How do big exchanges get their bitcoin ?

Elwar

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Quote from: Smack That Ace on November 17, 2014, 02:56:10 AM

Not worried about security that much as it will be linked with blockchain and no btc would be kept on the site.

I assume you mean you are using the blockchain.info API, which means you will be keeping "btc" on the site. You will have the keys which is the same to having access to your bitcoins.

Not controlling the keys for an exchange requires a unique architecture which would likely involve multi-sig transactions or some sort of intermediary/escrow service (which would still have some control over keys).

Learn as much as you can about cold storage. Use that for a majority of your keys. Only keep on site enough to pay out in a timely fashion unless you can have a trusted staff member who is in control of moving keys from cold storage throughout the day.

Cold storage. Cold storage. Cold storage. I cannot stress that enough.

Smack That Ace

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Guys thank you for your response advice and criticim.
I appreciate the time you guys have taken to answer.

Frank I never mentioned anything about the software security operations of the business so to be honest your just assuming everything. And as they say when you assume something you make an ass out of you and me.

I'm not going to get up and open coinbase in a country where they have never heard about bitcoin and I'm not inviting whales to come play around at the exchange. Actually there is no trading but geared more towards consumer buying and selling.

Elwar thank you and after reading your post I have asked the Dev team to add a panel showing the reserves of the exchange and this way make it simpler for customers to buy and sell and stay within the reserves.

Not worried about security that much as it will be linked with blockchain and no btc would be kept on the site.

I still need some more clarficiations about the running of the exchange and this topic is helping a lot.

Thanks guys

Coin_Master

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Quote from: Smack That Ace on November 16, 2014, 08:05:55 AM

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

If you need to ask then you should not be opening an exchange. That would be like asking how you go about opening a Bank, the short answer is "you" don't.

franky1

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to be honest "smack the ace" if you dont have a clue how exchanges work. then you should not even bother opening one. the worse thing possible is for people to trust someone that doesnt even understand the business.

i would have given you many tips.. but then i thought that its unfair on you or others to aid you into a business model that is way above your head.

if you cannot work out your answers by looking at the current exchanges and understand how they work, then you, yourself need to accepts the limits of your abilities and try a project that you do understand.

in short. we do not need basement dweller exchanges made with crappy PHP code where the mindset is on the money and not the infrastructure (code/security).

sorry if it seems harsh but even 12year olds could work out where the bitcoins/fiat com from and work out setting offers up. so i think you are not the type of person whales would want to deposit funds into

troy112

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Here's something i just read at coinbase....
"The Sun-Times partnered with the bitcoin transaction processer Coinbase, allowing the newspaper to vastly minimize its risk of exposure to volatile bitcoins because it never has to actually hold them."

troy112

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Well you can't go and start a site like coinbase or bitpay. You will be handling customer money and storing them, you'll be prone to hacks. So, first and foremost security!!
And you will need reserves, you can't predict if buy and sell will be equal, a reserve is needed.

These big companies get mostly from dealers who accept bitcoin, but if need they also use exchanges like BTC-e...

Flashman

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Hodl!

Actually it's a really nasty business we as a community should be ashamed of.

They corrupt the indigenous mountain tribes of Malaysia, bribing them with, and addicting them to vodka, to trap and hunt a small endangered, monkeylike creature, Lemuris Cryptodigitalis, whose brains are then pureed with a rare forest orchid, this concoction is distilled to produce pure satoshis and the result uploaded by satellite phone to the exchanges.

Elwar

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Quote from: BitcoinExchangeIndia.com on November 16, 2014, 12:11:50 PM

Quote from: Elwar on November 16, 2014, 12:04:59 PM

Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

OMG !!! From when 200 bitcoins have become a small amount ? In November 2013, 200 bitcoins was a life changing amount for some countries.

ahh, I meant 20...a number close to $5,000.

Either way your exchange should fill a need that the current exchanges do not fulfill.

One difficulty is finding a bank that will allow you to hold money for a bitcoin business and your government might have currency exchange laws that you have to deal with.

BitcoinExchangeIndia.com

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Quote from: Elwar on November 16, 2014, 12:04:59 PM

Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

OMG !!! From when 200 bitcoins have become a small amount ? In November 2013, 200 bitcoins was a life changing amount for some countries.

Sythyn

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Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

Well first of all a customer will probably not "walk" into an exchange as none of them (AFAIK) have any kind of physical presence. Most exchanges also do not sell coins directly to the customer (with coinbase being the exception) but they rather are a marketplace that buyers and sellers can buy and sell bitcoin on.

