How to Implement Ethereum Deposit Functionality for Exchanges

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Building a reliable and secure Ethereum deposit system is essential for any cryptocurrency exchange platform. This guide walks you through the core technical workflow of implementing Ethereum deposit functionality, including wallet generation, transaction monitoring, balance checking, and fund consolidation — all while maintaining security, traceability, and user trust.

Whether you're developing a small-scale trading platform or scaling an existing exchange, understanding the end-to-end process ensures smooth operations and minimizes risks like lost funds or failed transactions.

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Step 1: Generate Ethereum Wallets for Users

When a user registers on your exchange, the system must automatically generate a unique Ethereum wallet address for deposits.

The primary method described here uses Go-Ethereum (geth) to create wallets. Since the backend is built in Ruby, we leverage shell commands within the application to interface with geth.

str = `geth --datadir #{ENV['DATADIR']} account new --password #{file.path}`

This command generates a JSON keystore file — a securely encrypted version of the user’s private key. While this approach works, it requires additional steps to extract the private key when signing transactions later.

Always store keystore files securely and restrict access. Never expose passwords or raw keys in logs or code repositories.

Step 2: Monitor Incoming Transactions Using Etherscan API

To track user deposits, you need real-time visibility into incoming transactions.

We use the Etherscan API to monitor all transactions associated with a given address:

url = "http://api.etherscan.io/api?module=account&action=txlist&address=#{address}&startblock=0&endblock=99999999&sort=desc&apikey=#{API_KEY}"

Key parameters:

Once the response is received:

  1. Filter transactions where to matches the user’s address (incoming transfers).
  2. Check isError field — skip if value is 1.
  3. Confirm number of block confirmations (confirmations > 12 is safe).
  4. Verify that the transaction hasn’t already been recorded in your database.
  5. If valid, credit the user’s balance accordingly.

This step ensures accurate and tamper-resistant deposit tracking.

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Step 3: Detect and Consolidate Balances Using Infura

After confirming a deposit, small balances may remain in individual user wallets. To reduce exposure and manage liquidity efficiently, exchanges often consolidate funds into a central hot wallet.

We use Infura's JSON-RPC endpoint via a Ruby client (ethereum gem) to interact with the Ethereum mainnet without running a full node.

Configure the Ethereum Client

host = "mainnet.infura.io"
port = "443"
ssl = true
$eth_client = Ethereum::HttpClient.new(host, port, ssl)

Check Wallet Balance

balance_wei = $eth_client.get_balance(address, "latest")
balance_eth = balance_wei.to_f / 10**18

If balance_eth > 0, initiate a withdrawal to the exchange’s hot wallet.

Retrieve Nonce

nonce = $eth_client.get_transaction_count(address, "latest")

The nonce ensures transaction order and prevents replay attacks.

Step 4: Extract Private Key from Keystore

Since Go-Ethereum only outputs encrypted keystores, we need to extract the private key to sign outgoing transactions.

Python’s py-ethereum library supports this natively. We extract the relevant logic into a standalone script:

%x(python3 decode_keystore_json.py #{keystore} #{password}).gsub("\\n", "")

This returns the raw private key in hexadecimal format. Handle this extremely carefully — expose it only during signing and never log it.

Step 5: Sign Transaction Using Node.js

Node.js with Web3.js offers robust transaction signing capabilities. We pass the following parameters to a custom Node script:

%x(node sign_transaction.js #{to} #{hex(amount)} #{private_key} #{hex(GAS_PRICE)} #{hex(GAS_LIMIT)} #{hex(nonce)} #{hex(CHAIN_ID)} #{data})

Important considerations:

The output is a signed raw transaction (raw_data) ready for broadcast.

Step 6: Broadcast Transaction to Ethereum Network

Finally, send the signed transaction to the network via Infura:

tx_hash = $eth_client.send_raw_transaction(raw_data)

Store the tx_hash in your database for:

Set up background jobs (e.g., using Sidekiq or Cron) to periodically check unconfirmed transactions and re-broadcast if necessary.

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Frequently Asked Questions (FAQ)

Q: Why not generate private keys directly instead of using geth?
A: Direct key generation is possible using libraries like eth-keys, but using geth provides standardized keystore encryption (AES), improving security and compatibility with other tools.

Q: Can I use Alchemy instead of Infura?
A: Yes. Both offer reliable Ethereum node access via JSON-RPC. Switching requires only changing the host URL — functionality remains identical.

Q: How do I prevent double spending during consolidation?
A: Always fetch the latest nonce before signing. Use database locks or atomic operations to ensure one transaction completes before the next begins.

Q: Is it safe to use Python and Node.js in a Ruby-based system?
A: Yes — as long as inter-process communication is secured and sensitive data (like private keys) isn't logged or exposed in shell history.

Q: What gas price should I set for fast confirmations?
A: Use dynamic gas pricing by querying APIs like ethgasstation.info or Etherscan’s gas tracker. For urgent consolidations, use “fast” rates (e.g., 30–50 Gwei depending on network congestion).

Q: Should I consolidate after every deposit?
A: Not necessarily. Balance operational costs (gas fees) against risk. Many exchanges batch small deposits and consolidate when thresholds are reached.

Implementing Ethereum deposit functionality involves orchestrating multiple tools and languages — Ruby for orchestration, Python for key management, Node.js for signing, and third-party APIs for blockchain access.

While complex, this hybrid approach leverages each tool’s strengths. With proper logging, error handling, and monitoring, your exchange can offer fast, reliable, and secure deposit processing.

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