Ethereum: How exchanges (Binance, Coinbase) record user trade into blockchain
How Cryptocurrency Exchanges Record User Trade in Blockchain: A Technical Explanation
As more people join the world of cryptocurrency trading, understanding how exchanges like Binance and Coinbase record user trades into blockchain has become increasingly important. In this article, we’ll delve into the technical details of how these exchanges process user trades, allowing traders to navigate the complexities of decentralized exchanges (DEXs) and atomic swaps.
Overview of Blockchain Technology
Before diving into the specifics of exchange trade recording, it’s essential to understand some basic blockchain concepts:
- Blockchain: A decentralized, digital ledger that records all transactions made on a particular network. It’s a distributed database that allows multiple parties to agree on the state of the ledger through a consensus mechanism.
- Atomic Swap: A type of swap that involves exchanging two assets simultaneously, often used in cryptocurrency trading. It requires atomicity, meaning that both parties must execute the trade within a single block, ensuring there are no intermediate transactions.
Exchange Trade Recording Process
When a user makes a trade on an exchange like Binance or Coinbase, several steps occur to record the trade in blockchain:
- Transaction Creation: The trade is created as a separate transaction on the blockchain. This involves sending two distinct messages: one for the buy order and another for the sell order.
- Chaincode Execution
: The user’s account on the exchange is updated by executing the corresponding chaincode (a program that runs on the blockchain). Chaincode ensures that transactions are processed correctly, including updating the users’ balance and trading history.
- Transaction Broadcast: The created transaction is broadcast to the network, where it is verified by nodes using complex algorithms to ensure its validity and safety.
- Blockchain Update: Once verified, the transaction is incorporated into the blockchain, creating a permanent record of the trade.
- Chaincode Update: Chaincode updates are also executed on the exchange’s blockchain, reflecting any changes made during the trade.
Binance’s Trade Recording Process
Let’s take Binance as an example to illustrate how user trades are recorded in their system:
- When Mr.X buys BTC/USDT pair from Mr.Y, Binance creates a new transaction by sending two separate messages: one for the buy order and another for the sell order.
- The buy message includes the trade details: the asset being traded (BTC), the quantity, and the exchange rate.
- The sell message includes the reverse of the same data, with the asset being traded (USDT) and the quantity.
- Both messages are broadcast to the network for verification.
- Once verified, both transactions are incorporated into Binance’s blockchain.
- Chaincode updates are also executed on the exchange’s blockchain, reflecting any changes made during the trade.
Coinbase’s Trade Recording Process
Similar steps apply when Coinbase records user trades:
- When Mr.X buys BTC/USDT pair from Mr.Y, Coinbase creates a new transaction by sending two separate messages: one for the buy order and another for the sell order.
- The buy message includes the trade details: the asset being traded (BTC), the quantity, and the exchange rate.
- The sell message includes the reverse of the same data, with the asset being traded (USDT) and the quantity.
- Both messages are broadcast to Coinbase’s network for verification.
- Once verified, both transactions are incorporated into Coinbase’s blockchain.
- Chaincode updates are also executed on Coinbase’s blockchain, reflecting any changes made during the trade.