Coinbase gets it's bitcoin from bitstamp when there are many more buyers then sellers

Elwar

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Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

When you start you would probably invest a little bit to get things started. Say you start small with $5,000 and 200 bitcoins. You offer them both at the going rate and charge a commission (~1%) per trade.

Imagine your first customer comes in and wants to buy 10 bitcoins. He buys into your 200 and adds to the $5,000. You can have the prices of each of your coins/dollars move up and down so that nobody will buy up one or the other of your initial coins. As you get more customers they will set their bids and sell orders as they like.

I have traded on a few small exchanges. You don't go on those to buy 20k bitcoins because you would pay too much. You usually buy or sell 1 or 2 coins at a time and wait for the market to adjust back to the point that you can buy or sell some more. It's not as fluid as the bigger exchanges but the bigger exchanges started small too.

QuestionAuthority

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Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

Well if you plan on having a brick & mortar outlet I already trust you more than Coinbase. I tried to go to the Coinbase office and found an apartment building, not commercially zoned, next to the Caltrain station.

You would need relationships for large buys. If you could set up a few relationships with major holders like some of the exchanges you could do fast (possibly not instant) sells of a large quantities. Remember, many exchanges of btc are off book so you wouldn't necessarily see them for sale.

Great question by the way.

BitCoinDream

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Quote from: Smack That Ace on November 16, 2014, 10:01:32 AM

No from Asia close to India

India has a great geographical position. So, close to India does not mean anything really...

- China
- Nepal
- Bhutan
- Myanmar
- Bangladesh
- Pakistan
- Sri Lanka
- Afghanistan

...Which one ?

Smack That Ace

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No from Asia close to India

BitCoinDream

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Quote from: Smack That Ace on November 16, 2014, 09:56:54 AM

Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

You did not mention from which country U r. If u r from US/UK, simply buy it from Circle within 10 mins.

Smack That Ace

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Thank you for your answer .

My question still a bit confusing but let's say a customer walks into my recently started exchange and wants to buy 20k worth of bitcoin and I don't have that on hand at the moment or dont see anyone selling it as well. So how am I supposed to buy that much considering I cannot transfer funds out of the country. Is there a way to get liquidity for my exchange ?

Thanks
Duke

bornil267645

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Quote from: Klubknuckle on November 16, 2014, 09:21:52 AM

Quote from: Smack That Ace on November 16, 2014, 08:05:55 AM

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Well, in order to sell bitcoin their customer need to deposit bitcoin. And in order to buy bitcoin you need to deposit USD. Tada, you don't actually need to own any money to start an exchange..

That's hefty deal isn't it? you don't need to own any money to start an exchange. Would love to start an exchange.

Klubknuckle

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Quote from: Smack That Ace on November 16, 2014, 08:05:55 AM

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Well, in order to sell bitcoin their customer need to deposit bitcoin. And in order to buy bitcoin you need to deposit USD. Tada, you don't actually need to own any money to start an exchange..

BitCoinDream

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The revolution will be digital

Quote from: Smack That Ace on November 16, 2014, 08:05:55 AM

Hello,
I was wondering how do companies like bitpay, coinbase, circle get their bitcoins to sell to their customers.
What is the concept of Market maker and does it apply to such exchanges ?
If I were to open an exchange like coinjar or coins.pH in my country how will I be handling the bitcoin selling to customers. Where would i be buying the bitcoin from ?
Specially if sending money outside the country is only through expensive methods like western union who charge enormous fee and the project won't be viable.
I am expexcting more bitcoin outgoing then incoming so expcting to cover the sales from that won't be possible?

Please advice

Regards

Duke

Very nice question. All I can say is you are on the right track.

To answer your Q, if u follow coibase/bitpay news closely, u'll see they have corporate partners like wikipedia, overstock etc. who continuously dump their coins on them at a lower cost than market rate. This offers them the liquidity at hand. Moreover, they enjoy some privilege in international markets like Bitstamp, BTC-e for a 'better match against higher quote', because they are big trader and pillar of those exchanges. If I can recollect properly, coinbase had some issues with MK regarding this in Mt. Gox trade and hence they sued them in US court to block their funds in US. That started the fall of Mt. Gox. These are very deep and complicated relationship. So play wisely.

H.W.Z

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You can easily buy a chunk of bitcoin over the counter, which means you find a broker and have a good deal to buy bitcoin.

Topic: How do big exchanges get their bitcoin ? (Read 1780 times)