How Does an Exchange Work?

[huskypower2015]

What are the mechanics of a bitcoin exchange, or any 'classical' exchange that is?

Say I want to go back into fiat because the local Italian join doesn't like bitcoins...lol. Anyway.

I hop onto the exchange, (hear: any) and select the exchange of XBT to USD. I move bitcoins to the exchange and wait for confirmation. When the coins are confirmed, I execute the exchange and my bitcoins are gone and now I have USD. I then wire my USD to a bank account, hop into the car, go downtown, and get me some good lasagna.

Now, I'm not that knowledgeable about the exchange market so hear me out:

1.) Do the bitcoin exchanges have a single wallet that all funds go into, or does the user have their own?
2.) Do all exchanges of bitcoins to fiat or v-v exist on the main-chain or does it exist off chain?
3.) How are prices determined? Are they a running average of all take/give prices of bettors/sellers?
4.) What are the usual fees associated with the exchange?

[SFR10]

1. Some that I use (local online exchanges) have a single BTCitcoin address and some of them give automatically a different BTCitcoin address for each of their users in order to send the fund.
2. AFAIK their all in the main chain.
3. Most of them follow one of the sites that show real time value's like coindesk or Preev for instance
4. Those I've used (mostly) have an added 2% fee from the total amount you exchange, there are some that I've seen who charge as high as 5% fee so it could vary.

[European Central Bank]

I've heard of some exchanges having individually verifiable balances on the blockchain but I don't see how that can work. The coins on there become entries in a database as speed is the key. Your ticket is tagged when coins come out.

[achow101]

What are the mechanics of a bitcoin exchange, or any 'classical' exchange that is?

Say I want to go back into fiat because the local Italian join doesn't like bitcoins...lol. Anyway.

I hop onto the exchange, (hear: any) and select the exchange of XBT to USD. I move bitcoins to the exchange and wait for confirmation. When the coins are confirmed, I execute the exchange and my bitcoins are gone and now I have USD. I then wire my USD to a bank account, hop into the car, go downtown, and get me some good lasagna.

Now, I'm not that knowledgeable about the exchange market so hear me out:

1.) Do the bitcoin exchanges have a single wallet that all funds go into, or does the user have their own?

Each exchange has its own wallet (wallets are different from addresses). However exchanges will give each person a different address to deposit to (but the address is still a part of their wallet). The different addresses reduces address reuse and helps them keep track of deposits.

2.) Do all exchanges of bitcoins to fiat or v-v exist on the main-chain or does it exist off chain?

Off chain. When you deposit, it goes into their database that you have X Bitcoins. When you exchange, their database changes so that you now have Y Bitcoin and Z USD. But no Bitcoin actually moved anywhere. The Bitcoin only moves when someone decides to withdraw their balance.

3.) How are prices determined? Are they a running average of all take/give prices of bettors/sellers?

With actual exchanges where you are trading with others, the price is determined by supply and demand. If more people are willing to buy, then the price goes up and vice versa. For exchanges where you are just exchanging Bitcoin for fiat with the actual exchange itself, they usually determine the price off of other exchanges and sets their own price which should be near the market price.

4.) What are the usual fees associated with the exchange?

1 - 2% usually

[KenR]

1.) Do the bitcoin exchanges have a single wallet that all funds go into, or does the user have their own?
2.) Do all exchanges of bitcoins to fiat or v-v exist on the main-chain or does it exist off chain?
3.) How are prices determined? Are they a running average of all take/give prices of bettors/sellers?
4.) What are the usual fees associated with the exchange?

Answer 1 : Most of the times,the wallets are provided by the exchange websites and everytime you want to deposit money,a new receiving address is given to you.But all the funds are stored in the same wallet.

Answer 2 : I'm really not sure what you mean here but considering the fiat transactions,yes its exist off chain.

Answer 3 : Usually all the exchange rates vary with the sellers.One is independent to choose his own price (as per LBC) but some exchanges follow only one global rate of btc.

Answer 4 : They don't charge for anything more than 0.001 as either the escrow fees or service amounts but it again varies with the website and currencies.

[melisande]

Your first 2 questions will not be answered for obvious reasons
Question 3, prices are determined by the forces of demand and supply, bid/ask.
Question 4, this is often determined by the exchangers, it could be as high as 0.002btc is some cases.

[avatar_kiyoshi]

1. Usually the exchange have hot wallet and cold wallet.
2. I'm not sure.
3. They use global rate, and depends on bid/ask on the site, and it will make a different rate between exchange each other.
4. It's depends, 0.5 - 2 %