Post
Topic
Board Economics
Re: Who controls the price?
by
keatonatron
on 02/05/2013, 10:26:18 UTC
Nope, I didn't use those.  That must be one of the reasons my definition of exchange suck. 

Okay, I see why you're confused!

Our exchanges act more like an escrow service.

Person A wants to sell their BTC for $130, so they send it to an exchange and say "please sell this for me for $130". The exchange lists that offer on their website: 2 bitcoins available for $130.

Person B has $300 and wants to buy bitcoins, so they send their $300 to the exchange and say "please buy me bitcoins for $130 each". Since their is an offer to sell 2 coins for $130, the exchange gives the 2 coins to person B, gives $260 to person A, and leaves person B's request (now totalling 0.7 btc for $130) on the website. Persons A and B can withdraw/deposit bitcoins and dollars at any time, and the exchange holds it for them so they can make trades whenever they want.

You could also simply put an offer on this forum, saying "I want to sell my 2 bitcoins for $130!", and someone might take you up on the offer, but what if you send the coins and they don't send you the money? Exchanges fix this problem (<-- this is debatable) by being a reputable mand-in-the-middle which both person A and person B can trust to not run off with their money (like an escrow).