If Your Bitcoin Is on an Exchange, What Can You Actually See on the Blockchain?

[montaga]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin. 
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

[Hatchy]

Question
Have you for once tried to trace your exchange balance on-chain abd you got lost ? What was the shock the first time you understand this ?

I think the idea is that you don't actually own the funds held at those addresses, but they are clearly visible and traceable by anyone on the blockchain. Sometimes, you can even see the name of the exchange associated with the address you sent your coins to on some block explorers.The fact is that once you send your coins to an exchange, they are no longer under your control. The balance shown in your exchange account is basically just a number representing how much of your assets the exchange says you have. You don't have direct control over those coins, so you cannot control what happens to them.

As long as nothing goes wrong with the exchange, you can request a withdrawal and they may approve it for you. But ultimately, you are relying on the exchange to give you access to your funds.

[Btcdeybodi]

Can someone with your exchange wallet address, see the total 0.05 bitcoin you hold in your wallet, or your entire wallet balance, the answer is yes, what you don't have is control if the exchange decides to move or not move you money when you want to transfer it, this is the difference between exchange wallet and your custodial wallet.

This is not true, the user at the top of your post has already given a clarification on this but it seems you didn't read it. If you have someone's exchange address you can never see their balance in the Blockchain ledger because as soon as they send bitcoins to their personal exchange wallet address, after few minutes, it automatically leaves that wallet to the exchange major wallet addresses that are under their control where it will be kept safe either in a cold storage or a hot wallet.

[Pandu Geddon]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin. 
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

I don't think that currently there are still people who keep their Bitcoin on exchanges. We know the risks and why take the risk of losing the Bitcoin we have?

We might see numbers that make us feel at ease when opening our portfolio on an exchange. But in reality, we do not really hold our money. There's no difference from us keeping money in a bank.

[Faisal2202]

Can someone with your exchange wallet address, see the total 0.05 bitcoin you hold in your wallet, or your entire wallet balance, the answer is yes,

This is not true, the user at the top of your post has already given a clarification on this but it seems you didn't read it. If you have someone's exchange address you can never see their balance in the Blockchain ledger because as soon as they send bitcoins to their personal exchange wallet address, after few minutes, it automatically leaves that wallet to the exchange major wallet addresses that are under their control where it will be kept safe either in a cold storage or a hot wallet.

You can see how much funds they have received. Because every deposit address is for depositing funds, if someone has sent btc there you might not see how much they still have and how much they have sent because when you will check on explorer, it will show zero balance and so far you are right but I want to add here that you can check the received funds.

But you can't see the current balance. It depends on the person who want to see such data, if they want to see their balance without opening the exchange or something they can check like this but they can't tell other's balance.

[SeriouslyGiveaway]

I don't think that currently there are still people who keep their Bitcoin on exchanges. We know the risks and why take the risk of losing the Bitcoin we have?

There are people who keep their bitcoin on exchanges, just possibly less than in the past and in bull markets. Because if no people keep their bitcoins on centralized exchanges, centralized exchanges would die and close all their services.

We might see numbers that make us feel at ease when opening our portfolio on an exchange. But in reality, we do not really hold our money. There's no difference from us keeping money in a bank.

It's similar to figure in bank account, only virtual figures in accounts while banks keep user money in their bank vaults or even use customer money for other things. Exchanges can move user bitcoin to their cold wallets and lose it to hackers, or they use user bitcoin for their own activities but at the end can have bankruptcy.

https://x.com/cz_binance/status/2099729517720043904

At least, the few recent wind-downs during this winter have allowed users to withdraw their assets, a sharp contrast to the "QuadrigaCx styles" in the previous cycles.

It does not mean centralized exchanges are now better and safer to store bitcoin.

[Bitcoin Smith]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin. 
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

I don't think that currently there are still people who keep their Bitcoin on exchanges. We know the risks and why take the risk of losing the Bitcoin we have?

There can be many reasons but in India, the government created a regulation that FIU-regulated exchanges don't allow crypto withdrawals to our wallet addresses, means we can deposit crypto and trade them and sell them for fiat then withdraw it as fiat only, but if we want to keep it as crypto then we only can keep it on the exchange wallet, stupid law but it exists in the real world.

[tbct_mt2]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin. 
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

Exchanges can close their services in many ways and two most terrible ways are bankruptcy Chapter 11 and scam exit. With a scam exit from an exchange, all users have bitcoins and funds there will lose their money. With Chapter 11, exchange users especially retail users will have biggest disadvantage as they are not on the top of list of compensating customers. From the top to bottom of the list, retail users will not receive anything or receiving not considerable money as compensation.

