exchange
A platform for buying, selling, or trading bitcoin. Exchanges come in two main forms: centralized (CEX), operated by a company that holds funds on behalf of users, and decentralized (DEX), where users trade directly from their own wallets.
A Bitcoin exchange is a platform where users can buy, sell, or trade bitcoin and other cryptocurrencies. Exchanges serve as the primary on-ramp for people converting traditional currency into bitcoin. To use most exchanges, a user must create an account, complete identity verification, and connect a payment method such as a bank transfer or card.
There are two main types of exchanges. A centralized exchange (CEX) is operated by a company that acts as an intermediary, holding user funds in custodial wallets on their behalf. A decentralized exchange (DEX) operates through smart contracts and allows users to trade directly from their own wallets, without handing custody of their funds to any third party.
When using a centralized exchange, the bitcoin shown in an account balance is not held in the user's own wallet: it is a promise from the exchange. This introduces counterparty risk. Transferring bitcoin to a self-custodied wallet removes this dependency. A common principle in the Bitcoin community is: not your keys, not your coins.