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I know some altcoins have features that allow senders to attach messages to transactions and using those features, exchange services distinguish the sender. However, I don't know if there's such a function in Bitcoin. How can exchanges tell who paid them without such a feature?

Murch
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西田龍
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2 Answers2

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Exchanges generate a new address for each user when a user wants to deposit, so when they receive a deposit to a specific address, they know who to credit the deposit to.

Since Bitcoin does not use accounts, there is no need for the exchange to consolidate their received Bitcoin. They can simply spend from multiple addresses when they want to send Bitcoin to someone, e.g. for a withdraw.

Andrew Chow
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  • But how would they keep the amounts of bitcoin? I mean they will be run out after their users withdraw in the end. – 西田龍 Jun 11 '18 at 15:04
  • They periodically refill the hot wallet with coins from cold storage. However since coins people deposit go into the hot wallet, the hot wallet does not become empty because when someone withdraws, someone else is depositing. – Andrew Chow Jun 11 '18 at 17:45
  • I think unless concentrating the BTC to their address for withdrawals as a user deposits, it would be hard to know how much the user deposited, because if we use BTC from the user's address, we can't distinguish if the transaction is the user's or theirs for their users' withdrawals. – 西田龍 Jun 11 '18 at 23:29
  • Exchanges have their own internal accounting system which they use for tracking user balances. There is no need to have to read the blockchain in order to figure out what the balances are. – Andrew Chow Jun 11 '18 at 23:55
  • I see, but isn't there a concern that the fees for withdrawals transactions become more expensive I mean the number of inputs can be more unless they make an address that has lots of BTC? – 西田龍 Jun 12 '18 at 08:43
  • Fees generally are not a concern since the customer pays them and usually way overpays. Most exchanges will have some flat rate "miner fee" that they charge when you withdraw from them and that "miner fee" is more than enough to cover the actual transaction fee. – Andrew Chow Jun 12 '18 at 09:06
  • I see. By the way, how do they charge the fee of transferring the bitcoins that are not needed currently to their cold wallets in order to prevent being stolen? – 西田龍 Jun 20 '18 at 16:25
  • Since exchanges make money, presumably they eat that cost themselves. User balances do not change, just the expenses of the company increase. – Andrew Chow Jun 20 '18 at 22:07
  • Understand, so what their processes for calculating their users deposits are like know users total received amount of bitcoins by using “getreceivedbyaddrrss” after that, calculate the users funds by using the total received bitcoins plus how much users get benefits/loss, right? – 西田龍 Jun 21 '18 at 10:30
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When you want to deposit to an exchange, you request a deposit address from the exchange. This address is generated specifically for you. So the exchange knows that any coins received by that address are coming from you (or someone who wants to pay you), and should be credited to your account.

Nate Eldredge
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  • But I think they soon have to send to their accounts to concentrate, and it's going to be unproductive because they have to pay for fees when their users deposit. – 西田龍 Mar 09 '18 at 15:11