Bitcoin

How to create off-chain transactions for use by exchanges

I understand that the exchange only updates its database when transactions occur between customers. But what impact will this have on blockchain?

It has no effect on the Bitcoin blockchain. doesn’t exist.


At midnight on Monday, John asks the exchange to transfer ₿3 to Mary. Both are customers of the same exchange.

Here’s how the spreadsheet on the laptop of wealthy Eddy, owner of the exchange, changes:

afternoonI owe John.I owe Mary
monday₿10₿10
tuesday₿7₿13

Let’s take a look at what this means for blockchain².

afternoonJohn is ¹Mary is ¹Eddy is ¹
monday00₿100
tuesday00₿100

The numbers in Eddy’s column could easily be zero. Eddy may have spent it all a long time ago.


When giving money to a trusted third party such as an exchange control the money

Bitcoin blockchain history change in money control. blockchain do not record debt

If the exchange deletes the IOU for John and creates an IOU for Mary, there will be no change in its control over the Bitcoin currency. It’s still an exchange under control.

Remember. Bitcoin was designed to allow one party to pay a second party without involving a trusted third party. There’s no reason for that. holding Money on the exchange unless you are some kind of day trader.


A method of creating off-chain transactions used by exchanges.

Use whatever methods your particular exchange offers. Each exchange is different. ask them There may or may not be an API.


¹ Control is complete. ² A set of derived UTXOs – if you know their respective public keys, etc.

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