Crypto Exchange
A crypto exchange is a company that lets users buy, sell and trade crypto and, by default, holds the keys to their coins.
What Is a Crypto Exchange?
A crypto exchange (centralized exchange, CEX) is a business that matches buyers and sellers, converts between crypto and fiat money, and keeps customer balances in its own wallets. Exchanges such as Coinbase, Kraken or Binance usually require identity verification (KYC).
Coins left on an exchange are an IOU: the exchange holds the private keys and decides when withdrawals are allowed. Exchange failures and hacks, such as the collapse of FTX in 2022, froze customer funds for years. Proof of reserves reports help, but do not show all of an exchange's liabilities.
A common pattern is to buy on an exchange and withdraw to a hardware wallet, keeping on the exchange only what is being traded. Decentralized exchanges (DEXs) are different: they are smart contracts that trade directly from the user's own wallet.
Cryptocurrency is a digital or virtual currency secured by cryptography, operating on decentralized blockchain networks to enable secure, peer-to-peer transactions.
Read full definitionFiat is government-issued currency, like the US dollar or euro, not backed by a physical commodity. It derives value from official decree and contrasts with decentralized cryptocurrencies.
Read full definitionKYC (Know Your Customer) is the regulatory process where cryptocurrency exchanges verify users' identities using documents like ID or proof of address to prevent fraud and money laundering.
Read full definitionA private key is the secret number that proves ownership of a crypto address and signs its transactions. Whoever has it controls the funds.
Read full definitionProof of Reserves (PoR) is a method for crypto platforms to verify they hold enough assets to cover user deposits.
Read full definitionA decentralized exchange (DEX) is a set of smart contracts that swaps tokens directly from the user's own wallet, without an account or a custodian.
Read full definitionA smart contract is a program stored on a blockchain that runs exactly as written when a transaction calls it.
Read full definitionReal-World Examples
Example 1: A user buys bitcoin on an exchange and withdraws it to a hardware wallet address, so the exchange no longer controls it.
Example 2: An exchange halts withdrawals during a crisis; customers who had withdrawn to self-custody are unaffected.
Bitcoin (BTC) is the first decentralized cryptocurrency, launched in 2009. It uses blockchain technology for secure, peer-to-peer digital transactions without intermediaries.
Read full definitionSelf-custody means users control their own private keys to manage cryptocurrency assets directly, without third-party custodians. It embodies 'not your keys, not your coins.'
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