Transactions validations times

[lichig]

Hi, I am still quite new in Bitcoin.

I read a lot about that one of the downsides of Bitcoin is the transaction and transaction validation times and delays.

However, when I buy/sell BTC on the exchange I am using, those transactions are executed immediately.

What is exactly the long transaction times some users are complaining about? And how the exchanges had solved this supposed delays?

Thank you!

[mk4]

When you execute a trade on an exchange, there isn't a Bitcoin on-chain transaction occurring; it's pretty much just numbers changing on the exchange's back-end database.

e.g. when you buy bitcoin, it's going to be from:

Code:

lichig_wallet = 0.01 BTC

to

Code:

lichig_wallet = 0.03 BTC

The long times and delays people are talking about, are when making Bitcoin on-chain transactions. Meaning, sending bitcoin from a wallet to another wallet. As for exchanges, they only execute on-chain transactions when people withdraw the bitcoin from their exchange account, to their own wallets.

[crwth]

You will know the long transaction times once you have been able to withdraw from your exchange. That's basically what everyone is talking about.

https://bitcoinfees.earn.com/

If you check the site above, it shows how fast the transaction is with the corresponding sats/byte

*Edit - possibly malicious link with doctored data.

[ranochigo]

There isn't any delay when you're transacting on exchanges because no Bitcoin transactions are executed on the exchange. It's simply just the exchange changing values within their database.

Bitcoin transactions are included in block that is mined by the miners approximately once every 10 minutes. That's where the delay comes in. Exchanges didn't solve this. If you were to withdraw your Bitcoins from an exchange, you'll be able to experience the delay with this. The extended delay comes with the transactions paying lower than appropriate fees. Instead of the transactions taking a long time, it would just be Bitcoin transactions becoming more expensive.

[cryptomaniac_xxx]

Hi, I am still quite new in Bitcoin.

I read a lot about that one of the downsides of Bitcoin is the transaction and transaction validation times and delays.

However, when I buy/sell BTC on the exchange I am using, those transactions are executed immediately.

The transaction is within exchange itself, so it's internal to them, that's why transactions are very quick.

What is exactly the long transaction times some users are complaining about? And how the exchanges had solved this supposed delays?

Thank you!

The long confirmation time that user are complaining are is:

1. For example you used a bitcoin wallet, i.e Electrum or Bitcoin core, then you didn't look at the current mempool, if they are congested or not.

2. You send low fee when doing transactions. Mempool is clogged that time, your fee is so low that it is not including to let say the next 10 blocks, then obviously there will be delays and people are going to complain.

[Pmalek]

Exchanges overcharge their customers on withdrawal fees. That is why your withdrawal will be confirmed relatively fast. They aim for the next block confirmation. That is also the reason why you will lose the equivalent of $20-$25 per withdrawal. They pocket most of these fees because they batch transactions together and save on fees, but still overcharge their users.

When you send money from your personal wallet, you decide what the transaction fees will be (if you are using an appropriate software), and you can save a lot of money if you are not in a hurry and use low fees. Bitcoin has problems with scalability and it can't process what's being throw at it. As we speak, there are over 90vMB of unconfirmed transactions in the mempool. That is 80-85 blocks, not counting new transactions that are broadcasted constantly. https://jochen-hoenicke.de/queue/#BTC%20(default%20mempool),2h currently shows over 43.000 unconfirmed transactions.   

[pooya87]

https://bitcoinfees.earn.com/
If you check the site above, it shows how fast the transaction is with the corresponding sats/byte

Please stop recommending this site. They are maliciously reporting a MUCH higher fee for transactions to intentionally inflate the fee rates in the fee market.
For example right now they are reporting "The fastest and cheapest transaction fee is currently 102 satoshis/byte" whereas the actual fastest and cheapest transaction fee is around 25 which means they are reporting 4 times higher than that!
Use this site https://jochen-hoenicke.de/queue/#BTC,24h instead or simply stick to a good wallet such as electrum to suggest fees.

[lichig]

When you execute a trade on an exchange, there isn't a Bitcoin on-chain transaction occurring; it's pretty much just numbers changing on the exchange's back-end database.

e.g. when you buy bitcoin, it's going to be from:

Code:

lichig_wallet = 0.01 BTC

to

Code:

lichig_wallet = 0.03 BTC

The long times and delays people are talking about, are when making Bitcoin on-chain transactions. Meaning, sending bitcoin from a wallet to another wallet. As for exchanges, they only execute on-chain transactions when people withdraw the bitcoin from their exchange account, to their own wallets.

So this is quite a risky business for the Exchange.
If I bought USD 1000 worth of Bitcoin, at a current price will be around 0.018xxx BTC. But this is just a number on the database. If I withdraw a few months later, they will need more USD to fulfill the BTCs in my exchange wallet.

How they deal with this?

Thank you guys!

