Crypto Exchange
A crypto exchange is a platform where users can buy, sell and trade cryptocurrencies, either for traditional money such as dollars or for other digital assets.
Centralized exchanges are run by companies that hold customers' funds, match buy and sell orders and convert dollars to crypto. They usually require identity verification under anti-money-laundering rules. Decentralized exchanges (DEXs) instead use smart contracts on a blockchain, letting users trade directly from their own wallets without an intermediary.
Exchanges earn money through trading fees, spreads between buying and selling prices, and services such as staking and lending. Fees and available coins vary considerably between platforms.
The main risk with centralized exchanges is custody. If an exchange is hacked, mismanaged or goes bankrupt, customers may lose access to their funds, as happened with the collapses of Mt. Gox in 2014 and FTX in 2022. Crypto held on an exchange generally lacks the FDIC or SIPC protections common for bank and brokerage accounts. Many users therefore move long-term holdings to a personal wallet.
Example: a user deposits $1,000 by bank transfer, buys bitcoin on the exchange and can then withdraw it to their own wallet.