Fortunately if anyone managed to withdraw their bitcoins before an exchange officially closure and ending of withdrawal processing, their bitcoins will still be there.

Like BitMEX and Coinex all announced their service closure plans and gave users time to withdraw money.

[terrific]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin.  
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

They'll come to you and will say that 'funds are SAFU'.
No matter what they promise about the safety of funds or the proof of reserve they have.
Once your BTC is on the exchange, it's no longer yours and the balance you see as appearing on your account is a number.
So, the typical advise that we say to people. Instead saying invest, "deposit what you can afford to lose".
Because anytime, they can file a bankruptcy/chapter 7 anytime and they can also get hacked any moment and can deny refund of balances.

[Sammysmart001]

You can see how much funds they have received. Because every deposit address is for depositing funds, if someone has sent btc there you might not see how much they still have and how much they have sent because when you will check on explorer, it will show zero balance and so far you are right but I want to add here that you can check the received funds.

But you can't see the current balance. It depends on the person who want to see such data, if they want to see their balance without opening the exchange or something they can check like this but they can't tell other's balance.

Such an important distinction, seeing the amount of a deposit address doesn’t mean you can calculate current exchange balance of the users. The exchange could have even move the funds to another wallet or even traded, exchange account balance is an internal record not what Bitcoin blockchain displays for us to see. Blockchain does not shows the users internal exchanges balance once the exchanges manages those funds through other wallet.

[Obim34]

But you can't see the current balance. It depends on the person who want to see such data, if they want to see their balance without opening the exchange or something they can check like this but they can't tell other's balance.

When making an on-chain transaction to an exchange, you are sending to the address and not directly to the exchange. However, it is different for internal transactions, when you make an internal transfer using the same exchange (the only way for internal transactions to happen), it does not go on-chain, with an explorer, you cannot trace your coin on the blockchain, only the exchange can.

We've never stopped saying it, use exchanges for trading, that was the reason they were created in the first place, using a centralized exchange to hold Bitcoin is a recipe for disaster, few exchange hacks and shutdowns are enough lessons to correct ourselves.

[HelliumZ]

Having your Bitcoin on a central exchange is not the same as having Bitcoin on the blockchain. It is difficult to identify you on the blockchain because there is no information to identify you and you may not know that your Bitcoin is there, but if your Bitcoin reaches your central exchange, then you will know. Because central exchanges require you to do KYC to identify you or take your personal information. But since there is no information on the blockchain, you cannot identify your Bitcoin there.

[macson]

It's quite simple, no matter how much Bitcoin you deposit to an exchange, what appears in your account is simply the balance recorded in their database. This amount isn't specifically managed in a single address for you --- the actual Bitcoin is held and managed in the exchange wallet. That's why when you deposit your Bitcoin into an exchange, you don't actually own it anymore, you're giving the exchange full control over it, and you can only hope that the exchange won't run off with your money or go bankrupt.

[Bushdark]

Can someone with your exchange wallet address, see the total 0.05 bitcoin you hold in your wallet, or your entire wallet balance, the answer is yes, what you don't have is control if the exchange decides to move or not move you money when you want to transfer it, this is the difference between exchange wallet and your custodial wallet.

This is not true, the user at the top of your post has already given a clarification on this but it seems you didn't read it. If you have someone's exchange address you can never see their balance in the Blockchain ledger because as soon as they send bitcoins to their personal exchange wallet address, after few minutes, it automatically leaves that wallet to the exchange major wallet addresses that are under their control where it will be kept safe either in a cold storage or a hot wallet.

I think he misunderstood what was written and the explanation that was given before he started explaining based on his own knowledge about crypto transactions. The way centralized exchanges work is absolutely different from ordinary wallet transactions.
Most coins that are going to an exchange are pilling up in one wallet depending on the network of the transactions.
The individual wallet address that has been allocated to each user will indicate a deposit but will be difficult to know how much the wallet address holds  due to the the way the exchange has programmed it.

[SeriouslyGiveaway]

The way centralized exchanges work is absolutely different from ordinary wallet transactions.

People possibly struggle to understand what are ordinary wallet transactions.

I guess you implied about transactions which are broadcasted from non custodial wallets than withdrawals from centralized exchanges but using ordinary wallet transactions is quite confusing with me, and perhaps newbies will not understand what you want to say.

Most coins that are going to an exchange are pilling up in one wallet depending on the network of the transactions.

Another confusing explanation from you.

