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The wave of interest in cryptocurrencies has been accompanied by a proliferation of fraud, largely in the form of pump and landfill schemes. This column provides the first measure of the scope of application of such schemes on cryptocurrencies. The results suggest that the phenomenon is widespread and often quite profitable and underlines the need for concerted efforts by industry and regulators to combat the manipulation of cryptocurrency prices.
By JT Hamrick, Farhang Rouhi, Arghya Mukherjee, Amir Feder, Neil Gandal, Tyler Moore and Marie Vasek *
The
Bitcoin digital currency (BTC) was introduced in 2009. Bitcoin and the
many other digital currencies are mainly online currencies. The button
currencies are those based primarily on cryptography. Bitcoin is the
Cryptocurrency leader, but there are almost 2,000 others.
Bitcoin has
has experienced an increase in meteoric popularity since its introduction. His
success has inspired dozens of competing cryptocurrencies that follow a
similar design. Bitcoin and most other cryptocurrencies do not require a
central authority to validate and settle transactions. Instead, them
use cryptography (and an internal incentive system) to monitor
transactions and manage the supply. A decentralized network validates
transactions. Once confirmed, all transactions are stored digitally and
recorded in a public "blockchain", which can be thought of as a
distributed accounting system.
The proliferation of
cryptocurrencies and technological changes have made it easier
conduct "pump and dump" schemes. Many of the cryptocurrencies available
today they are illiquid and are characterized by very low trading volumes on
most days, with occasional peaks of volume and price.
Cryptocurrencies
only recently I became a research subject in economics, but the
topic was of longer interest in computer science (for soon
work on incentives by computer scientists, see Babaioff et al. 2012 and
Eyal and Sirer 2014). Numerous researchers have conducted studies in
to document and combat threats such as Ponzi schemes, money
recycling, botnet mining and theft of cryptocurrencies. Ron
and Shamir (2013) attempt to identify suspicious commercial activities of
build a chart of bitcoin transactions found in the public ledger.
In case of
economic research, Gandal et al. (2018), showed that the first time
bitcoin has reached an exchange rate of over $ 1,000, the meteoric increase
it was probably driven by fraud in the form of fraudulent business.
Griffin and Shams (2018) have discovered that the tether, a digital cryptocurrency
which is pegged to the US dollar, probably led to a significant fraction of
the price increase of bitcoins and other cryptocurrency prices
during the rapid rise in cryptocurrency assessments in 2017.
In our recent work
on the schemes of cryptocurrency and landfill pumps (Hamrick et al., 2018), us
quantify the extent of these schemes on Discord and Telegram, two widely
Popular group messaging platforms with 130 million users and 200 million
users, respectively. Both platforms can manage large groups with
thousands of users, and they are the most popular outlets for pump and
exhaust schemes containing cryptocurrencies.
Technologies like
Telegram and Discord allow people to easily coordinate such schemes.
Telegram is a cloud-based instant messaging service that uses voice over
internet protocol (VoIP). Users can send messages and exchange photos,
videos, stickers, audio and files of any kind. Messages can be sent to
other users individually or groups of up to 100,000 members. As of
In March 2018, Telegram had 200 million active users. Discord, first
published in 2015, has similar capabilities and 130 million users since
May 2018. Discord and Telegram are primary sources for cryptocurrency
pumps and have been used for large scale pumps and landfill schemes.
Perhaps due to the regulatory vacuum, many of the pump groups do not
hide their goals.
We have identified 3,767
different pump signals advertised on Telegram and another 1.051
different pump signals advertised on Discord during a six month period
in 2018. The schemes promoted more than 300 cryptocurrencies. These
the complete data provide the first measurement of the pump e
download cryptocurrency schemes and suggest that this phenomenon be
widespread and often quite profitable.
Data collection
required for the analysis was substantial. The pump data were collected from
collect messages sent to hundreds of dedicated Discord and Telegram
channels that use their APIs and manually tag messages
pumps reported.
We have also collected
price data of almost 2,000 coins out of 220 cryptocurrency trading
exchanges from Coinmarketcap.com, the main aggregate data website
on cryptocurrency trading, during the six month period from January to
July 2018. This gave us a total of 316.244.976 price data points
all the coins listed. The collected data are at their best
granularity presented by Coinmarketcap.com at the time of collection,
that is, five minute intervals. We therefore combined the extracted pump
signals announced on Discord and Telegram with trading data.
