Centralized Cryptocurrency Exchanges: How It Works


Centralized cryptocurrency exchanges

A centralized cryptocurrency exchange is an online platform and the most common way to trade cryptocurrencies.

Centralized exchanges are supported by pairs with both fiat currencies and digital. They can be considered as online markets for the entire cryptocurrency ecosystem.

 What is centralization

Centralization in this case means that users trust their money to a third party. In the past, all organizations dealing with finance were considered centralized. They acted as a trusted intermediary in working with any financial assets.

For example, customers transferred money to a bank for storage, and the bank received complete control over them. In many cases, this is much safer than self-management of finances. Banks pay high attention to security and hire special employees responsible for the safety of client money.

In addition, the bank may offer various additional services, such as lending, as it has large amounts of money and trust relationships with customers.

In this sense, centralized cryptocurrency exchanges are no different from banks. Users entrust their capital to the exchange, and it controls them. The existence of a trusted intermediary simplifies the work and helps to recover the password in case of loss, while allowing customers to work with their accounts.

It also relieves customers of the responsibility to store their funds. We all heard about investors who lost thousands of dollars due to the loss of the private key from the hardware wallet. If their money were kept in an account with a centralized exchange, they would not have to worry about losses; To recover the password, it would be enough to provide a passport or confirm your identity in another way.

How are centralized exchanges different from decentralized ones

Cryptocurrencies and blockchain are decentralized in nature, which allows for the decentralization of exchanges. In simple terms, a decentralized cryptocurrency exchange (DEX) eliminates the need for a trusted intermediary, creating a highly intelligent “untrusted” environment.

Transactions are carried out using smart contracts and atomic swaps, so the cryptocurrency remains with the owners. Decentralized exchanges are relatively new and not yet very popular, but interest in them may grow significantly in the future.

 Do all centralized exchanges work with regular currencies

Not. There are crypto / crypto pairs on all exchanges (for example, you can buy bitcoins for ethers), but not everyone works with fiat currencies (that is, you can not buy ethers for dollars). The most famous platforms that support classic currencies:

  • Coinbase: The most popular exchange in the world. It supports bitcoin, ether, bitcoin cash and lightcoin.
  • Gemini: Located in New York and meets the high requirements for such sites imposed by US regulators. Supports bitcoin and ether.
  • Kraken: Works with various cryptocurrencies in pairs with dollars and euros.
  • Robinhood: A popular application that supports the purchase of bitcoins and ethers for regular currencies.

Is trading volume important on the exchange

The higher the trading volume, the lower the volatility and the less opportunities for market manipulation. If Alice is trying to buy one bitcoin for the price of, say, $ 1000, and the trading volumes on the exchange are large, it is likely that the transaction will happen almost immediately.

If she tries to purchase cryptocurrency on a site with low volumes, the purchase price may increase significantly (Alice will buy the whole offer at the current price and move to the next level of quotes). As a result, it will lose money, and the price of bitcoin on this exchange will increase.

How secure are centralized cryptocurrency exchanges

No centralized exchange is completely protected from hacker attacks. Over the short history of the cryptocurrency market, various hacks have occurred, but in many cases, exchanges compensated for the loss of customers from their own pockets.

Decentralized exchanges cannot be hacked, but users have to answer for the safety of capital themselves. Popular centralized sites are not inferior in safety to banks.

Do I need verification to open a stock account

The requirements vary from country to country, but in most cases a minimum verification is required to open an account. Many sites allow you to open accounts without verifying your identity, however, deposit / withdrawal limits will be minimal.

For basic verification, a photograph of a passport or other document and activation of two-factor authentication (2FA) are usually sufficient. 2FA generates a secret password that changes every 30 seconds. It must be entered at the entrance to the account. Typically, the application for 2FA is installed on the user’s smartphone.

Which exchanges have the maximum trading volume and the number of pairs

Cryptocurrency exchanges are a relatively new phenomenon. However, 2017 allowed to highlight the leaders in this industry:


Binance was launched a little over a year ago, but has already managed to reach the first positions in terms of trading volume. The exchange was founded in China, but then moved its headquarters to Malta. It is so popular that many new projects conduct their first token listing on Binance.

The second level of verification allows you to withdraw from the account up to 100 bitcoins per day, the first level allows the withdrawal of up to 2 BTC per day.


Bittrex is a rich history cryptocurrency exchange located in the USA. The most popular are pairs with BTC and ETH, however Bittrex supports more than 250 trading pairs. The site is appreciated for its simple and convenient interface.


Many South Korean exchanges suffered from government bans, but Upbit managed to adapt to the actions of regulators and even set a record for trading volume in January 2018.


Global Digital Asset Exchange is a subsidiary of Coinbase. GDAX is not suitable for beginners, but it is very convenient for margin trading and working with crypto / crypto and crypto / fiat pairs. User accounts are insured by the US Federal Deposit Insurance Corporation for up to $ 250,000. GDAX offers more options for traders than the parent Coinbase.

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