A centralised exchange works much like a traditional brokerage: users deposit funds, and the exchange matches buy and sell orders through an internal order book. Most centralised exchanges also offer a way to convert between traditional currency and crypto, often called a fiat on-ramp or off-ramp, which makes them a common entry point for people new to crypto. Because the exchange operates and controls its own platform, it can offer features like customer support, account recovery options, and a more familiar, app-like trading experience compared with decentralised alternatives that run directly on a blockchain.
The trade-off is custodial risk. When crypto sits on a centralised exchange, the exchange, not the individual user, actually controls the private keys to those funds, which is where the phrase not your keys, not your coins comes from. If an exchange is hacked, mismanaged, or becomes insolvent, users' deposited funds can be at risk, and history has shown this isn't a purely theoretical concern. Regulated centralised exchanges typically require identity verification, known as KYC, to comply with financial regulations. Many users mitigate custodial risk by withdrawing funds to a personal wallet after trading rather than leaving them on the exchange long-term. Exchanges differ widely in size, regulatory standing, and security track record, so researching a specific platform before depositing meaningful funds is a reasonable precaution rather than an unnecessary one.
Key takeaways
- A centralised exchange is a company-run platform that matches buyers and sellers and typically holds users' funds in custody.
- CEXs are generally easier to use and offer fiat currency support and deeper liquidity compared with decentralised alternatives.
- Because the exchange holds custody, users take on counterparty risk; if it's hacked or becomes insolvent, deposited funds can be at risk.
Centralised Exchange (CEX) — frequently asked questions
What does 'not your keys, not your coins' mean?
It's a reminder that crypto held on a centralised exchange is controlled by the exchange's private keys, not yours. You have a claim on your balance, but not direct control of the assets until you withdraw them.
Do centralised exchanges require identity verification?
Most regulated centralised exchanges require KYC, or know your customer, verification to comply with financial regulations, which typically involves submitting a form of government-issued identification before you can deposit or withdraw funds freely.
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