Cryptocurrency Beginner's Guide: How Centralized Exchange (CEX) Works and Investment Decision Guide

The first step into the world of cryptocurrency, most people will come into contact with “Centralized Exchanges (CEX)”. It is like a combination of banks and brokerages in traditional finance—providing core services such as deposit and withdrawal channels, trade matching, and asset custody. How exactly does CEX operate? Why entrust assets to the platform for safekeeping? And how to evaluate its security? This article will provide an in-depth comparison and real-world cases to help you fully understand the essence and selection logic of CEX.

The Essence of Centralized Exchanges: The Financial Hub in the Cryptocurrency Era

Centralized Exchange (CEX) simply put, is a digital asset trading platform operated by an independent organization. Unlike storing cash in traditional banks, CEX manages user assets through blockchain technology, but all wallets, custody, and trade matching are still centrally controlled by the organization.

Currently, over 90% of global cryptocurrency trading volume occurs on CEXs. This figure does not reflect that “centralization is better,” but rather that “deposit and withdrawal demand determines the current market structure.”

Why must beginners start with CEX?

If you want to buy your first Bitcoin (BTC) or Ethereum (ETH) using New Taiwan Dollars, directly on the blockchain is impossible—you need an intermediary to assist with the conversion between fiat and crypto assets. CEX plays the role of this “currency converter”:

Fiat deposit and withdrawal channels — the most indispensable core function of CEX:

• Buy USDT, BTC, and other mainstream coins directly with credit cards
• Conduct C2C transactions via bank transfers and electronic payments
• Quick cash-out: convert coins back to fiat and withdraw

Trading depth and execution efficiency — top-tier platforms have large liquidity pools and market maker networks, meaning:

• Price slippage remains extremely low regardless of trade size
• Orders are executed within milliseconds, preventing price spikes due to large buy/sell volumes

Account recovery mechanisms — crucial for beginners. Users of decentralized wallets who forget private keys will lose assets permanently, but on CEX:

• Forgot login password? Can be recovered via email/phone verification
• Made a mistake? Contact customer service for assistance
• Account hacked? Can be frozen and recovered through identity verification

How CEX Works: The Complete Process from Account Opening to Trading

Step 1: Identity Verification and Account Opening (KYC)

Using any CEX requires first completing KYC (Know Your Customer) verification. This is not a capricious regulation of the exchange but a legal requirement for anti-money laundering (AML) and counter-terrorism financing (CFT) worldwide.

Actual process: Upload ID documents → Facial recognition → Approval (usually within minutes)

The real significance of this process is: once your account is linked to a verified identity, the exchange can assist in recovery if your account is hacked, and prevent the platform from being used for illegal purposes.

Step 2: Asset Custody Mechanism

When you transfer coins into the exchange account, your “balance” on the platform is actually just a record in the database. The corresponding real coins are stored in wallets controlled by the exchange—similar to your bank deposit records and the bank’s vault.

This custodial model offers convenience but also carries risks: if the exchange misappropriates or loses these assets, users will suffer losses.

Step 3: Order Matching and Execution

When you want to buy 0.5 Bitcoin, the exchange system finds a seller willing to sell at your bid price (or provides liquidity through the exchange) and completes the transaction. The entire process is completed within milliseconds, exemplifying “trading depth.”

The Truth About Security Risks: Platform Selection and Personal Protection

Security issues at cryptocurrency exchanges do exist, with FTX’s collapse and various hacking incidents happening frequently. But the industry has developed countermeasures.

