- The most typical way for centralised exchanges to enable trades between users is to keep an order book, which is a collection of buy and sell orders submitted by individual traders. Orders are requests to purchase or sell a specified amount of a coin at a specific price. CEXs collect orders from its users and then match and execute the buy and sell orders using specific software.
- Users of CEX do not trade crypto or fiat money with one another. Instead, when they deposit funds on an exchange, the latter assumes custody of those assets and provides the trader a matching quantity of IOUs. The exchange keeps track of each user's IOUs as they pass through trades and only converts them to actual currency when funds are withdrawn.
- CEXs are the most common way for cryptocurrency exchanges to operate. They're a handy place for day traders and crypto investors to buy and sell crypto because of the speed and cost-effectiveness of transactions processed by a single point of authority.
- The reliance of CEXs on a central institution, on the other hand, has certain drawbacks. Users have little access to centralised exchanges' internal processes, resulting in a lack of transparency that allows for harmful behaviours like wash trading and price manipulation.
- Technical difficulties or concerted attacks can cause CEX services to be unavailable for extended periods of time, resulting in lost trade opportunities for its clients. Finally, centralised exchanges are an obvious target for government censorship, since they allow regulators to freeze and/or take user cash, as well as force the exchanges' parent firms to divulge their users' personal information.
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