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Deciding which exchange to buy BTC from (and sell at a future date) I wondered if I could choose one with the best fees for buying and a separate one with the best fees for selling and if this is even allowed.

It is as I read in other threads but there seemed to be a fee for this type of operation. I thought when you bought BTC from an exchange it would be exactly the same BTC (not a wrapper instrument) as if you bought it from any other exchange. How could there be extra fees if the exchanges themselves can't tell where the BTC in your wallet came from?

I also struggle to understand why there would be fees to transfer BTC from one wallet to another. A wallet AFAIK just stores private keys, anyone in possession of those keys (like yourself) could just register in another wallet and use that private key to transfer the BTC to your second wallet. I'm sure there's a hole in my reasoning somewhere.

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Deciding which exchange to buy BTC from (and sell at a future date) I wondered if I could choose one with the best fees for buying and a separate one with the best fees for selling and if this is even allowed.

Sure, but you'll have to use the blockchain to transfer the bitcoin from one exchange to the other.

It is as I read in other threads but there seemed to be a fee for this type of operation. I thought when you bought BTC from an exchange it would be exactly the same BTC (not a wrapper instrument) as if you bought it from any other exchange. How could there be extra fees if the exchanges themselves can't tell where the BTC in your wallet came from?

There's a fee for executing a transaction on the blockchain. Exchanges typically impose this as a "withdrawal" fee. They don't care where you're withdrawing from or where your deposits come from. But those transactions do have a fee associated with them.

I also struggle to understand why there would be fees to transfer BTC from one wallet to another. A wallet AFAIK just stores private keys, anyone in possession of those keys (like yourself) could just register in another wallet and use that private key to transfer the BTC to your second wallet. I'm sure there's a hole in my reasoning somewhere.

Right, so to transfer the bitcoin from one wallet to another wallet, the private key that authorizes their transfer has to be changed from one custodied by one wallet to one custodied by the other wallet. Only the blockchain can do that.

It is impossible for an exchange to assign separate private keys to every user to minimize fees. In fact, such a setup would maximize fees because every transfer of bitcoin balances between users on the same exchange would result in a blockchain transfer.

For example, say I deposit one bitcoin, then sell it to Alice who sells it to Bob who then sells it to Charlie. If the private key securing that bitcoin had to change each time, then each of these exchanges would require processing a transaction on the bitcoin blockchain. That would be much more expensive than executing blockchain transactions only on withdrawals.

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  • "use the blockchain to transfer the bitcoin from one exchange to the other." - do you mean from one wallet to another? I thought BTCs were not stored in exchanges, but rather in BTC's network addresses (commonly managed by wallets). As per the second part, I understand making a BTC transfer directly on the network will incur a network fee 'for the inconvenience', but you seem to imply that fee is higher than the one an exchange would charge for doing the same operation (because they would do it above the BTC net level) - is my understanding right? Thanks so much for the answers
    – eduardo
    Jan 20 at 10:43
  • @eduardo If I have $10,000 in a bank account, the bank presumably also has $10,000 somewhere somehow so that it's possible for me to withdraw. But there doesn't need to be any connection between these two things anywhere but on the books of the bank. And the more tightly the bank tries to tie them together, the less efficient the bank will be. Exchanges perform transfers between accounts at the exchange solely on their own books so these transfers are cheap and rapid. A single trade might change dozens of people's bitcoin balances and trades might happen many times in a second. Jan 20 at 18:27
  • Thanks for the patient answers
    – eduardo
    Jan 21 at 8:21
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Deciding which exchange to buy BTC from (and sell at a future date) I wondered if I could choose one with the best fees for buying and a separate one with the best fees for selling and if this is even allowed.

There are countries where transacting Bitcoin is illegal. There are other countries where people are free to transact with any person they wish, with or without intermediaries, globally.

The precise answer to this question thus depends on space and time, as corps iuris - jurisdiction - changes through frontiers, over time, and the territory a particular jurisdiction is overseeing sometimes also changes.

It is as I read in other threads but there seemed to be a fee for this type of operation. I thought when you bought BTC from an exchange it would be exactly the same BTC (not a wrapper instrument) as if you bought it from any other exchange. How could there be extra fees if the exchanges themselves can't tell where the BTC in your wallet came from?

On some free trade systems it might be legal for them to apply on you whatever fees they want to charge.

On some systems it might be even legal for them to gather and share intel on you so as to know what's your economic history.

I also struggle to understand why there would be fees to transfer BTC from one wallet to another. A wallet AFAIK just stores private keys, anyone in possession of those keys (like yourself) could just register in another wallet

That's correct.

and use that private key to transfer the BTC to your second wallet. I'm sure there's a hole in my reasoning somewhere.

That's mostly correct. They funds get transferred to that wallet. But they don't get transacted, in case anyone could be thinking they get.

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