Common Threats to CEX

Platform internal control risks — exchanges misappropriating user funds for high-risk investments leading to losses (FTX was exactly this)

Technical security vulnerabilities — hot wallets being hacked, smart contract bugs causing asset loss

Policy risks — regulatory changes, regional restrictions leading to service interruptions

Next-generation CEX security mechanisms: Proof of Reserves (PoR)

To rebuild user confidence, leading industry platforms are adopting Proof of Reserves (PoR) mechanisms. This is a cryptographic (Merkle tree) verification technology:

• Public verification: Exchanges periodically publish on-chain asset snapshots, anyone can verify
• 1:1 reserve commitment: Each user’s assets correspond to a 1:1 actual coin reserve
• Extreme scenario testing: Even if all users withdraw simultaneously, the platform has sufficient funds to pay

PoR is not a perfect solution (cannot verify user liabilities), but compared to completely opaque practices, it is a significant improvement.

User Protective Measures

1. Choose reputable platforms — prioritize those that publicly release PoR reports, have long operational histories, and are well-regulated

2. Enable two-factor authentication (2FA) — bind Google Authenticator, set withdrawal whitelist, to protect assets even if passwords are stolen

3. Diversify assets — keep active trading coins on CEX, transfer large long-term holdings to hardware wallets or cold storage

CEX vs DEX: The Fundamental Difference in Trading Modes

With the rise of decentralized exchanges (DEX), such as Uniswap, PancakeSwap(, many ask: Is there still a need for CEX? The answer depends on your needs.

Simple judgment logic: First-time crypto buyers → CEX; after familiarization, want to experience DeFi → DEX; long-term holdings → hardware wallet.

Practical Operation Guide: From Account Opening to First Trade

Step 1: Registration and Verification

1. Visit a reputable exchange’s official website (ensure URL correctness to avoid phishing)
2. Register with email or phone number
3. Upload ID documents and perform facial recognition (usually review within 5-15 minutes)

Step 2: Deposit and Purchase Coins

Option A - Credit card direct purchase:

• Go to “Buy Coins” page, select USDT or BTC
• Enter amount, authorize credit card deduction
• Coins arrive within minutes

Option B - Bank transfer or C2C:

• Enter “C2C Market” and choose a seller
• Transfer the corresponding amount to the specified account
• After seller confirmation, coins are automatically credited to your account

( Step 3: Spot Trading

Go to “Spot Trading” page, select trading pair (e.g., BTC/USDT), set buy price and amount, submit order.

Frequently Asked Questions

Q: Will CEX collapse like FTX, causing my coins to be lost forever?

A: Theoretically risks exist, but a combination of “top-tier platform + personal protection” can reduce risks to very low levels. Choose platforms that regularly publish PoR reports, and follow a “large amount long-term hold and transfer to cold storage” strategy. Your assets will be relatively safe.

Q: What is the fee structure of CEX?

A: Usually includes three parts—trading fees (about 0.1% or lower, with discounts for members), withdrawal fees (dependent on blockchain network, e.g., USDT TRC-20 withdrawal about 1 yuan), deposit fees (credit card purchases may have bank fees, C2C usually free).

Q: Why is KYC necessary? Will it leak privacy?

A: KYC is a global regulatory requirement and a user protection mechanism—if your account is hacked, you can recover it through identity proof. Legitimate platforms store user data securely in encrypted databases and do not disclose or sell it arbitrarily.

Q: I am a long-term holder, do I need to keep coins on CEX all the time?

A: No. For assets held over 3 months with no frequent trading plans, it is recommended to transfer to hardware wallets or cold storage. This allows participation in staking rewards (for supported coins) and avoids platform risks.

Core Conclusion

Centralized exchanges )CEX( are the essential gateway to entering the cryptocurrency ecosystem at this stage. They solve a fundamental problem: how to buy crypto assets with fiat currency. As long as you:

✓ Choose reputable, transparent platforms that implement PoR mechanisms ✓ Enable all available security verifications )2FA, withdrawal whitelist, etc. ✓ Adopt a diversification strategy (active trading funds on CEX, long-term holdings transferred to cold wallets)

CEX can become a powerful tool for your crypto investment, rather than a source of risk.

The next step is to consider: which platform to start your crypto journey with, and how to develop an asset allocation strategy based on your trading habits.