The first and most common type of exchange is the centralized exchange. Popular exchanges that fall into this category are Coinbase, Binance, Kraken, and Gemini. These exchanges are private companies that offer platforms to trade cryptocurrency. These exchanges require registration and identification, known as the Know Your Customer rule.
The exchanges listed above all have active trading, high volumes, and liquidity. That said, centralized exchanges are not in line with the philosophy of Bitcoin. They run on their own private servers, which creates a vector of attack. If the company's servers were to be compromised, the whole system could be shut down for some time. Worse, sensitive data about its users could be released.
The larger, more popular centralized exchanges are by far the easiest on-ramp for new users, and they even provide some level of insurance should their systems fail. While this is true, when cryptocurrency is purchased on these exchanges, it is stored within their custodial wallets and not in your own wallet that you own the keys to.
The provided insurance is only applicable if the exchange is at fault. Should your computer and Coinbase account, for example, become compromised, you would lose your funds, and you would not likely have the ability to claim insurance. This is why it is important to withdraw any large sums and practice safe storage.
