CEX

What Is Centralized Exchange (CEX)?

Centralized exchanges (CEXs) are a form of cryptocurrency exchange run by a centralized firm that owns it. Most centralized exchanges allow trades between users by keeping an order book, a compilation of buy and sell orders issued by individual traders. 

Orders are demands to purchase or sell a specified amount of a coin at a specific price. CEXs collect orders from their users and match and execute the related buy and sell orders using particular software. Users of CEX tend not to trade crypto or fiat currencies with one another. 

Rather, when they deposit their cash on an exchange, the other takes custody of those commodities and issues the trader an equivalent number of IOUs. The exchange monitors each user's IOUs as they trade hands in transactions and only converts them to real money when monies are withdrawn.

Diving Deep Into the Concept of Centralized Exchange (CEX)

CEXs will be the most common mode of operation for crypto exchanges by 2020. Because of the speed and efficiency with which a single point of authority processes transactions, they are a handy arena for day traders and crypto investors to buy and sell crypto. 

Nevertheless, the dependence of CEXs on a central body has some drawbacks. For instance, users are not informed about the internal operations of centralized exchanges, resulting in a lack of transparency that allows for harmful actions, including wash trading and price manipulation.

Because they have custody over users' assets, centralized exchanges are a tempting target for potential attackers inside and outside the organizational setting. Only the 12 most astounding CEX hacks cost clients approximately $292 million in 2019.

Technical flaws or coordinated attacks on CEX services can cause severe downtime, resulting in lost trading opportunities for their customers. Eventually, centralized exchanges are an obvious target for government censorship, permitting authorities to freeze and take user cash and force exchange parent businesses to provide personal information about their users.