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I am learning about ethereum-based crypto exchanges, and I tend to 'scratch my head' often.

Does a crypto exchange website need to run its ethereum node? (Is it necessary for the ethereum server to sync all the blocks?)

or a crypto exchange has to store all ethereum network data and run an ethereum node, because that's how it interacts with EVM (facilitates transactions with the external accounts/wallets) (is it so?)

I received some ambiguous replies like 'No, exchange transactions happen inside the exchange. But only when it sends transactions outside of transactions'.

Does it still mean a crypto exchange need to sync all network data? (let's say, an ethereum server (of a crypto exchange) is deployed on cloud, and if i sync all network data to that ethereum server, it is going to get expensive to maintain that server?

That ethereum server is used for mere communication with other EVM when an external transaction happens right?

I am sorry, if my question sounds dumb. I am still learning

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In a centralized exchange, all trades inside the exchange happen off-chain. So the trades are simply entries in their internal databases. This is to reduce fees and provide faster speeds.

When you want to transfer crypto assets out of the exchange, the exchange has to issue a real blockchain transaction to transfer the assets from its wallets to wherever you want to send them. This is why such withdrawals cost you.

If you want to interact with the blockchain you need access to some node. The exchange can run its own Ethereum nodes, or it can use an external service provider (such as Alchemy or Infura) which grants access to their nodes.

In order to send transactions, yes, you typically need to synchronize the full network data to your node (or use a ready node from a service provider).

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  • thanks a lot. Your reply made it easier to understand how exchanges work.
    – carrotcoach
    Apr 15, 2022 at 4:20
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Exchanges can be centralised or Decentralised.

In Centralised The backend and database are kept private by the exchange. The public is unable to audit the exchange’s code. The frontend code also sends instructions to the backend, for example to execute a trade. Example: Binance

In Decentralised The frontend code only receives data from the DEX smart contract where the user sends instructions to the smart contract which runs on EVM directly from their client device using an Ethereum wallet like MetaMask, The user authorizes the transaction by generating a transaction signature using their private key and MetaMask then pushes the transaction to the smart contract. Example: Uniswap, Anyone in the community can launch their own website that interacts with the Uniswap DEX.

Note: Real-world events that are recorded in centralized databases are still needed for these systems to function, and oracles serve that purpose.

I hope I've answered your questions satisfactorily.

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  • Thanks a lot. I am still trying to learn about ethereum-based exchnages.
    – carrotcoach
    Apr 15, 2022 at 4:21

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