Quick answer
A CEX (centralised exchange) is run by a company, holds your funds, and works like a traditional brokerage — Coinbase, Binance, and Kraken are CEXs. A DEX (decentralised exchange) is smart contract code on a blockchain — no company runs it, trades happen directly from your wallet, and no one holds your funds but you. Beginners should start with a CEX; use a DEX when you want full control or access to tokens not listed on exchanges.
What is a centralised exchange (CEX)?
A centralised exchange is a platform operated by a company that facilitates cryptocurrency trading. Examples include Coinbase (US, publicly listed), Kraken (US, well-established), Binance (largest global exchange by volume), and Gemini. They work similarly to traditional financial platforms: you create an account, verify your identity (required by anti-money laundering regulations), deposit money, and trade.
CEXs use an order book model for many assets — matching buyers with sellers at agreed prices — similar to how a stock exchange works. For less liquid pairs, some CEXs also use automated market maker systems similar to DEXs.
The exchange holds your private keys on your behalf. From a user experience standpoint, this feels exactly like internet banking. You have a username and password, and the exchange manages the underlying crypto infrastructure for you.
- Buy crypto with bank transfer or debit/credit card directly
- Customer support available if something goes wrong
- Identity verification required (passport or driving licence)
- Access to high-liquidity markets for major crypto pairs
- Subject to regulatory oversight in their jurisdiction
- The exchange holds your crypto — counterparty risk if it collapses
- May be subject to account freezes or withdrawal restrictions
What is a decentralised exchange (DEX)?
A decentralised exchange is a protocol that runs entirely as smart contracts on a blockchain. There is no company headquarters, no CEO, no customer service team. Code runs the entire operation. The most important DEXs are Uniswap (Ethereum, dominant), PancakeSwap (BNB Chain), Curve (stablecoin specialist), and dYdX (derivatives).
Instead of matching buyers and sellers in an order book, most DEXs use an Automated Market Maker (AMM) model. In this model, liquidity providers deposit pairs of tokens into liquidity pools. When you trade, you are swapping against the pool — not against another person. Prices are determined by a mathematical formula based on the ratio of tokens in the pool.
You connect your own wallet (like MetaMask) to a DEX. Trades happen on-chain in one transaction. Your funds leave your wallet, the trade executes in the smart contract, and the output lands back in your wallet — all atomically. If any step fails, the whole transaction reverts and you lose only the gas fee.
- No account needed — connect your wallet and trade immediately
- No identity verification required
- You keep custody of your funds throughout the trade
- Access to any token, including those not listed on centralised exchanges
- No counterparty risk from exchange collapse
- You need ETH (or the network's token) for gas fees
- No customer support — smart contracts cannot be reversed
How does an Automated Market Maker (AMM) work?
Most people encounter DEXs through AMMs like Uniswap. Understanding the basic mechanism helps you understand pricing, slippage, and why some trades get worse prices than others.
An AMM maintains a pool of two tokens in a smart contract — for example, ETH and USDC. The ratio of tokens in the pool determines the price. If you want to buy ETH, you add USDC to the pool and remove ETH. Adding USDC increases the USDC balance, which increases the price of ETH (since there is now more USDC per ETH in the pool).
The more tokens you trade relative to the size of the pool, the more you move the price against yourself — this is called slippage. Large trades in small pools get significantly worse prices than the displayed rate. Large, well-funded pools (like ETH/USDC on Uniswap) have minimal slippage for normal trade sizes.
Key differences: CEX vs DEX
| Factor | CEX (e.g. Coinbase) | DEX (e.g. Uniswap) |
|---|---|---|
| Custody of funds | Exchange holds your crypto | You hold your crypto always |
| Account required | Yes — with identity verification | No — just a crypto wallet |
| Buy with cash (GBP/USD) | Yes — bank transfer, card | No — crypto-to-crypto only |
| Token selection | Curated list (hundreds) | Any token (thousands) |
| Customer support | Yes | No |
| Trading fees | 0.1%–1.5% typically | 0.01%–1% pool fee + gas |
| Counterparty risk | Exchange could collapse | Smart contract could be hacked |
| Privacy | Full KYC required | Pseudonymous |
| Best for | Beginners, buying with cash | DeFi users, privacy, full custody |
Which exchanges are considered safest and most reputable?
In both the CEX and DEX categories, reputation, regulatory compliance, and security track record matter enormously.
- Coinbase
- US-based, publicly traded on NASDAQ (ticker: COIN). Regulated by multiple US regulators. UK FCA-registered. Widely considered the most beginner-friendly and regulated major exchange. Higher fees than competitors but strong track record.
- Kraken
- US-based, founded 2011. One of the longest-operating major exchanges. Strong regulatory compliance history. Preferred by more experienced users for its range of assets and margin trading.
- Binance
- Largest global exchange by trading volume. More complex regulatory history in some jurisdictions. Offers an enormous range of assets. Not available in all countries.
- Uniswap
- Largest DEX by volume. Smart contracts have been running since 2018 and audited extensively. Core contracts have never been exploited despite handling trillions in cumulative volume.
- Curve Finance
- Specialised DEX for stablecoin and like-asset trading. Extremely capital efficient for stablecoin pairs. One of the highest-volume DEXs by total value locked.
In the UK, always check that any CEX you use is registered with the FCA at register.fca.org.uk. Using an unregistered exchange offers no regulatory protection and may be illegal. Coinbase, Kraken, and Gemini are among those with FCA registration.
Frequently asked questions
Can I buy crypto with pounds (GBP) on a DEX?
No. DEXs only support crypto-to-crypto trades. To buy crypto with traditional money (GBP, USD, EUR), you must use a centralised exchange. Once you have crypto, you can transfer it to your wallet and use a DEX for swapping between tokens.
Are DEXs safer than CEXs?
They carry different risks. DEXs eliminate the risk of exchange collapse (like FTX) because you always control your funds. But DEX smart contracts can contain bugs exploited by hackers, and you have no recourse if a trade goes wrong. CEXs offer customer support and regulatory protection in some jurisdictions but introduce counterparty risk. Most serious DeFi users use both depending on the purpose.
Do I need to verify my identity to use a DEX?
Currently, no. Most DEXs require no identity verification — you simply connect a wallet. However, regulators in several jurisdictions are considering requirements that may change this. Some front-end interfaces for DEXs already restrict access based on geography.
What is the cheapest way to buy crypto?
Bank transfer to a regulated exchange (Kraken, Coinbase Pro/Advanced) typically offers the lowest fees — often 0.1-0.2%. Buying with a debit or credit card on any exchange carries much higher fees (1.5-3.5%) because of card processing costs. Never use a service offering to sell you crypto via gift cards, bank transfer to individuals, or social media messages.
What happened to FTX and why does it matter?
FTX was the world's second-largest crypto exchange, founded by Sam Bankman-Fried. In November 2022, it was revealed that FTX had secretly used approximately $8 billion of customer funds for trading through its sister company Alameda Research. When this became public, a bank run caused FTX to collapse within days. Customers lost billions. Sam Bankman-Fried was convicted of fraud and sentenced to 25 years in prison. FTX illustrates exactly why holding crypto on an exchange ('not your keys, not your coins') carries real risk.