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a newbie here,

I have a question about how centralized ethereum-based crypto exchanges facilitate external transactions. Please, tell me if I understood the process right, and if not, could you please fill the loopholes in my next explanation.

As far as I know, all buy-sell transactions happen inside the exchange (outside of blockchain). Let's say, I want to withdraw my ethers from the crypto exchange account (like binance) to another external ethereum account (another crypto exchange like coinbase)

This particular transaction happen inside the ethereum blockchain now. The crypto exchange broadcasts this transaction to the ethereum network, and as soon as it gets confirmed by miners, then my second ethereum account will reflect the ethers I transferred from the first account.

The crypto exchange broadcasts this transaction to the ethereum network in this way: 'Account A(0x...) sent ethers to Account B(0x...)'.

Is that so? Did I get it right? (0)

I am trying to connect dots but I can't wrap my head around how the crypto exchange handles all internal transactions.

I was told that the crypto exchange does + and - to DB (database) when exchange users buy and sell coins within the exchange.

Okay, I get this part. But, if exchange users are buying (adding) and selling (subtracting) coins to/from their actual ethereum accounts within the exchange, doesn't the EVM/ethereum network/miners have to confirm those transactions? (1)

Let's say I created a binance ethereum account, bought 2 ethers there. I am going to send those 2 ethers to another external account. This gets broadcast to the network. And how miners confirm that I have actual 2 ethers? (2)

Sorry, if my question sounds dumb, I am still learning. Thanks a lot

1 Answer 1

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It is simple. When you are depositing or withdrawing from centralized exchange it will be broadcasted to the network and you will be able to find those transactions in the network itself. When the users are exchanging their tokens on the exchange, that is done internally/off chain, meaning no trace is left on the network. It would cost a lot of gas and the process of exchanging would be much slower, that's why CEX's do these exchanges offchain and keep track of every transaction internally in their own database.

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  • Thanks a lot for your answer. It makes sense now. Apr 18, 2022 at 0:15

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