Crypto exchanges

Lesson in Course: Crypto (advanced, 5min)

Where do we buy crypto?


What it's about: The two different platforms we can purchase our crypto.

Why it's important: Pseudo-anonymous ownership of crypto requires using an exchange instead of a brokerage.

Key takeaway: A centralized exchange stores our personal information while a decentralized exchange does not.

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.

What is Centralized exchanges?

Centralized exchanges, or CEX, are digital platforms that serve as a middle man connecting buyers and sellers, providing custody, and handling our assets just as banks would.

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.

CEX are regulated to crack down on criminals

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.

What is Decentralized exchanges?

A decentralized exchange, or DEX, is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. A DEX does not store our personal information on a centralized server, nor does it provide middleman services. 

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.

DEXs are the first step to autonomous financial services

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. 


Actionable ideas

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.

What's next

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Supplementary materials

Here is a short video covering the role of crypto exchanges in a little more depth
This quick video discusses how decentralized exchanges work



What is Decentralized exchanges ?

A decentralized exchange, or DEX, is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. A DEX does not store our personal information on a centralized server nor does it provide middleman services. 

What is Centralized exchanges ?

Centralized exchanges is a digital platform that serves as the middle man to connect buyers and sellers, and provides custody, or handles our assets just as banks would. CEXs are the only exchanges that currently allow us to convert fiat into crypto and crypto back into fiat. CEXs also allow us to trade one form of crypto for another.