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Wait... is that how an exchange works? or just gox? I mean, so do they only actually buy the bitcoins when the user wants to cash out from the account?
by infinitone 13y ago
Wait... is that how an exchange works? or just gox? I mean, so do they only actually buy the bitcoins when the user wants to cash out from the account?
- damian2000 13y agoI believe some, like Bitstamp, trade by connecting actual buyers to actual sellers in the transaction, to limit their own amount of BTC and USD holdings. That's what it says on the FAQ anyway.
- ye 13y agoNot really true. You have to deposit your cash and/or your BTC into Bitstamp's accounts. Only then you can trade them. And you only get cash and/or BTC back when you withdraw. In between it's just a bunch of data being pushed around, no actual transactions (though they seem like transactions, they only exist inside Bitstamp's database).
- wmf 13y agoI think damian2000 was making a distinction between an exchange holding funds on behalf of customers and an exchange that trades with its own money.
- dangero 13y agoAn exchange is nothing more than a marketplace for buyers and sellers. They could in theory not buy the coins till you wanted to cash out, that would be a Ponzi scheme. That happened recently with a small exchange site. See this article: http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131115000043&cid=1103 http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=2013... In general the way it works for a non ponzi scheme setup is that another user on MtGox is selling, and you are buying, so essentially if you buy, your account balance of coins goes up and at the same time the seller's balance goes down. Keep in mind though, no actual bitcoins moves because MtGox is holding them all in their account. It's exactly like what happens when you transfer money to someone who banks at the same bank as you. The money moves from one account to the other on the ledger, but really no money moved at all.
- nebulous1 13y agoNo, gox works like all the other bitcoin exchanges, people send them bitcoins and/or fiat currency which they put in the person's gox account. The exchange provide an mechanism to let them swap one for the other with somebody else, and a mechanism for withdrawing whatever is in your account back to your bank account or bitcoin address or whatever. The key here was that somebody basically compromised gox's security rather than some random user's security, and managed to put coins in a gox account without actually depositing any bitcoins. This was why rolling back was a justified action (albeit the hack shouldn't have been possible to being with).
- tedunangst 13y agorelated term to search for: settlement risk
- meowface 13y agoMost financial institutions operate as a black box in that regard. Until you actually withdraw something, you know nothing about the internals or where your money / security may really be. From a programming perspective, it doesn't really make any sense to make real Bitcoin network transactions for every buy and sell order; an internal database can keep track of all that way better. Arguably, they could steal all your Bitcoins if they wanted to anyway, so it doesn't really matter how they handle the internals.