Blockchain is rarely used for transactions within cryptocurrency exchanges
When you trade cryptocurrencies directly between wallets without using an exchange, the transaction history starts to be recorded in the blockchain immediately.
However, when users trade cryptocurrencies with each other using an exchange, the exchange actually makes little use of the blockchain.
Cryptocurrency transactions within an exchange are only recorded in the exchange's internal proprietary database, and not all transactions are immediately recorded in the blockchain.
Of course, this does not mean that they are not recorded in the blockchain, but rather that they are recorded in the blockchain in bulk after a certain amount of transactions have been accumulated.
This is related to an important issue: the scalability problem of blockchains. (More on this in the blockchain curriculum.)
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Let's understand how transactions between cryptocurrency exchanges and external wallets work
As briefly mentioned in Lesson 3, in most cases, the user's cryptocurrency managed by the exchange is kept in a single wallet.
This is strictly speaking the image of each user's wallet being contained within the overall wallet of the exchange.
Therefore, when you trade with an external wallet, you are trading through the wallet of the entire exchange.
The reason for this is that the scalability of the blockchain must be taken into account, and internal transactions need to be separated from external transactions.
In addition, exchanges ensure the integrity of transactions by recording the history of external transactions in their own internal database.
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