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11 December 2018 02: 30 & nbspUTC
| updated:
11 December 2018 at 02: 30 & nbspUTC
A group of researchers from the United Kingdom has decided to use Machine Learning and Artificial Intelligence to recognize one of the biggest nightmares in the cryptic world, Pump & Dump Scams. The choice of the instrument and reliability in machine learning has come into play because there are currently more than 2000 cryptographic tokens on the market, so it is not easy to keep track of spiteful criminals.
Pump & Dump is a term coined for insider trading in the market. This form of scam has been on the market for quite some time. Cryptocurrencies in the absence of liquidity factor and less knowledge in the community, make it a perfect target for insider trading fraud.
Jiahua Xu and Benjamin Livshits of Imperial College London wrote a document entitled "The anatomy of a cryptocurrency cryptocurrency scheme". In this article, they used machine learning techniques to detect Pump & Dump scams before they happened.
The study paper published by Jiahua Xu has made some fascinating revelations, with an average of two Pump & Dump occurring every day and generating a trade volume of $ 7 million in a month. The other key observation was the large buying spree that goes on the market just before a significant landfill. Thus, the team behind the implementations of Machine learning has programmed it to detect such an unusual folly of purchases.
After entering all these observations on the machine and trained to detect the scam, the team was quite successful. The project included six of these imminent landfills, of these 6 cases, 5 showed an increase of more than 100% of the purchase value and the sixth did not show much growth. Thus, 5/6 is a high success rate, making the experiment a success.
How do Pump & Dump scams work?
Insider trading or Pump & Dump scams have troubled the authorities for a long time now. Usually, the organizers behind the pump select a currency for the landfill, the less known and less expensive currency, the easier it is to manipulate it. The choice of money is cheaper because moving a heavy currency would require a ton of capital and a lot of attention from regulators.
Once the money has been chosen, the organizers begin to buy in large quantities to get the upper hand on the market. You decide a date and an hour and all the other followers are informed of the same. Upon expiration, the organizer sets a goal for the pump and starts pumping the coins purchased on the market. Others, after examining the high-volume trade, join the wagon, only to realize later that the whole process was pre-orchestrated. Pump & Dump takes just over a couple of minutes.
The market returns to a usual point, and the accumulated cryptates turn out to be the landfill because others were not aware of the plan developed. Thus, the name insider trading
Final thoughts
The use of machine learning to detect such fragile aspects and the manipulation of the commercial market shows us how two relatively new technologies can bind together to eliminate some problems at the grassroots level. Both Machine Learning and Blockchain have come a long way from its early days and have had to overcome some other problems to become mainstream. But, one thing is quite clear that technology needs more refining and real-world use cases to point to its claims on being a form of mainstream technology.
Prashant Jha
As a content writer, Prashant believes in presenting complex topics in simple terms such as laity. He is passionate about technology and an avid reader.
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