working of crypto exchanges


Trezor asked 7 months ago

i want to know how come the buyers and sellers all over the world come together on various exchanges. how the transactions work on a crypto exchange.

1 Answers
Steven Hay answered 7 months ago

Hey Trezor,
 
Well, buyers want to buy and sellers want to sell, they both know exchanges exist, so they go there in the expectation of meeting each other. It’s just like a traditional market – if you want to buy food, you go to a market because you expect to find food sellers there. Food sellers go there because they expect to find buyers. Online exchanges work conceptually just the same as the most ancient bazaars / marketplaces.
 
As for how the transactions work there, a seller will deposit their coins and a buyer will deposit their fiat (or different type of coins). When a trade happens, the exchange will then swap the two forms of money in their internal database, to the effect that the seller now has the buyer’s fiat instead of their originally-deposited coins… and the buyer now has the seller’s coins instead of their originally-deposited fiat. Each can now withdraw the new type of currency associated with their exchange account.
 
Note that it’s only when the withdrawal is made on the crypto side that the withdrawal trade is sent to the blockchain. Of course, the crypto deposit is also done through the blockchain to the exchange’s deposit wallet for that particular user’s account.

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