1

My question is : how can some exchanges instantaneously convert bitcoins into cash, in light of the fact that it takes 10 minutes to "validate" a bitcoin transaction?

A bitcoin transaction takes 10 minutes to "validate". Yet some exchanges like coinbase allow merchants to instantaneously convert bitcoin payments into cash. In Automatically cash out bitcoin with zero exchange rate risk it mentions that :

When you enable "instant exchanges", bitcoin you receive for merchant orders will no longer be sent to your Coinbase wallet. Instead they will be sent directly to Coinbase and exchanged, ensuring that you get the the exact local currency price that you set in the merchant tools.

When a person buys a product, then even though the purchasers bitcoin is sent directly to Coinbase, will it not be the case that it takes 10 minutes to validate, since it is just another bitcoin transaction? If so then how do exchanges like Coinbase allow one to convert bitcoins to cash immediately?

1

Because the exchanges are in possession of confirmed bitcoins from the get go. Mtgox makes you wait about a full hour before you are accredited deposited bitcoins to get those 6 confirms. And to exchange it they just decrement the person's account's bitcoin balance and increment the fiat balance (according to whichever market order).

On coinbase they just decrement your account balance and send fiat to your bank account simultaneously.

  • So buyer buys TShirt from retailer. Coinbase convert retailer's bitcoins into cash and reduces retailer's bitcoins by corresponding amount, in addition to waiting for buyer's bitcoins to be verified before crediting retailer's account. But then what happens if buyer has double spent? Then we get instant conversion, but we don't have 100% safety. – user12404 Jan 20 '14 at 19:32
  • It's not an instant conversion, coinbase converts when they feel it's safe from double spend or has allowable risk (they can afford to loose a few bitcoins each month). – John T Jan 20 '14 at 22:23
  • oh tell me more about this mt gox exchange it sounds exciting! – bharal Dec 14 '18 at 15:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.