What is CEX? Understand the operation logic and risk management of centralized exchanges from scratch

If you’re just stepping into the world of cryptocurrency, your first thought is usually “How do I buy Bitcoin and Ethereum?” The answer is straightforward: through a centralized exchange (CEX). This platform is like the “bank + securities firm” of the crypto world, helping you solve the currency exchange from fiat to digital assets.

But how exactly does a CEX operate? Is it really safe to put your money in? How does it differ from the commonly heard “decentralized exchange (DEX)”? This article will explain everything in detail.

The true identity of CEX: Who is managing your money?

CEX (Centralized Exchange) is simple in essence: managed centrally by a company or organization that handles all trading, asset custody, and order matching.

Imagine: when you go to a bank to deposit money, the bank is responsible for safekeeping your cash, recording your balance, and transferring funds to others. A CEX is the same logic moved online.

Actual operation process

1. Account verification stage: You register an account and upload identification (the KYC process), which complies with global anti-money laundering regulations and protects your account.

2. Asset custody: You transfer fiat or crypto into the exchange, which stores them in wallets under the exchange’s control. All balance changes are recorded in a database, not directly controlled by you.

3. Automatic order matching: Want to buy BTC? The exchange system immediately finds a seller for you. When prices match, the trade is executed—no manual intervention needed.

Why do over 90% of crypto trades happen on CEX? Three core reasons

1. Fiat on/off ramps (this is a killer feature)

There are no “banks” on the blockchain, so you can’t directly buy coins with New Taiwan Dollars. CEX solves this:

• C2C trading: buy coins via bank transfer or electronic payment
• Credit card purchases: instantly buy BTC, USDT with a card
• OTC trading: large transactions can be negotiated with merchants

For beginners, a CEX is the only bridge connecting real-world currency and digital assets.

2. Unmatched liquidity and trading speed

Top-tier CEX platforms have daily trading volumes of billions of dollars, backed by thousands of market makers and traders. Benefits include:

• Orders are filled within seconds, regardless of size
• Very low slippage, avoiding buying at unfavorable prices
• 24/7 continuous trading, unaffected by market holidays

3. “Fault tolerance” for peace of mind

Losing private keys with a decentralized wallet (like MetaMask)? That money is gone forever. But with a CEX:

• Forget your password? Recover via email or phone
• Accidental operations? 24-hour customer support rescue
• Account hacked? Verify identity to freeze and recover

This “humanized” safety net is crucial for beginners.

CEX vs DEX: Which is more suitable for you?

Newbie tip: Start with CEX to learn buying/selling processes, accumulate experience, then try small amounts on DEX and DeFi.

Is CEX really safe? From risk awareness to modern protections

You may have heard of risk incidents at some exchanges (like fund misappropriation, hacking, etc.), which have indeed happened, but that doesn’t mean all CEX are dangerous. The key is: How to identify a secure platform?

Modern CEX security standards: Proof of Reserves (PoR)

To rebuild trust, leading platforms have widely adopted Proof of Reserves (PoR) mechanisms:

What is PoR?
Using cryptographic techniques (usually Merkle trees), platforms publicly verify that their on-chain assets ≥ total user assets. In simple terms: 1:1 reserve system. Even if all users withdraw simultaneously, the platform has enough funds to pay.

This transparent mechanism emerged after risk events and is now an important indicator of whether a CEX is trustworthy.

Three tips for self-protection

1. Choose large platforms that regularly publish PoR reports, and check their reserve status periodically.

2. Enable 2FA (two-factor authentication), link Google Authenticator, to prevent account theft.

3. Diversify assets: don’t keep all your funds in one place. Long-term large holdings should be transferred to cold wallets for self-management.

Essential details for beginners about how CEX operates

What do trading fees include?

• Trading fees: charged when buying/selling, usually 0.1% or lower
• Withdrawal fees: charged when transferring to on-chain wallets (varies with network congestion, e.g., USDT-TRC20 about 1 USD)
• Deposit fees: C2C transactions are usually free; credit card deposits may incur bank fees

Why is KYC necessary?

KYC (Know Your Customer) is a requirement under global AML (Anti-Money Laundering) and CFT (Countering Financing of Terrorism) laws. It may seem troublesome but has benefits:

• Protects you: ID proof helps recover your account if hacked
• Protects platforms: reduces illegal money laundering
• Protects the market: prevents illegal funds from flowing in

Three simple steps to get started

Step 1: Register on the exchange’s official website (be sure to check the URL to avoid phishing sites)

Step 2: Upload ID/passport and complete facial recognition (usually reviewed within minutes)

Step 3: Deposit funds and buy coins, start with C2C or small credit card transactions, then gradually increase your limits

Summary: CEX is your essential starting point

Centralized exchanges are not the “end,” but the “beginning” for every crypto investor. They offer the most user-friendly experience, highest liquidity, and best protections for beginners.

Choose reputable, transparent platforms with PoR, enable 2FA, avoid reckless trading, and CEX can become a powerful tool for your financial management. As you become more familiar with the market, gradually explore DEX and DeFi worlds.