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What does the minimum confirmations required for a deposit mean for the security of exchanges? For example, Coinbase requires 3 confirmations for Bitcoin deposits. Suppose an adversary deposits 10 bitcoins into an exchange and has his account credited.

What stops an adversary from mining a private chain with a transaction that conflicts with his previous deposit transaction. What would this mean for the exchange? Would the user have the ability to sell the Bitcoins credited to his account and defraud the exchange?

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Coinbase probably requires even more confirmations for a deposit of that high a value. According to https://www.crypto51.app at this moment, it would cost some $600,000 to attack the Bitcoin blockchain for one hour. That means sustaining a 51% attack and potentially (not definitely) double-spending a deposit to Coinbase that had several confirmations.

If you are a merchant that accepts Bitcoin you must take this risk into account given the value of the transaction. A $1000 deposit to Coinbase is probably safe after three confirmations, because it would cost so much more than $1000 to reverse three blocks.

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  • I thoroughly understand double spending in the context of a buyer and seller transacting, but I am unsure how the mechanics of a double spend would work against an exchange. For example, could an attacker "trick" an exchange into crediting his account and then take financial advantage of the exchange by reorganizing the blockchain? Couldn't the exchange just "remove" the Bitcoin that they credited the adversary with? – Max Apr 29 at 18:42
  • This answers my question: "A party like an Exchange may accept large deposits automatically, allow the user to trade into a different coin quickly, and then withdraw automatically. This is why they are targeting Exchanges." – Max Apr 29 at 18:50

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