[crwth]

Please stop recommending this site. They are maliciously reporting a MUCH higher fee for transactions to intentionally inflate the fee rates in the fee market.
For example right now they are reporting "The fastest and cheapest transaction fee is currently 102 satoshis/byte" whereas the actual fastest and cheapest transaction fee is around 25 which means they are reporting 4 times higher than that!
Use this site https://jochen-hoenicke.de/queue/#BTC,24h instead or simply stick to a good wallet such as electrum to suggest fees.

Pardon for the link. I didn't know that it's like that. It was on the top page of the Google search. Thanks for the information for that link. Bookmarking that.

[mk4]

So this is quite a risky business for the Exchange.
If I bought USD 1000 worth of Bitcoin, at a current price will be around 0.018xxx BTC. But this is just a number on the database. If I withdraw a few months later, they will need more USD to fulfill the BTCs in my exchange wallet.

How they deal with this?

Thank you guys!

Nope. How exchanges work:

• when you're buying bitcoin, you're buying the coins that other users are selling on the platform.
• when you're selling bitcoin, you're selling the coins to other users that are buying on the platform.

Then the exchange just makes money off the exchange fees. Pretty much just like buying and selling on eBay. When you buy a sneaker on eBay, you're not buying the sneaker from eBay themselves, but from other sellers on the platform. Then eBay just makes profit off the fees. Same thing with crypto exchanges.

[NeuroticFish]

So this is quite a risky business for the Exchange.
If I bought USD 1000 worth of Bitcoin, at a current price will be around 0.018xxx BTC. But this is just a number on the database. If I withdraw a few months later, they will need more USD to fulfill the BTCs in my exchange wallet.

How they deal with this?

The usual exchanges don't sell you their coins, they sell you other users' coins. The exchange only matches the orders of various users.

When you deposit 1000$ to the exchange, that becomes a number in the database.
Then you buy 0.018xxx BTC and then the database area for your account will change to 0$ and 0.018xxx BTC

When you'll withdraw you'll get the 0.018xxx BTC minus the withdrawal fees (which pay the miners/transaction fee and some more).
The withdrawn coins will come from other users that have deposited BTC.
Others will withdraw fiat, hence "your" 1000$ too.
Of course, after your withdrawal, the database will show 0 for your account.

And the exchange will survive just fine, since it gets trade fees (possibly from buyer and from seller too), withdrawal fees and so on.

[DannyHamilton]

So this is quite a risky business for the Exchange.
If I bought USD 1000 worth of Bitcoin, at a current price will be around 0.018xxx BTC. But this is just a number on the database. If I withdraw a few months later, they will need more USD to fulfill the BTCs in my exchange wallet.

How they deal with this?

Thank you guys!

There were a LOT of details that were left out and simply assumed you would understand.

It's really more like this...

• Danny has 1.0 BTC and wants USD to pay for a new car
• lichig has $1000 and wants to invest in BTC for his future
• Danny Transfers 1.0 BTC to his account at the exchange
• The exchange receives the 1.0 BTC in THEIR wallet (and stores in in their vault)
• The exchange updates Danny's account in their database from danny=0.0BTC and danny=$0.00 to danny=1.0BTC and danny=$0.00
• lichig transfers $1000 to his account at the exchange
• The exchange receives the $1000 from lichig's bank and stores it in THEIR bank account
• The exchange updates lichig's account in their database from lichig=0.0BTC and lichig=$0.00 to lichig=0.0BTC and lichig=$1000.00
• lichig places a request to acquire as much BTC as he can get for $1000 at the current market rate
• danny places a request to sell 1.0 BTC at the current market rate
• Lets imagine that the current market rate is $55,000 per 1 BTC
• The exchange matches up lichig's request with Danny's request
• The exchange keeps a small fee from lichig (let's say 2%?) of lichig's $1000 for themselves as an "exchange fee"
• The exchange keeps $20, and uses $980 to compute the amount of bitcoin to transfer between danny's account to lichig's account
• The exchange computes that $980 / $55,000 per BTC = 0.01781818 BTC should be transferred from danny's balance to lichig's balance
• The exchange updates lichig's account in their database from lichig=0.0BTC and lichig=$1000.00 to lichig=0.01781818 BTC and lichig=$0.00
• The exchange keeps a small fee from danny (let's say 2%?) of danny's $980 for themselves as an "exchange fee"
• The exchange updates Danny's account in their database from danny=1.0BTC and danny=$0.00 to danny=0.98218182 BTC and danny=$960.40
• The exchange matches Danny's request with others like lichig that also are wanting to acquire bitcoins
• The exchange updates the balances of those other individuals in a similar way to how they updated lichig's and updates Danny's balance as well
• Danny's account in their database now indicates danny=0.0BTC and danny=$53,900
• The exchange has now updated their database to indicate 1.0 BTC from Danny to various other customers and $53,900 to Danny from those customers
• For providing this matching up and transferring service, the exchange has kept a total of $2,200 in fees for themselves from all parties involved
• Danny transfers $53,900 to his bank from the exchange
• The exchange updates Danny's account in their database from danny=0.0BTC and danny=$53,900 to danny=0.0 BTC and danny=$0.00
• The exchange transfers $53,900 from THEIR bank account to Danny's bank account
• lichig needs to decide if he's just going to leave his 0.01781818 BTC under the control of the exchange and hope that they don't ever get hacked or go bankrupt, or if he wants to transfer those bitcoins out from the exchange to his own wallet
• lichig decides that he'd rather bee in control of his own bitcoins, and requests a withdrawal transfer of his bitcoins to his own wallet
• The exchange creates and broadcasts a bitcoin transaction sending some of the bitcoin from THEIR wallet onto the bitcoin network. They use some of the bitcoins credited to lichig in their database to pay the bitcoin transaction fee. (let's say 0.00005 BTC?)
• lichig receives 0.01776818 BTC (approximately $977.25 worth at the exchange rate of $55,000) into his wallet once the transaction is included in a block in the blockchain
• The exchange updates lichig's account in their database from lichig=0.01781818BTC and lichig=$0.00 to lichig=0.0BTC and lichig=$0.00

