I guess about 99% of newbie friends start their Crypto journey through Binance. So do you know if Binance is a CEX or DEX? Binance is a CEX or centralized exchange. When you buy and sell coins on Binance or other CEXs, you may mistakenly think you are trading on the blockchain, but in reality, you are only trading on excel.
🔸 CEX Matching Mechanism:
CEX does not immediately record your transactions on the Blockchain because it incurs costs and is slow. Instead, they use an internal database.
When you buy 1 BTC, the exchange simply adjusts the numbers on their spreadsheet. They deduct your USDT balance and add BTC balance for you. The actual money remains untouched in the exchange's master wallet. Only when you initiate a withdrawal does the transaction actually get pushed to the Blockchain.
🔸 CEX acts as a customs gate. It is the only bridge that allows you to convert from fiat currency to Crypto and vice versa. CEX provides deep liquidity and processes millions of orders per second that the current Blockchain cannot achieve. You place buy and sell orders on the exchange, and the exchange takes care of matching them.
🔹 While it is convenient, CEX also has its risks. A humorous story is that we come to Crypto to eliminate intermediaries, but then we hand over money to CEX, a more powerful intermediary than banks.
The biggest risk of CEX is transparency. You will not be able to know for sure if the exchange actually holds 100% of customers' funds or if it has invested them elsewhere.
Are you keeping all your assets on CEX?
The information in this article is for reference only and is not investment advice. Please read carefully before making a decision.
