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Most crypto exchanges have some sort of buffer address (unique for every person) where you deposit your bitcoin and then this is sent over to their main wallet and your account is credited with the amount you deposited. How does this work?

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Generally, the exchange will use a full node that is continuously checking the network for received transactions. Once it detects a transaction has been made to your deposit address it waits for the transaction to be confirmed, then it will credit you the balance. This data is stored in a private database managed by the exchange where they keep track of each user's balance. The bitcoins you deposited are then either pooled to pay for someone else's withdrawals or sent to a cold wallet (an air-gapped device that is not connected to internet) where they are stored securely if they're not going to be used in the near future.

  • This wasn't really my question. I'm asking how they forward the deposit from the deposit address to the address owned by exchange. – ninesalt May 20 '18 at 12:19
  • Sorry for not answering your question properly, The deposit address IS owned by the exchange, depending on the exchange it may be common to find that the funds you sent to your deposit address are later directly used, together with other user's funds, to pay someone else who you don't know. Though some exchanges may use an extra hop where they send the funds to an address dedicated to pool them, it's important to note that the bitcoin protocol allows spending from many previous outputs at once, so this hop is not requiered and the exchange can merge the funds all while doing the transaction. – Victor May 20 '18 at 13:21
  • I know its owned by the exchange. How do they forward it to their "main" account tho? – ninesalt May 20 '18 at 17:32
  • Bitcoin has no accounts, only addresses and they're just an interface thing to make it easier for users to specify the destination of a transaction. Transactions work by spending UTXOs (Unspent Transaction Outputs). This is what I was trying to explain, the exchange doesn't need to pool balances into any "main" account, they can directly pool the output of your deposit transaction as ready to be spent and used to pay someone. Though some exchanges may use some kind of internal database that organizes outputs in accounts, this is irrelevant to the bitcoin protocol. – Victor May 21 '18 at 6:03
  • Most exchanges pool their currencies. If not BTC then for others. Check any exchange and see for yourself. – ninesalt May 21 '18 at 10:42

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