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I created a coinbase account and a new wallet that only had one address "A" associated with it.

I then gave that address to a friend and had them send me some amount "B" of bitcoin.

Shortly thereafter my coinbase wallet was listed as having the correct amount "B" of funds and the address "A" associated with my coinbase wallet shows up in the blockchain as having the correct amount "B" sent to it. However, my address "A" immediately showed up in the next block spending the funds, and the address "A" is listed as spent (e.g., on blockchain.info shows up as "spent"). There are a large number of subsequent transactions spending the funds to a bunch of addresses that I have never seen before.

Does anyone know why this is happening? Is this some attempt at coinbase to perform some mixing and try to anonymize transactions? Or does coinbase send the funds to a "cold storage" or something and just pretend like they are "in" the address listed in my coinbase wallet... very curious...

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You don't have a Coinbase wallet address, you have a Coinbase deposit address that's used to deposit bitcoins into your wallet. Coinbase sweeps funds from deposit addresses into their secure holding accounts.

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    Thanks for this answer, do you have any sources that explain this point about "deposit address" in more detail? Do you work for coinbase or can you point to coinbase docs? I ask because Coinbase itself describes the addresses in the OP as "wallet addresses", which is why I presumed that what they are wallet addresses. Clearly they are something different, but I wish it was documented somewhere... – hft Dec 12 '15 at 18:55
  • It is unfortunate that Coinbase uses the term "wallet address". Coinbase mentions in several places that they are a hosted Bitcoin wallet. A hosted wallet cannot have a Bitcoin address, only a native wallet can. – David Schwartz Dec 12 '15 at 21:24
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I don't use coinbase, but Xapo does exactly what you describe. They instantly transfer the funds to another wallet and move them around. Probably some algos deciding what goes into cold storage and what stays, based on current outgoing flow demand.

At the same time that you're sending btc to coinbase, many users will be withdrawing; hence they probably have developed attempts to optimize this flow of funds in the blockchain--while still retaining a number of transactions off-hot wallets.

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    Thanks, this sounds reasonable to me. Do you know of any coinbase docs describing the process? I can't find any... – hft Dec 12 '15 at 18:56

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