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I am very new on cryptocurrencies, and like to understand it's transfer process. I think if I want to buy Bitcoin, I must download a Bitcoin wallet, then find a person who has Bitcoin. Then he/she must transfer that bitcoin from his/her wallet to my wallet. Then I will pay the price either in cash or with credit card to him/her bank account.

After that I can see this Bitcoin in my wallet. OK? But I have some questions:

  1. How many wallets a person can download and use?

  2. If I used a wallet in the above example, then I wanted to change my wallet, should I download a new one and do a transfer from my previous wallet to new one? I mean there is no unique ID for people that they can use it in different wallets to reach one unique account?(Like our stack account that we can reach to it by Chrome, Firefox, Edge, etc, considering the browsers are wallets)

  3. How crypto exchange websites work? If I want to buy or sell 1 Bitcoin, should I pay the money/coin to their bank_account/Bitcoin wallet, and the other person should do that too, then the website will pay it to us? I mean is it a 2-step process or buyer/seller do a direct transfer?

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First, a wallet is a software application that usually manages your keys, addresses, and transactions. When someone sends you Bitcoin, it is generally sent to one of the addresses that the wallet software manages. There really is no limit to how many wallet software applications you can run, and not really a limit on addresses either (except for disk space, but that's not really a concern etc.).

Your wallet software should allow you to create new addresses that you can use to receive Bitcoin.

Exchanges work by managing your Bitcoin in their internal wallet software, and you exchange anonymously with others by placing and filling orders on the global order book. The exchange manages the Fiat (dollars) currency exchange internally as sort of an escrow.

  • How my personal wallet will contact the exchange's internal wallet? Is that mean I must send my coins to the exchange's wallet then they will send it to another person's wallet who likes buy my coins? – user3486308 Aug 30 at 18:42
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    @user3486308 You generally send bitcoins to an address provided to you by the exchange. But, the exchange then at regular intervals (may be hourly or daily depending on volume) consolidate all their user's holdings in their cold/hot storage addresses. Howver an internal database is maintained that credits the bitcoins to your account. When you sell on an exchange, since the other guy also has an account on the exchange, the exchange can merely change the credits at the backend without making an on-chain transaction. It is only when you withdraw the money will they make an on-chain transaction. – Ugam Kamat Aug 30 at 19:58
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How many wallets a person can download and use?

As many as they want.

If I used a wallet in the above example, then I wanted to change my wallet, should I download a new one and do a transfer from my previous wallet to new one?

Yes that is often the best method, but that will incur a transaction fee.

I mean there is no unique ID for people that they can use it in different wallets to reach one unique account?

Yes there is a unique piece of data that can be moved between different wallets and which gives users of that wallet control over an amount of Bitcoin. This is the private-key. It can often be generated from a seed-phrase, sometimes called a recovery phrase.

You could have ten wallets each containing the same private key. All of those ten wallets would show you the same "balance" and any could be used to spend all or part of that "balance". The other nine wallets would find out about the transaction and adjust the "balance" they show. However having your private key in ten places is less secure than only having it in one (plus an offline backup of some sort).

You can alternatively import private keys into a new wallet but you need to understand the difference between the early type of private key and those used in hierarchical deterministic (HD) wallets - an "extended" private key from which others are generated. When moving a private key from an HD wallet into another you need to make sure the new wallet is configured to use the same "derivation paths". This can be complicated so it requires care.

How crypto exchange websites work?

In my view, exchanges are mainly for exchanging one currency into another. For example USD into Bitcoin or Bitcoin into Litecoin etc.

A member of an exchange will deposit some money into their exchange account and can then typically transfer some to the exchange account of another user of the same exchange without any fee. Amounts transferred this way are not recorded in the Blockchain. The exchange remains the "owner" of the money.

Exchanges also typically allow members to transfer money to non-members. These are typically a transfer from the exchange's wallet to the other persons wallet and this transaction is recorded in the Bitcoin blockchain and involves a transaction fee.


How my personal wallet will contact the exchange's internal wallet?

They don't.

Wallets broadcast intended transactions to a few nearby nodes. They pass it on. Eventually a miner incorporates that transaction into a new block and broadcasts that block to nearby nodes. They pass it on. Eventually your wallet and the recipient's wallet hear about the new block. Eventually the wallets mark the transaction as confirmed and update the calculated "balance" they show their users.


It is worth remembering that Bitcoin are not stored in wallets or in the Blockchain. Wallets store private-keys. The Blockchain stores historical records of transactions. A transaction is a record of a transfer of control over some amount of money where Bitcoin is the unit of measure.

When you give money to an exchange, you no longer have money, you have an IOU.

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