Centralized Exchanges: Overview, Benefits, and Examples
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I am going to talk about centralized exchanges in this article.
The business of buying and selling of cryptocurrencies otherwise known as trading has taken centre-stage in crypto activities today.
As a blog dedicated to a comprehensive and diverse crypto Education for both beginners and experts in the space, we believe that a look at centralized exchanges will give you a better headstart.
Looking at the history of money and the role of financial intermediaries is key to understanding how centralized exchanges evolved. Before the emergence of modern money, people do transactions by bartering their goods.
In order words, people exchange an item they have for that which they do not have by looking for the right person to exchange with.
This usually proves difficult and in order to profit from this crude design of trade by barter, intermediaries emerged.
These intermediaries simplify the process of bartering goods by connecting the right people to each other. This model is similar in today’s finance world.
Banks and financial institutions serve as an intermediary that takes money from people who have in excess and gives to people who needs.
With cryptocurrencies built to cause a shakedown in the finance world, these intermediary based barter model comes to play. It is worthy to note that the evolution of cryptocurrencies has translated into trading just as we have in Forex.
There are primarily two types of cryptocurrency exchanges serving crypto investors today and they are;
- Centralized exchanges (CEX), and;
- Decentralized Exchanges (DEX).
While we have talked about decentralized exchanges and the types in this blog post, let us look at CEXs here.
What Are Centralized Exchanges and Their Role in the Cryptospace
A centralized exchange is an exchange that is owned and operated by a company that maintains total control over all transactions.
As explained earlier, the idea of centralization refers to the use of a middle man or third party to help conduct transactions. Buyers and sellers alike trust this middle man to handle their assets.
This is common in a bank setup, where a customer trusts the bank to hold his or her money and is what plays out in centralized exchanges
As part of this trust, users of CEXs do not have access to the private keys of their exchange account’s wallets as this is stored on the CEX’s servers. It is therefore not uncommon to have centralized cryptocurrency exchanges built with an additional level of security.
It takes quite a lot of things to make a successful centralized exchange to be successful but let us see the major advantages of CEXs
What Makes Centralized Exchanges Better
To accurately describe the core benefits of a CEX, we will need to place it in comparison with a DEX. Because centralized exchanges have in store all of their customer’s data, they are easy targets of hackers.
In line with this, numerous centralized exchanges have been hacked in the past. While few of them are able to offset the loss and stay in business, some just like Mt.Gox have fazed out.
Worth noting that cyber-attacks are not a major issue for decentralized exchanges, the presence of it has prompted centralized exchanges to come off with better security.
With CEXs always working to shield themselves from external hackers, they also shield themselves from internal fraudsters. They achieve this by ensuring every one of their users complete a Know-Your-Customer (KYC) procedure.
Based on this added security, a lot of centralized exchanges have not been hacked to date which is a notable advantage.
The speed of transactions on centralized exchanges is one of the edges they have over decentralized exchanges.
This speed is boosted as a result of the exchange’s cash liquidity which must be in place to commence operations in the first place.
In addition, centralized exchanges are more ubiquitous today and they offer a unique currency pairing all to offer proper value to users worldwide.
With much said, let us give a short review of the popular centralized exchanges out there
Popular Examples of Centralized Exchanges
There are many different centralized exchanges are there and here are 10 of the most popular;
Let us take a look at four of the listed centralized exchange
About Kraken Exchange
Kraken is a San-Francisco based centralized exchange that was founded by Jesse Powell in 2011.
Undoubtedly one of the biggest exchanges in the United States, the exchange has extended its influence to serve cryptocurrency traders and investors all around the world.
Generally regarded as a highly transparent exchange, it is one of the first to have its trading volumes displayed on Bloomberg terminals.
You are welcome to read a more comprehensive review of Kraken exchange in our previous post here.
A Brief Look into Coinbase
Coinbase is one of the top cryptocurrency exchanges that is a top choice for tons of investors today. Besides being a choice of top crypto-traders, it is also a choice for newbies entering the space.
Coinbase is relatively younger compared to Kraken as it was founded in 2012 by CEO Brian Armstrong.
The exchange has the normal version for new and inexperienced users. It also have the Coinbase Pro for the more experienced traders.
You can follow this link for a more comprehensive review of Coinbase centralized exchange.
Unlike the two previous exchanges outlined earlier, OkEX is a centralized exchange that is based in Malta.
It has a strong partnership with the Malta Stock Exchange Holdings and the exchange has a strong operation base around the world.
To maintain its projection as a trusted exchange, OKEx has a unique price limit rules to avoid market manipulations.
There is a lot more to know about OKEx centralized exchange and they can be found in this extensive review.
Binance – the leading example
It’s hard to talk about popular centralised cryptocurrency exchanges and not mention Binance. It’s often the prime example of a new modern, cryptocurrency exchange.
It is also one of the leaders when going by trading volume, number of available cryptocurrencies for trading and much more.
There is in fact not only one Binance anymore. There is the original Binance, but then you have Binance US the US-compliant branch off and then we also got Binance Jersey, which is a fiat gateway alternative for the European market.
What More to Look Out For
There is a trending boom in the world of cryptocurrencies and it is called decentralized finance (DeFi).
As a component of DeFi, decentralized exchanges are driving hard to become the mainstream exchange among traders and investors.
While most indices are in favor of centralized exchanges to keep up the lead, most are also incorporating DeFi features like P2P transactions as is now available on exchanges like Binance, etc.
Based on this, centralized exchanges are gradually adapting their offerings to suit all users. This is one feature that I feel these exchanges will not be displaced or lose their relevance anytime soon.
If you are a beginner, ensure you review all of the centralized exchanges in our guide here so you can have a good guided before registering with any.
Benjamin Godfrey is a blockchain enthusiast and journalist who relish writing about the real-life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology.
His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain-based media and sites. He uses his skills in reporting current trends in the blockchain ecosystem, writing comprehensive and insightful guides, reviews, and opinion articles with the aim of bringing information and a new perspective to readers.
A writer who relishes diversity and thoroughness with about three years of experience in the blockchain and finance ecosystem. Godfrey graduated from the University of Benin where he bagged a First Class (BSc Agric). His future ambition involves helping governments develop policies that will integrate blockchain technology in agriculture as a means to guarantee Food Security. Benjamin Godfrey is a lover of sports