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MarkRoberts
Bronze Bitcoiner
Bronze Bitcoiner
Posts: 483
Joined: Wed Jan 13, 2021 10:19 am

When I buy bitcoin on an exchange, where does that bitcoin come from?

Thu Mar 04, 2021 10:39 am

Customers deposit crypto onto the exchange. It all sits in one big pool, for simplicities sake. Each customer has a claim to however much crypto they deposited.

Customers can then put in sell order and buy orders.

Let’s say I put in a sell order for 1 BTC at $50k, and there is another sell order in by somebody else for 1 BTC at $48k. For simplicity, we are the only 2 sellers right now.

You come along and decide you want to buy 2 BTC, and you don’t care about the price so you put in a market order for 2 BTC. The exchange now credits you with 2 BTC at $98k total, or more accurately you bought 1 at 48k and 1 at 50k for an average of $49k per BTC.

The BTC hasn’t actually moved anywhere yet, but the exchange database now says you have a claim to 2btc out of their big ole pile of BTC, and the other 2 people now have a claim to the cash.

No BTC is actually transferred anywhere until you decide to withdraw it.

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