How to Implement ETH Deposits on a Cryptocurrency Exchange

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Implementing a reliable and secure ETH deposit system is a critical component for any cryptocurrency exchange platform. Whether you're building a small-scale trading service or planning to scale into a major player, understanding the underlying mechanics of ETH deposits—wallet generation, transaction monitoring, and fund consolidation—can make the difference between a smooth user experience and operational chaos.

In this guide, we’ll walk through the technical architecture of ETH deposit handling, explore real-world implementation challenges, and outline best practices for building a scalable and resilient system—all while integrating core concepts like Ethereum, Infura, Etherscan API, JSON-RPC, smart contracts, hot wallets, and transaction monitoring.

Generating User Wallets for ETH Deposits

When a user initiates an ETH deposit, the exchange must generate a unique wallet address tied to their account. This process typically happens server-side using cryptographic libraries such as ethers.js or web3.js. Each generated wallet consists of a private key and public address pair, with only the public address shared with the user for deposits.

The server securely stores the private key (ideally in an encrypted vault) to later initiate withdrawals or consolidate funds into a central hot wallet—a term referring to an online wallet used for day-to-day operations.

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This method ensures that each user has a dedicated deposit address, improving traceability and reducing confusion during reconciliation.

Monitoring Incoming Transactions: The Core Challenge

Once users send ETH to their assigned addresses, the system must detect these incoming transactions and credit the correct accounts. However, Ethereum’s JSON-RPC standard does not support querying all transactions by address—an apparent limitation that forces developers to adopt alternative strategies.

First Implementation: Balance-Based Monitoring (Hacky but Functional)

Due to limited server resources and early-stage infrastructure constraints, many startups rely on third-party node providers like Infura instead of running their own Ethereum nodes. While Infura offers reliable access to the blockchain via JSON-RPC, it lacks native support for fetching transaction histories by address.

To work around this, some systems use a balance-difference detection approach:

  1. Run a scheduled script (e.g., every 30 seconds).
  2. Check the current balance of each generated wallet.
  3. If the balance exceeds zero and differs from the last recorded value, transfer the entire amount to the hot wallet.
  4. Credit the user’s internal balance accordingly.

At first glance, this seems efficient—but there's a catch.

Gas costs complicate everything. To execute a transfer, you need to set gasLimit and gasPrice. If you set gasLimit = 21000 (the standard for simple transfers), and calculate the transfer amount as balance - gasCost, any fluctuation in actual gas usage may cause the transaction to fail due to insufficient funds.

Moreover, if you increase gasLimit for reliability, unused gas gets refunded back to the wallet—leaving behind a small residual balance. This breaks the assumption that post-transfer balances should be zero.

To patch this inconsistency, one workaround involves caching historical minimum balances. The system assumes that any increase beyond this cache represents new deposits. While fragile and prone to edge-case errors, this logic can function under low-volume conditions.

It's far from ideal—but sometimes necessary during MVP stages.

Second-Generation Solution: Leveraging Etherscan API

As operations scale, reliance on balance diffs becomes unsustainable. A more robust solution uses Etherscan’s API to retrieve full transaction histories for each wallet address.

Here’s how it works:

  1. For each user wallet, call https://api.etherscan.io/api?module=account&action=txlist&address={wallet}.
  2. Parse the response to filter only incoming transactions (where to matches the wallet address and from is external).
  3. Store transaction hashes in a database to prevent double processing.
  4. Update user balances based on confirmed deposits.
  5. Run a separate daily job to sweep funds from user wallets into the main hot wallet.

This method eliminates guesswork. You know exactly how much was sent, when, and from where—no more inferring deposits from volatile balance changes.

However, it introduces dependency on Etherscan. If their API goes down or rate-limits your requests, your deposit tracking halts.

Is this acceptable? In many cases, yes—especially if you implement retry mechanisms and local caching. But long-term resilience demands independence.

Toward Full Control: Running Your Own Ethereum Node

The gold standard in exchange infrastructure is operating your own full Ethereum node. By syncing with the blockchain directly, you gain full access to all transaction data without relying on third parties.

With your own node:

Tools like Geth or OpenEthereum allow you to run a node locally or in the cloud. Once synced, you can use JSON-RPC methods like eth_getTransactionReceipt and event listeners to monitor deposits in real time.

While resource-intensive upfront, this setup pays off in reliability, speed, and autonomy—especially as trading volume grows.

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Smart Contract-Based Auto-Sweeping (Advanced Option)

An innovative alternative involves deploying a smart contract for each user instead of a regular wallet.

Here’s the idea:

Benefits include:

Downsides:

Still, this approach is used by several advanced exchanges aiming for maximum security and automation.

Frequently Asked Questions (FAQ)

Q: Why can't I use JSON-RPC alone to track ETH deposits?

Because Ethereum’s standard JSON-RPC API doesn’t provide a method to list all transactions for an address. You’d need to scan every block manually—a computationally expensive task. Third-party services like Infura don’t offer this data out of the box.

Q: Is using Etherscan API safe for production?

Yes, but with caveats. It's widely used and generally reliable, but introduces external dependency. Always implement fallbacks, rate limiting, and local caching to mitigate risks.

Q: Should I run my own node from day one?

Not necessarily. Early-stage projects can start with Infura + Etherscan. Transition to self-hosted nodes once traffic justifies the cost and complexity.

Q: How do I prevent double-counting deposits?

Store processed transaction hashes in your database and check against them before crediting any deposit. This ensures idempotency.

Q: What’s the safest way to store private keys for user wallets?

Use hardware security modules (HSMs) or encrypted key management systems. Never store keys in plain text or version control.

Q: Can I automate fund sweeping without writing code?

While possible with some custodial solutions, full control requires custom development. Automation ensures faster liquidity movement and reduces exposure.

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Final Thoughts: Building for Scale and Security

Implementing ETH deposits isn't just about moving coins—it's about designing a system that’s accurate, secure, and maintainable. Starting with quick hacks is acceptable during prototyping, but long-term success requires moving toward self-reliance: running your own nodes, using verified APIs wisely, and considering advanced patterns like smart contract automation.

As your platform evolves, so should your architecture. Prioritize transparency, minimize dependencies, and always design with security in mind.

Whether you're leveraging Infura, tapping into Etherscan, or building your own blockchain pipeline, remember: every ETH deposit is a vote of trust from your users. Make sure your system earns it.