Plain English
A centralized exchange is a company — Coinbase, Kraken, Binance, Gemini — that holds your crypto in their custody while you trade it on their platform. You sign up with email, ID, and bank account, deposit fiat, buy crypto, and they hold it until you either withdraw to your own wallet or sell back to cash.
How it actually works
CEXes operate an internal order book that matches buyers and sellers, then update database balances when trades execute. The crypto itself usually stays in their omnibus wallets; your “balance” is an IOU from the exchange. Withdrawals trigger an actual on-chain transfer to your address.
Regulatory profile: in the US, CEXes are money services businesses, registered with FinCEN, and subject to state money transmitter laws. They report user activity to the IRS via Form 1099-DA starting in 2025.
What it means for you
CEXes are the easiest on-ramp from fiat to crypto and the easiest off-ramp back. The trade-off is that you do not control the assets while they sit on the exchange — FTX, Celsius, Voyager, BlockFi all collapsed with user funds inside. The standard play: buy on a CEX, then move anything you are not actively trading to self-custody.
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Educational content only. Not investment, tax, or legal advice.