Although many of the most popular tokens are decentralized (Bitcoin, Ethereum), almost all of the crypto exchange platforms are centralized. For most digital currency investors, the centralized cryptocurrency exchange is one of the most important means for transacting. Centralized cryptocurrency exchanges are online platforms where investors can buy and sell cryptocurrencies. They serve as the most common vehicle in the trading of cryptocurrencies. Some of the most popular exchanges are Binance, Huobi, Coinbase and OKEx, to name a few. According to some estimates, more than 80% of all cryptocurrency trades happen over centralized exchanges.
The term “centralized cryptocurrency exchange” may seem baffling to many, since cryptocurrencies are generally regarded as “decentralized”. So why these platforms where these decentralized currencies are traded can be called “centralized”?
The idea of centralization here refers to the involvement of a middle man or third party to help conduct transactions. Both the buyers and the sellers trust this middle man to handle their assets and safely complete their transactions for them. More importantly, they also rely on the exchange to find trading partners.
Decentralized exchanges are less common. They cut out the middle man, and function as peer-to-peer exchanges. Transactions are done entirely based on smart contracts and atomic swaps. LocalBitcoin and Paxful are an example of such exchanges.
The crucial difference between centralized and decentralized exchanges is whether or not a middle man is present.
Trading volume is a key factor in judging the sustainability and credibility of an exchange. In most cases, the higher the trading volume, the lower the volatility and market manipulation that’s likely to take place on that exchange. Another key factor is security. While any exchange may fall victim to hacks, some are safer than others.