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Ask HN: How can Coinbase make good on deposits/withdrawals?

• deleted 9y ago
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• rainforest 9y ago
  Coinbase can use (and runs) an exchange to get liquidity. When a user sells their coins, Coinbase goes to an exchange and sells them on, taking a cut.
  • sk2code 9y ago
    The way things are moving it seems no one is selling and that's what baffles me. Crypto market is something we have never seen before where people are buying and not selling that is what is driving the price of Bitcoin.
    • wereHamster 9y ago
      People are selling, otherwise there would be no market.
      • user5994461 9y ago
        There can be a market with only buyers or sellers. There is just no execution.
    • Thespian2 9y ago
      Not true. For each buy that happens, there must be a sale. There are more buyers than sellers right now, not no sellers. Each time the price goes up, that's a sale _that happened_ This is something we've seen many times before. It's not new. It's a classic bubble where demand (buyers) greatly outstrips supply (sellers). The big question is why. Crypto currencies haven't suddenly gotten more useful. The current rise is fueled by speculation of the ability to resell at a higher price.
      • mancerayder 9y ago
        I think a large part of the answer is scope. The scope is international, and the scope of average, retail investors and their ability to do this ... well, unprecedented. Next, you have a lot of people with a lot of cash, tens, maybe hundreds of millions of potential people, in China, Korea, Japan, U.S., Europe, and so forth. That's my hypothesis as to the 'unprecedented' aspect to all of this. What other bubbles are there that were so lightning-quick, vast in geography and 24/7 operation. Tulips at least required some sort of hand waving at auctions (presumably) and some transportation at some point after 'settlement'. This is as fast as a video game connected to your bank account.
    • PeterisP 9y ago
      Some people definitely are selling, it's not like we're seeing new BTC come from thin air for all these buyers (assuming they're getting BTC on their private wallets instead of an IOU that might not be covered with real BTC) However, at the moment there's a lot of willingness to buy and little willingness to sell, and that's why the price is rising.
• deleted 9y ago
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• joshfraser 9y ago
  That's why Coinbase runs GDAX that caters to large & frequent traders, giving huge discounts on fees to the people who provide that liquidity for them. They also run an OTC desk to shuffle funds around in larger quantities both for themselves and their largest customers.
• olivierduval 9y ago
  What is "the market"??? It's only people agreeing to trade... so vendor AND buyers!! What makes a "market price"? It's the amount that buyers are willing to give to sellers for something. If there is no buyer (or no sellers ), then there is no "price", because there is no market. Same if buyers and sellers cant agree on the price (vendor ask to much) Coinbase is only a marketplace. So it doesn't have to honor any deposit. It only allows sellers and buyers to trade
• DennisP 9y ago
  Ultimately you don't sell your bitcoins to Coinbase. You sell them to the people who are buying bitcoins on Coinbase. The point where buyers and sellers meet is the current price on Coinbase.
• Cyberdog 9y ago
  From my understanding (which may be entirely wrong but it's not like that stops people on the internet from writing things as if they're correct in all knowledge), Coinbase itself does not give you the $10,000 when they sell. Rather, they are merely a pretty front end for a standard exchange; probably GDAX, the one they also own and operate. So when you go to their site and tell them to give you $10,000 for your 1 BTC, what they actually do is go to their exchange and create a sell order on your behalf. When that order is fulfilled by someone else buying 1 BTC for $10,000, Coinbase takes a cut and then puts the rest into your account.
• Thespian2 9y ago
  To get your fiat cash out, you'd have to sell that 1 BTC for $10,000. Someone needs to be on the other side of that trade buying it. You get their $10K, and they get your 1 BTC (and coinbase takes a small percentage for facilitating the transaction). If nobody wants to buy your BTC at $10K, you don't get "your" money out, until coinbase can find a buyer to match with your sale. In your example, all 10 of you start lowering your asking price, and "the market" goes down until you make a sale. Coinbase may provide some liquidity, buying your BTC at "market price" with their cash reserves, but only if they think they can resell it at a higher price. The risk they take on in doing that, and the liquidity they provide, is the nominal economic reason you are paying their fees.
  • jaderobbins1 9y ago
    I think this is also a basic concept of the stock market that many people don't understand as well.
    • toomuchtodo 9y ago
      In the stock market, there exists counterparty risk mitigation; in the event your counterparty is insolvent at the time clearing/settlement occurs, your trade will be made whole by a clearing/settlement corp. No such guarantee exists with cryptocurrencies.
      • dmurray 9y ago
        What? Coinbase and other exchanges go a step further than that, and require the counterparty to have deposited 100% of what they will deliver to you up front. So you will be made whole unless the exchange itself steals your money or gets hacked.
        • toomuchtodo 9y ago
          Who is backing Coinbase in the event of insolvency due to a clearing or settlement anomaly?
