How to create multiple connected addresses?

Question

I didn't see anything on here so I figured the community would benefit as well, plus I really am curious.

Lots of exchanges (or online wallets) have no fees when transferring BTC or ETH or etc between to accounts, for example sending 1 Ethereum from your Coinbase account to your friend's Coinbase account is free (or at least was I don't know about nowadays cause everything is getting to be expensive)

My question is, do these exchanges or etc actually do a transaction and have to pay fees, and just not charge us for inter-exchange transfers?

or

They don't have to pay because they have a certain type of wallet or etc where 1 huge wallet has sub-wallets and doesn't require a fee to transfer between them?

I just don't know how it would work and am curious of what is going on with that?

If there is a way, how could I create multiple wallets that wouldn't need to pay fees for every transfer between them? I feel like it's the opposite of a Multi-sig wallet. I don't know how this would work even still, because you can do an internal transaction of 0 Eth but still have to pay a mining fee.

Thanks

Answer 1

They're not doing any Ethereum transactions when they do that. They're just changing numbers in their own database.

When you keep your ether in an exchange, it's not in an account that belongs to you. It's just in one big account of theirs. (This is a slight simplification. Most of the time they spread the ether out over multiple accounts to, for example, support offline storage for the funds they won't need to access for a while.)

The balance they show you is just a number in a database on their servers. It's essentially a promise by them that if you ask for it, they'll give you that much ether. Only when you deposit or withdraw are actual Ethereum transactions happening.