What are deposit addresses?
When somebody wants to make a deposit to an exchange, there are two transactions that occur:
- Coins move from a personal wallet to a temporary wallet, created by an exchange for each separate user.
- Coins move from that temporary wallet to the main exchange wallet.
We call these temporary wallets deposit addresses, or deposits, and they can supply us with invaluable information about a particular network’s behavior.
Analyzing deposit addresses can prove useful in several ways:
- The total number of deposit addresses is a fairly reliable proxy of the actual number of people trading a particular coin on the exchanges.
The metric is not 100% accurate in this regard as a single person may have a variety of different deposit addresses, but it does give us a clear upper limit on the total number of users, and works pretty well dynamically.
- Relying on network-level metrics (for example, total transaction volume) doesn’t really tell us what goes on in different sections of network activity.
Being able to distinguish which part of total network activity was generated by deposit addresses lets us get a lot more granular when exploring a specific market event.
- Tracking the activity of deposit addresses may help us examine and foresee market movement with a new level of awareness.