The first trade we'll ever make as a crypto investor is to convert our fiat currency (US dollar, Euro, Yen, etc.) into cryptocurrency. To make the conversion, crypto investors often use a crypto exchange. Exchanges list cash-to-crypto and crypto-to-crypto exchange rates daily, much like the currency exchanges we see at international airports. There are many crypto exchanges available, and many provide brokerage services to find buyers or sellers for our trades.
A centralized crypto exchange facilitates our initial fiat conversion to crypto by connecting us with someone selling their cryptocurrency for a fee.
CEXs are currently the only legal platform that allows us to convert fiat into crypto and back. Much like banks, government regulations are placed on CEXs to prevent criminals from openly transacting in crypto and getting away with it due to anonymity. These regulations require CEXs to collect personal information about their users in exchange for the ability to exchange US dollars for crypto and to cash out crypto.
Most beginners have to get used to the concept of a digital wallet when starting with crypto for the first. Digital wallets are different than wallets that currently hold our credit cards. Digital wallets are tools or gateways that allow us to transact with blockchains, and it's possible to lose our crypto forever if we forget the key to our digital wallet. A CEX safeguards our holdings and provides identity services to the crypto we own. At any point, we can prove our identity to CEX to access our crypto.
In contrast to CEXs, decentralized platforms are non-custodial, meaning we remain in control of our private keys when trading on a DEX platform. Under set conditions, DEXs use self-executing smart contracts to record each transaction to the blockchain without a central authority.
Self-executing smart contracts create censorship resistance, so DEXs can't be shut down unless the entire blockchain that it's built on is shut down — which is virtually impossible to do as long as people are using it. DEXs allow us to access the crypto ecosystem in countries that have banned or restricted cryptocurrency trading.
When getting into crypto for the first time, it is easier to start with a centralized exchange. The services will be familiar since the process is similar to traditional brokerages. We learn about it in the lesson on the crypto account opening process.