Centralized exchanges are online platforms that allow individuals to trade cryptocurrencies and digital assets. These exchanges act as intermediaries, matching buyers and sellers and facilitating transactions between them. Centralized exchanges are called as such because they centralize the management and control of assets and transactions on their platform, as opposed to decentralized exchanges, where control and management is distributed among the users.
In a centralized exchange, users deposit their digital assets into the exchange’s custody, and the exchange then holds and manages the assets on their behalf. The exchange also sets the price of assets, based on supply and demand, and executes trades on behalf of the users. Centralized exchanges typically have more comprehensive features and offerings compared to decentralized exchanges, such as margin trading, advanced order types, and more detailed information about assets and their prices.
However, because centralized exchanges are responsible for holding and managing users’ assets, they are more vulnerable to security breaches, hacking incidents, and other forms of cyber attacks. In addition, centralized exchanges also have more control over users’ assets, which can raise concerns around censorship, privacy, and the potential for abuse of power. As a result, some users prefer decentralized exchanges, where they have greater control and security over their assets.