You'll see here that the exchange didn't have any risk.  They earned $2,200. If lichig later wants to "Cash out" his 0.01776818 BTC when the exchange rate has increased to $1,000,000 per btc, the same process will happen all over again. Lichig's bitcoins will be worth 0.01771818 * $1,000,000 = $17,718.18. Lichig will transfer his 0.01776818 BTC back to the exchange (paying another bitcoin transaction fee to send his bitcoins to the exchange). Let's assume the transaction fee is still 0.00005 BTC. He will then make a request to sell the 0.01771818 at the market rate. The exchange will match his request up with one or more people that are wanting to acquire bitcoins at the market rate. They'll keep some of the money as a fee, and update the values in their database appropriately.  Lichig can then transfer his $17,363.82 profits (the bitcoin transaction fee plus the exchange fee amount to approximately $354.36 this time) to his bank, and the individuals that acquire the bitcoins from him can decide if they want to keep their bitcoins at the exchange or send them out to their own wallet.

[lichig]

Whoah! Perfectly understood now.

The exchange ALWAYS wins.

Thank you very much guys for taking the time to help me better understand this.

[DannyHamilton]

The exchange ALWAYS wins.

They do.  And also, any value that you have transferred to the exchange (bitcoins or $) are under the complete control of the exchange.  You are trusting them to do honest business, to protect their funds, and to maintain a profitable business so as not to file for bankruptcy.
If the exchange is not legitimate, the operator might just disappear with everyone's $ and BTC.
If the exchange is hacked and lose a huge amount of BTC or $, then all the customers with balances at the exchange loose their $ or BTC.
If the exchange fails to maintain a profitable business and files for bankruptcy, it will be up to the courts to decide how much of the $ and BTC funds go to creditors and how much goes to the account holders. Even if the court decides that you get all your funds back, that could take many years (see MtGox).

So, while you can reduce your transaction fees by NOT transferring your bitcoins in and out of the exchange, and you can reduce the time that you wait by not transferring your $ in and out of thee exchange, you do so by taking on additional risk.  It is up to each individual to decide for themselves whether that additional risk is worth the savings in BTC or time.

[cheezcarls]

Hi, I am still quite new in Bitcoin.

I read a lot about that one of the downsides of Bitcoin is the transaction and transaction validation times and delays.

However, when I buy/sell BTC on the exchange I am using, those transactions are executed immediately.

What is exactly the long transaction times some users are complaining about? And how the exchanges had solved this supposed delays?

Thank you!

In my experience, when I initiated BTC transactions at a normal transaction fee, it would take me 45 minutes to an hour at least. I remember the time that I was in Singapore where I initiated withdrawing my BTCs to a Bitcoin ATM. It took me almost an hour for the transaction to be fully confirmed by the network. The same thing goes when I transferred my BTC from a CEX to another CEX.

[venturabay]

I have the feeling that people have already answered your question in pretty great detail, but I wanted to throw my two cents in. When you buy Bitcoin from an exchange nothing in the Bitcoin network, that is associated with your transaction, occurs. Instead, the exchange itself has a large amount of Bitcoin under its control, and your amount is stored in their database. If you want to withdrawal money from the exchange to another wallet, it will come out of the exchanges wallet, not one that is operated by the exchange but under your control. On the other hand, some cryptocurrency exchanges, like Kraken, allow you to deposit cryptocurrency in addition to fiat money. This creates an address for you to move the Bitcoin to, and if you trade to other coins the amount of Bitcoin in your wallet stays the same, although the amount actually accessible to you according to the exchange is different.

Now, if you take an actual Bitcoin transaction, in which one wallet is sending money to another wallet, your transaction needs to be confirmed, which takes some time. The network fees you give affect how quickly this transaction speed is. For example, it is theoretically possible to state a network fee of one satoshi per vByte, or even nothing at all, although it will take a very long time if it even gets put into a block at all. In fact, in the case of the ladder scenario, the most common solution is that nobody puts your transaction into a block, and after a certain amount of time it is erased from the mempool.