While stockbrokers trade on stock exchanges, cryptocurrency traders primarily buy and sell tokens on cryptocurrency exchanges. There are two types: centralized and decentralized.
A centralized cryptocurrency exchange, or a CEX, describes companies like Coinbase, Binance, and Kraken that maintain vast order books that match buyers with sellers. Centralized exchanges are fast and cheap because trades are recorded not on public blockchains but on conventional databases. These exchanges do conduct transactions on blockchains, but not for individual customer transactions.
As well as crypto-for-crypto trades, licensed cryptocurrency exchanges let customers trade cryptocurrencies for regular money, like the U.S. dollar. Like stock exchange platforms, crypto exchanges also support advanced trades, like Bitcoin futures, options, and perpetual swaps. Many require traders to submit proof of identification.
Despite their convenience, these exchanges have ultimate control over their customers’ funds—leading more ideological crypto people to deride them as “not your keys, not your crypto.” They are not FDIC-insured and have no problem claiming ownership over their customers’ crypto in the event of bankruptcy.
Voyager, one of the major brokerages, withheld funds from customers when it went bust in mid-2022. Customers of Canadian exchange QuadrigaCX are still struggling to get their money back after the company’s CEO, Gerald Cotten, mysteriously died in 2018, seemingly taking their crypto to his grave.
Decentralized exchanges, also known as DEXes, remedy some of these problems. The most popular ones are Uniswap, Curve, and PancakeSwap. These are protocols, not companies, that are maintained by core developers and a loosely connected group of contributors, not an executive board. Holders of protocol-specific governance tokens, like Uniswap’s UNI, can propose and vote on updates to the platform.
Instead of running trades on a single order book, most decentralized exchanges adopt a structure of the so-called automated market maker (AMM). This is where some people fund huge pools of crypto that traders use to facilitate their trades, earning these depositors, known as liquidity providers, fees from each trade. So long as there’s enough money in the pools, the trade can go ahead.
Decentralized exchanges do not accept regular money—they operate exclusively in crypto and typically do not require customers to disclose their identity. Because all trades are on-chain, the cost of a transaction is tied to the blockchain. DEXes on chains that struggle in times of network congestion, like Ethereum, can become prohibitively expensive to use.
Go deeper:
Kings of Crypto—a history of Coinbase by Jeff John Roberts of Fortune Crypto
CoinMarketCap’s exchange rankings—list of top exchanges
See also:
DEXes
Wallets
Crypto investing 101
Try it:
Coinbase—a popular crypto exchange
Uniswap—a front-end for one of the most popular decentralized exchanges