What is a Crypto Exchange? CEX vs DEX Explained

A crypto exchange is where you go to buy, sell, and trade cryptocurrencies. It is the most important tool for anyone entering the crypto world. But not all exchanges are the same, and choosing the wrong one can put your money at risk.

This guide explains the two types of exchanges, their pros and cons, and how to choose the right one for your needs.

What is a Crypto Exchange?

A crypto exchange is a platform that connects buyers and sellers of digital assets. You use it to trade your regular money (like US dollars) for cryptocurrency, or to trade one cryptocurrency for another.

Think of it like a currency exchange booth at an airport. You give them dollars, and they give you euros. A crypto exchange does the same thing, but with digital currencies.

There are two main types: Centralized Exchanges (CEX) and Decentralized Exchanges (DEX).

Centralized Exchanges (CEX)

A centralized exchange is run by a company. When you use a CEX, you create an account, verify your identity, deposit money, and the company matches your trades. Examples include Coinbase, Binance, and Kraken.

How CEXs Work

When you deposit money or crypto into a CEX, the exchange takes custody of your funds. They hold your money in their own wallets. When you trade, the exchange updates its internal records. The actual crypto does not move on the blockchain until you withdraw it.

Pros of Centralized Exchanges

• Easy to use: The interface is designed for beginners. Buying crypto is as simple as online shopping.
• Fiat on-ramp: You can deposit regular money from your bank account or credit card.
• Customer support: If something goes wrong, you can contact the company for help.
• Password recovery: If you forget your password, the company can help you reset it.
• Insurance: Some exchanges insure customer deposits against hacks.

Cons of Centralized Exchanges

• Not your keys: The exchange holds your private keys. If the company gets hacked, goes bankrupt, or freezes your account, you could lose your funds. The collapse of FTX in 2022 showed this risk clearly.
• KYC required: You must provide personal information and ID.
• Can be censored: The company can freeze accounts, block trades, or comply with government requests.
• Limited tokens: CEXs only list tokens they have approved. You cannot trade every token available.

Decentralized Exchanges (DEX)

A decentralized exchange runs on smart contracts instead of a company. You do not create an account. You connect your own wallet directly to the exchange and trade peer-to-peer.

Examples include Uniswap, PancakeSwap, and Jupiter.

How DEXs Work

Instead of a company matching buyers and sellers, DEXs use "liquidity pools." These are pools of tokens provided by users (liquidity providers). When you trade on a DEX, you are trading against these pools, not against another person. A smart contract handles the swap automatically.

Pros of Decentralized Exchanges

• Full control: Your crypto stays in your wallet at all times. You never hand custody to a company.
• No KYC: No identity verification required. Just connect your wallet and trade.
• Censorship resistant: No one can freeze your account or block your trades.
• More tokens: Anyone can list a token on a DEX, so you can trade tokens that are not available on CEXs.

Cons of Decentralized Exchanges

• Harder to use: The interface can be confusing for beginners.
• No fiat on-ramp: You cannot buy crypto with dollars on a DEX. You must already have crypto to trade.
• No customer support: If you make a mistake, no one can help you undo it.
• Smart contract risk: If the DEX's smart contract has a bug, funds could be at risk.
• Scam tokens: Because anyone can list a token, DEXs have many scam tokens that can steal your money.

How to Choose an Exchange

• Just starting out? Use a trusted CEX like Coinbase or Kraken. They are the easiest way to buy your first crypto.
• Want full control? Learn to use a DEX like Uniswap on a Layer 2 network for lower fees.
• Trading frequently? Keep trading funds on a CEX but withdraw profits to your own wallet regularly.
• Looking for new tokens? Use a DEX, but be very cautious of scam tokens.

Exchange Safety Tips

• Always enable 2FA on your exchange account.
• Use a unique, strong password for each exchange.
• Do not keep large amounts on a CEX long term. Move savings to your own wallet.
• Bookmark the official exchange URL. Do not search for it each time.
• On DEXs, verify the token contract address before trading. Scam tokens often have the same name as real tokens.
• Read our Crypto Safety 101 guide for more protection tips.

Frequently Asked Questions

Which exchange is the safest?

No exchange is 100 percent safe. For CEXs, Coinbase and Kraken have strong security track records. For DEXs, Uniswap on Ethereum is the most battle-tested. Always keep most of your crypto in your own wallet.

Can I use both CEX and DEX?

Yes, and most experienced users do. They use a CEX to buy crypto with their bank account and a DEX for trading tokens that are not available on CEXs.

What are exchange fees?

CEXs charge trading fees (usually 0.1 to 1 percent per trade) plus withdrawal fees. DEXs charge swap fees (usually 0.3 percent) plus blockchain gas fees. Fees vary by platform.

What happened with FTX?

FTX was a major centralized exchange that collapsed in November 2022. The company secretly used customer deposits to fund risky investments, resulting in billions of dollars in losses. This is why keeping your crypto on an exchange long-term is risky.