towards malicious activities. A large number of exchange platforms have shutdown due to these activities. Some have tried their best to repay users while others have failed totally in an attempt to do so.
Some factors influence an exchange. They are: the pairs that are traded, nature of the trading volume, and the security measures adopted.
Volatility is the main quality of cryptocurrency. It is very risky to invest in cryptocurrencies and Initial Coin Offerings (“ICOs”). However, this article is not a financial advice. Always try to do your own research on the meaning of centralized exchanges, cryptocurrency pairs, distinguishing of centralized and decentralized exchanges, cryptocurrency or real currency pairs, etc. You can as well consult a qualified professional for more clarity.