Exchanges can have many different wallets, hot wallets, cold wallets, and even with one cryptocurrency, they have different wallets to store it for user deposits, withdrawals like hot wallets and for long term treasury with cold wallets. For different cryptocurrencies on different blockchains, surely exchanges have to use different wallets.

[X-ray]

You can see how much funds they have received. Because every deposit address is for depositing funds, if someone has sent btc there you might not see how much they still have and how much they have sent because when you will check on explorer, it will show zero balance and so far you are right but I want to add here that you can check the received funds.

But you can't see the current balance. It depends on the person who want to see such data, if they want to see their balance without opening the exchange or something they can check like this but they can't tell other's balance.

Such an important distinction, seeing the amount of a deposit address doesn’t mean you can calculate current exchange balance of the users. The exchange could have even move the funds to another wallet or even traded, exchange account balance is an internal record not what Bitcoin blockchain displays for us to see. Blockchain does not shows the users internal exchanges balance once the exchanges manages those funds through other wallet.

Actually if you're curious about exchange's reserve and exchange's ledger about your account and how much they owe you based on your deposit, take a look at their proof of reserve.

For example, Binance has https://www.binance.com/en/proof-of-reserves where you can look up how much they owed your account real crypto from their ledger with merkle root hash and how much reserve they actually have against their liability.

Your balance don't show on the blockchain but it's being recorded on the exchange's internal ledger and proven through merkle root hash.

The important thing isn't whether you can see your balance or not but you actually have claim on their internal ledger and what right you have against that owed liability from CEX from legality aspect.

[Faisal2202]

For example, Binance has https://www.binance.com/en/proof-of-reserves where you can look up how much they owed your account real crypto from their ledger with merkle root hash and how much reserve they actually have against their liability.

The important thing isn't whether you can see your balance or not but you actually have claim on their internal ledger and what right you have against that owed liability from CEX from legality aspect.

I was not aware of this Merkle root hash feature of Binance, I just looked it up and it exists, but I did not try it because I was not logged in. Can you tell me more about it, like what we can do and what we can't with it? Just hoping maybe your experience can save me some time.

I never checked if my balance was added or not, because the only thing that I know about them is that they own more funds than they manage for customers, so they are never going to be out of funds and that's why they are taking huge risks like cases of money laundering, and MiCA workarounds etc.

[ImGenius]

Question
Have you for once tried to trace your exchange balance on-chain abd you got lost ? What was the shock the first time you understand this ?

First the shock I did received when I saw a transaction of more than 500$ has been cahsed out from my Exchanger wallet , then I did the same research you just briefly disscuss here and findout that since I have no longer the access of my true assets and the wallet and it's managed by binanace than I have no scope to complain nor I have the authority to asks why thy do these transaction with my address which has been specifically allocate to me,

They do all these stuff internally and credit you just a number , unless you actually made any withdrawal it's just their ledger .
Binance can freeze your money anytime , once I had an issue with my active loan on binance . I faced real hassle and go through trouble and learn it was never my coins in begin with.

[tbct_mt2]

I was not aware of this Merkle root hash feature of Binance, I just looked it up and it exists, but I did not try it because I was not logged in. Can you tell me more about it, like what we can do and what we can't with it? Just hoping maybe your experience can save me some time.

I never checked if my balance was added or not, because the only thing that I know about them is that they own more funds than they manage for customers, so they are never going to be out of funds and that's why they are taking huge risks like cases of money laundering, and MiCA workarounds etc.

Binance proposed Proof of Reserve for centralized exchanges after the collapse then bankruptcy of FTX exchange years ago.

Binance Proof-of-Reserve pledge gains support following FTX crisis. It was proposed around November 2022 as you can see in the article.

Binance was likely a first CEX did that, after the proposal, then some other top exchanges followed them doing this. Because Proof of Reserve becomes like a mark of trust for centralized exchange customers.

[Hyphen(-)]

If Your Bitcoin Is on an Exchange, you dont have a Bitcoin. 
If the exchange closes for whatever reason that is the end of "your" Bitcoin.

This is a sad reality that so many Bitcoin holders don’t want to here, some investors are still trusting centralized exchanges with their Bitcoin, they can hold for as long as one year in an exchange because they have been seeing how active the exchange is and they an account with them for long and might think that the exchange will not get hacked or get compromised.

Any investors that can leave their Bitcoin in the custody of an exchange is not ready to take responsibility of securing their Bitcoin, they don’t understand how Bitcoin works fully, or they probably don’t want to enjoy the financial freedom Bitcoin comes with which I am very sure they will regret letter because “not your keys, but your Bitcoin.”