Where do exchanges get the $ for people to withdraw?

timerland

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Quote from: DerivativesKing on December 08, 2017, 12:43:08 PM

Hey guys, so this has been bothering me for a while and I can't seem to understand it and few seem to talk about it. So we all know Bitcoin is a commodity that have no real $ backing by anyone other than online exchanges. The prices are hyper inflated and are vastly outweigh the actual money being poured into Bitcoin since inception. So why should any exchange liquidated the bitcoin for real cash? and where would they even get their $ from? this would seem like a huge risk to them, giving their clients actual USD while holding only a speculative asset with no real world backing. Does anyone have insights?

An exchange is simply an orderbook.

Think about it as a middleman who handles trades. An exchange is exactly that. An exchange has absolutely no risk whatsoever in facilitating trades because all of its assets if they are running a full reserve should be the customer's. If they are running a fractional reserve then tehy are actually using some of the customer funds to speculate on something else perhaps, again they are carrying 0 risks and the customer is the one that has the most risk.

Even if BTC crashes to 0, exchanges are unaffected, they are only liable to pay out what the customer is storing.

The traders are the ones that is going to lose, not the exchanges. They always make money with fees.

bitart

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Vires in Numeris

Quote from: Xavofat on December 08, 2017, 01:51:37 PM

Quote from: DerivativesKing on December 08, 2017, 01:32:29 PM

I think I didn't make it clear. I'm talking about actual US Dollars withdraw.

So was I. Let me try and make it clearer.

An exchange has a lovely platform. Two traders go on the website. Trader A deposits $1000 in fiat money to the exchange, and the exchange credits this money to their account. Trader B deposits $1000 worth of Bitcoin to the exchange.

Now, Person B decides to sell this $1000 in Bitcoin. At the same time, Trader A wants to buy $1000 in Bitcoin. So they click on a button on the exchange, and the exchange changes the numbers on the account - now Trader A has $1000 in Bitcoin and Trader B has $1000 in fiat money.

So the exchange is taking absolutely no risk by providing this service. They had $1000 in fiat money and $1000 in Bitcoin - all they had to do was change who had the right to withdraw that money from their exchange.

This is absolutely clear.
In order to simplify a bit more:
An exchange is a website with a database and a connected UI. (really simplified).
Let's say this is a little exchange and it offers only USD and BTC to trade.
It means that the exchange has to have an USD checking account at any bank that offers account keeping in USD. Besides the USD bank account, the exchange needs to have at least a bitcoin wallet to store the bitcoins.
Users deposits their USD and BTC to the account and to the wallet. Exchange needs only a very good UI and a backend that manages the trades and updates the database. In the database the exchange stores the USD amounts per person based on the trade history, also the same stands for the BTC amount for the people. They have a large sum of USD on that checking account and if someone wants to withdraw, they just start a wire transfer. Also, if someone wants to withdraw bitcoin, they start a transaction on the blockchain from their wallet and send the bitcoins to the person's wallet.

Xavofat

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Did you see that ludicrous display last night?

Quote from: DerivativesKing on December 08, 2017, 01:32:29 PM

I think I didn't make it clear. I'm talking about actual US Dollars withdraw.

So was I. Let me try and make it clearer.

An exchange has a lovely platform. Two traders go on the website. Trader A deposits $1000 in fiat money to the exchange, and the exchange credits this money to their account. Trader B deposits $1000 worth of Bitcoin to the exchange.

Now, Person B decides to sell this $1000 in Bitcoin. At the same time, Trader A wants to buy $1000 in Bitcoin. So they click on a button on the exchange, and the exchange changes the numbers on the account - now Trader A has $1000 in Bitcoin and Trader B has $1000 in fiat money.

So the exchange is taking absolutely no risk by providing this service. They had $1000 in fiat money and $1000 in Bitcoin - all they had to do was change who had the right to withdraw that money from their exchange.

DerivativesKing

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I think I didn't make it clear. I'm talking about actual US Dollars withdraw. Why would any exchanges take that risk?

Many exchanges don't for good reasons, but some do, why?

Xavofat

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Did you see that ludicrous display last night?

Exchanges don't serve as a broker who buy and sell large amounts of BTC at a time. They don't set the price on the exchange.

They serve as an intermediary between buyers and sellers. A buyer wants to buy and a seller wants to sell, so they basically agree on a price and then the exchange executes the trade for them.

The exchange also holds the BTC and fiat for their users and provides a nice UI.

DerivativesKing

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Hey guys, so this has been bothering me for a while and I can't seem to understand it and few seem to talk about it. So we all know Bitcoin is a commodity that have no real $ backing by anyone other than online exchanges. The prices are hyper inflated and are vastly outweigh the actual money being poured into Bitcoin since inception. So why should any exchange liquidated the bitcoin for real cash? and where would they even get their $ from? this would seem like a huge risk to them, giving their clients actual USD while holding only a speculative asset with no real world backing. Does anyone have insights?

Topic: Where do exchanges get the $ for people to withdraw? (Read 164 times)