A centralized exchange (CEX) acts as an intermediate platform, enabling cryptocurrency transactions between buyers and sellers. Here is a simple outline of its working process:
- User Registration and Verification: Users create accounts on the CEX platform, which frequently requires Know Your Customer (KYC) authentication to ensure compliance with regulations.
- Depositing Funds: Users deposit cryptocurrency or fiat currency into their exchange wallets. These funds are held in custody by the exchange.
- Order Placement: Users place buy or sell orders, specifying the chosen cryptocurrency, quantity, and price.
- Order Matching: The exchange's trading engine matches buy and sell orders based on price and quantity.
- Trade Execution: When a match is identified, the exchange completes the transaction, transferring the agreed-upon cryptocurrency between the buyer and seller.
- Fee Collection: The exchange charges a fee for facilitating the trade, which is deducted from the involved parties.
- Withdrawal: Users can transfer cryptocurrencies or fiat currencies from their exchange wallets to their personal wallets.