Centralized exchange. Company operates it. You create an account, verify identity, deposit money, trade.

Feels like a normal brokerage. That familiarity is the point. Also the trap, depending on how things go.

Binance, Coinbase, Kraken, OKX, Bybit. Platforms most people use when they first touch crypto. Simple interface. Customer support exists. Mobile app works. Fiat accepted.

Everything convenient about crypto lives here. Everything risky about trusting a company with your money lives here too.

The Part That Actually Matters

Deposit funds. Exchange takes custody. Internal database updated to show your balance.

Most trading happens off-chain. Buy ETH on Binance, no Ethereum transaction fires. Just numbers moving in Binance's internal system. Fast. Cheap.

Withdraw to your own wallet. That's when the real on-chain transaction happens. Until then the exchange holds everything. Their database says you own it. What that means legally if something goes wrong is a different question. One nobody wanted to think about seriously until November 2022.

FTX. Second largest exchange by volume. Sam Bankman-Fried was on magazine covers. Testified before Congress. Customer funds were being used to cover trading losses at Alameda Research the whole time.

Exchange collapsed in days. Billions gone. Users became unsecured creditors in a bankruptcy proceeding. Some recovered fractions eventually. Many didn't.

Not your keys not your coins. Felt like a paranoid meme before FTX. Feels like obvious advice after.

Mt. Gox before that. 850,000 Bitcoin in 2014. Customers waited years for partial recovery.

Pattern isn't subtle. Exchanges fail. It happens more than people admit when things are going well.

Why People Still Use Them Anyway

Because DEXs genuinely can't do everything.

Fiat on-ramp. Can't buy crypto with a bank transfer on Uniswap. CEX is how most people get from traditional money into crypto. No alternative that's as accessible.

Liquidity. Binance BTC/USDT does billions daily. Deep books. Large orders fill without significant slippage. Most DEX liquidity pools aren't close for major pairs.

Derivatives. Bybit and Binance run the most liquid crypto futures markets. Hyperliquid growing on-chain but still a fraction of CEX perp volume. If you're trading leverage seriously, CEX is where the liquidity lives.

Beginners. Wallets, gas fees, seed phrases, bridge transactions. That's a lot to ask of someone who just wants to buy Bitcoin. CEX removes all of it. Account and password. Works.

So people use them. And they should for some things. Just not for storing significant holdings long term.

KYC: The Part Privacy People Hate

Every major CEX requires identity verification now. Passport. Government ID. Sometimes a selfie holding a piece of paper. Sometimes proof of address.

Regulatory requirement. Anti-money laundering. Know your customer rules. Governments demanded it. Exchanges complied.

Means your real identity is attached to your transaction history on that platform. Data breach risk. Tax reporting. Government requests for information. Not theoretical concerns.

Privacy focused traders use DEXs specifically to avoid this. Tradeoff is complexity and occasionally worse liquidity. Choice depends on priorities.

CEX vs DEX

Most people who've been in crypto more than a year use both.

• CEX for buying with fiat, trading major pairs with real liquidity, derivatives, getting started.
• DEX for new token launches before CEX listing, tokens that never get listed, non-custodial trading, DeFi.

Different tools. Meaningful holdings don't live on a CEX long term. That's not paranoia. That's just the lesson FTX taught at everyone else's expense.

CEX FAQ

What if it gets hacked?

Some exchanges cover hacks from their own funds. Binance covered $40 million from its SAFU fund in 2019. Others haven't. No guarantee. Another reason not to store more on exchange than needed for active trading.