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Transactions not visible on the blockchain

Transactions not visible on the blockchain

Those who use a non-custodial wallet, like Electrum, are used to being able to see in the appropriate list all transactions made to and from their walletvisible and recorded on the blockchain.

However, not all Bitcoin transactions are actually visible at all times.

Transactions not visible on the blockchain

In fact, only transactions recorded on the Bitcoin blockchain are public and visible to everyone. However, there are transactions that are not recorded on the blockchain, so they are not visible.

For example, transactions made through Lightning Network (LN)layer 2 of Bitcoin which allows immediate transactions at very low cost. LN does not record transactions on the blockchain, so they are not public. They remain visible only to the sender and recipient on their respective wallets.

A similar thing happens on non-decentralized exchanges, such as Coinbase. When an internal transaction is carried out on a centralized exchange, such as, for example, a purchase or sale of cryptocurrency, this transaction is not recorded on the public blockchain, but only in the private database of the exchange. This database is not visible to users of the exchange, only to its managers.

Therefore, for those using an exchange such as Coinbase and a wallet such as Electrumthey will only find visible transactions that have been made directly from the wallet to the exchange, or vice versa, but not those made within the exchange.

The transactions between the non-custodial wallet and the centralized exchange are, in fact, registered on the public blockchain, which makes them visible to everyone. On the other hand, those made within the exchange are not recorded on the blockchain and are therefore only visible to the managers of the exchange itself.

Additionally, centralized exchange operators usually move user tokens from their in-exchange wallet linked to their account to generic wallets that they use a bit for all users. Thus, not only do they not record internal transactions on the blockchain, but they do not even allow the user to track these internal movements, because they do not in fact take place.

database blockchain transactions
Not all crypto transactions are publicly visible on the blockchain

Managing tokens through centralized exchanges

In fact, once tokens are moved to the exchange’s generic wallet, they generally remain there until retrieved by a user, regardless of how many times they are traded.

The reason why centralized exchanges not recording internal transactions on the blockchain is very simple: they don’t want to pay fees. Recording an internal transaction on their database does not charge any fees, while a transaction on the blockchain still requires the payment of a fee. Since they manage billions of transactions that seems like a decidedly valid reason.

A different question, however, concerns decentralized exchanges, which record all transactions on the blockchain. In this case, however, the charge related to the royalties is the responsibility of the users.

In addition, since transactions on the blockchain are by no means immediate, listing on its own database also solves the problem of speed, therefore the performance of centralized exchanges, which are not only cheaper but also more faster than decentralized exchanges. On the other hand, however, they also turn out to be guardians, and therefore with greater Security risks.


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