  • 9y ago
• wereHamster 9y ago
  Replace BTC for EUR, CHF, GBP or any other currency (or even a physical good, like an ounce of gold) and see what changes. The fact that BTC is a cryptocurrency doesn't change anything in how trades happen. And the fact that 1BTC used to be 10USD but now is 10k USD is no different than 1USD being 0.95EUR one year ago and 0.85EUR today. The difference is larger, yes, but that doesn't matter.
  • aaavl2821 9y ago
    the structure of the exchanges and the market make a huge difference in how trades happen. one very real example of this is happening now: many people cant make BTC trades happen, while "uptime" for the other markets you mention is virtually 100% so the fact that BTC is crypto doesnt change anything about how trades happen, but the massive differences in market structure between crypto and established markets makes a huge difference edit: and the fact that the difference is larger does matter. volatility is one of the core inputs of derivatives pricing, and for a derivatives market to exist, volatility must be estimable. having a derivatives market has major influence on prices and liquidity of the market for the original security. for BTC to really go mainstream, markets need to evolve
  • ethagknight 9y ago
    While you may be right, the difference to me, and the main reason why I originally asked the question, is that USD has the full force and guarantee of the us government. AAPL has a discounted future cashflow. Gold has industrial, sentimental and government consensus value. BTC has none of that, just a consensus of value based on active trades, which (side note) may well be the best thing about BTC. I recently sold my little stash of BTC because I just realized that I don't understand at all what is happening regarding BTC, why it is happening, and whether it will continue to happen. All this BTC has no where to go but into other prospective wallets. I also had a sudden concern that there is no reason to trust Coinbase, let alone the market or BTC in general, and why would I leave money with people I have no reason to trust and have no means of penalizing should they fail to honor their terms with me. The reality, as others point out, is that Coinbase has people dumping real money into their system to get in on BTC, and thats what Coinbase use to pay my withdrawal, which is as simple as I could have imagined it. I just dont know why.
• deleted 9y ago
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• panarky 9y ago
  Coinbase's exchange GDAX matches sellers with buyers. The buyers bring the cash to the party, not Coinbase.
• gnode 9y ago
  When you buy or sell on an exchange, you're not transacting against the exchange, but against a counterparty, via the exchange; someone like you, but making the opposite transaction. If you sell a Bitcoin for $10k, then someone else brought $10k to the exchange and offered to exchange it for a Bitcoin. The only way an exchange wouldn't be able to honour deposits is if they lost them, or because of fraud. A surge in price shouldn't affect the solvency of the exchange.
• thisisit 9y ago
  I think people forget - Coinbase makes profit in BTC too. The issue of disbursement might have happened if they were completely USD or fiat business and the market ran away from them during conversion. But btc fees has them covered.
• egypturnash 9y ago
  Remember: you don't have to do your transactions in whole bitcoins. I, for instance, had .32btc sitting around on Coinbase and decided to sell it when the price broke 10k. That got me about $3k.
• wyldfire 9y ago
  The confusion results from the conception that the market (any market) has a single price. It doesn't. When exchanges (stock exchanges, currency exchanges, commodity exchanges) execute trades, they do so with something called an "order book". You can think of it more like an available histogram of potential trade prices. The transactions tend to settle at the nexus of where buyers meet sellers, but if there's only $1 worth of BTC available at the "1 BTC=$10000" rate, then if you want all of your $10 transaction to execute now you will have to pay more. Alternatively you can leave your order at the "1:10000" rate and hope that someone comes and picks it up.
• bsvalley 9y ago
  Coinbase is just a broker with a bunch of customers. It connects to all the BTC exchanges in order to execute all their orders. They don't own bitcoins.
• ethagknight 9y ago
  Many thanks to all these responses. I know this question has been hashed out ad nauseam on HN but given the dramatic rise over the last week, I needed a reality check that im not missing something. I find this discussion interesting. Screenshot of Coinbase quote before the site crashed this morning before price "fell" "back" to $16,000. https://imgur.com/a/FClNZ https://imgur.com/a/FClNZ
• mancerayder 9y ago
  Coinbase is an automated mechanism that matches buyer to seller, although it does you the extra favor of storing your private keys for you (something a lot of people don't trust, probably for good reason). I don't know what external hooks there are that add liquidity, perhaps some of the other exchanges including the one it owns. Otherwise it would feel more like an E-Bay auction than a fast-paced market. If everyone withdraws at once, you'll have 10 sell orders at the same time that need to be filled 'someplace' on the other side. If no one wants it anymore, the asking price will have to get lower and lower. Coinbase shows you some sort of average price, but you can see a list of the orders put in if you log on an actual exchange like Bittrex. When I saw the sell and buy orders sitting in a queue waiting to be filled, some low-ball, etc., things starting to click for me. The above is what I've gleaned from observation and reading. I could be wrong - and if there's one thing about this crypto bubble craze, is it's motivated me to learn about markets/exchanges, money, cryptography, and more. And to think about this things more abstractly and even critically.
• arisAlexis 9y ago
  Why does this question have so many upvotes?