Technical Definition

Exchange

A crypto exchange is a platform that allows users to buy, sell, or trade cryptocurrencies and related financial products. Exchanges can be centralised or decentralised.

By Crypto University Editorial
Centralised ExchangeDEXCustody

✦ Key Insight

Exchanges are one of the main entry points into cryptocurrency markets. They provide liquidity, price discovery, order execution, custody, fiat deposits, derivatives, staking, and other services. The exchange model affects the user's risks. A centralised exchange may control customer assets. A decentralised exchange typically executes trades through smart contracts.

✕ Common Misconceptions

Assuming every exchange is regulated

Leaving large balances without understanding custody

Ignoring withdrawal fees

Confusing exchange volume with real liquidity

Using excessive leverage

Failing to enable strong account security

Detailed Explanation

How It Works

A centralised exchange normally:

  1. Creates customer accounts.

  2. Accepts deposits.

  3. Maintains internal balances.

  4. Matches buy and sell orders.

  5. Processes withdrawals.

A DEX operates differently, often allowing users to trade directly from self-custody wallets.

FAQs

Is an exchange the same as a wallet?
No. Some exchanges provide wallet-like accounts, but the service model is different.

Can exchanges fail?
Yes. Counterparty and operational risk remain important.

In Practice

“A user deposits US dollars through a bank transfer, buys BTC on a centralised exchange, and later withdraws it to a hardware wallet.”

Dig Deeper

Custody

Custody describes who controls the private keys required to access and move cryptocurrency. In a self-custody arrangement, the user controls their own private keys or secret recovery phrase. In a custodial arrangement, an exchange, platform, broker, bot provider, or another third party controls the keys on the user's behalf.