We then measured the
& # 39; Success & # 39; of the schemes, which we define to be the percentage increase
in the price by following a pump. Ten percent of the pumps on Telegram
(Discord) has raised the price by more than 18% (12%) in just five
minutes. Recall that the period January-July 2018 was a period in which
the prices of the cryptocurrency and the volume of trade were decreasing significantly.
Thus, these percentage increases were "results" for the pump
schemes.
In the end, we examined
what factors explained the ability to increase the price. More
the important variable in explaining the success of the pump is the ranking of
the currency, where the ranking is based on market capitalization (that is
highly correlated with the volume of trade). Coins with lower market
capitalization generally has a lower average trading volume. lower
the average volume gives the pumping system a greater chance of success.
We found the pumps
using dark coins with a low market capitalization was much more
profitable pumping of the dominant currencies in the ecosystem: the median
the price increase was 3.5% (4.8%) for pumps on Discord (Telegram) using
the first 75 coins; it was 23% (19%) on Discord (Telegram) for coins
ranked in over 500. (bitcoin is the coin with the highest score and has the first place)
discuss the effect of other variables on the "success" of the pumps in
our card
Three others
(essentially) competing documents also examine pump and landfill patterns
cryptocurrencies, but with a different emphasis. Kamps and Kleinberg
(2018) use market data to identify suspected pumps and landfills based on
sudden spikes in price and volume. They evaluate the accuracy of theirs
forecasts using a small sample of manually identified pump signals. Xu
and Livshits (2018) use data on about 200 pump signals to build a
model to predict which coins will be pumped. Their model stands out
between very successful pumps and all other trading activities on the
exchange. Li et al. (2018) uses a model of differences in differences
shows that the pump and landfills lower the trading price of the affected currencies.1
Our work is
different from other competing works in many important ways.
First of all, we collected as many pump signals as possible from the channels
on Discord and Telegram. We also evaluate them all, without limitations
ourselves at the successful pumps. Secondly, let's examine the pumps reported
for all coins with public trading data, not just those that take place at
selected exchanges. This allows us to integrate the ecosystem
explanatory variables such as the number of exchanges on which it is a currency
exchanged in order to evaluate what makes the success of a pump and landfill scheme.
Because we should worry
on the pump and discharge schemes in cryptocurrencies? Recent trends indicate
that bitcoin is becoming an important resource in the financial system.
Furthermore, the trade in cryptocurrency goods has exploded like the market
the capitalization of cryptocurrencies has grown considerably in recent times
years. In February 2014, everyone's market capitalization
cryptocurrency was around $ 14 billion. Starting from February 2018, the
The total market capitalization was before about $ 414 billion
returning to $ 122 billion in December 2018. Bitcoin itself has reached a
peak of over $ 19,000 before collapsing in the coming months a
$ 6,000. Currently (as in mid-December 2018), the price of the bitcoin is close
at $ 4000.
In February 2018,
there were more than 300 cryptocurrencies with market capitalisations
between $ 1 million and $ 100 million. In January 2014, there were less
of 30 coins with market capitalization between $ 1 million and $ 100
millions. The markets of these cryptocurrencies are very thin and subject
to the manipulation.
Because traditional finance invests in cryptocurrency activities, it is important to understand how the cryptocurrency markets are susceptible to manipulation. We have provided the first measure of the broad spectrum of pump and landfill schemes. We encourage the nascent cryptocurrency industry, regulators and researchers to work together to try to eliminate manipulation in cryptocurrency resources.
* Regarding the Authors:
JT Hamrick, Research Assistant, University of TulsaFarhang Rouhi, University student, University of New Mexico
Arghya Mukherjee,Research Assistant, University of Tulsa
Amir Feder,Doctoral student, Technion
Neil Gandal,Professor of Economics Berglas School of Economics University of Tel Aviv
Tyler Moore,Tandy Assistant Professor of Cyber Security and Information Assurance, University of Tulsa
Marie Vasek,Assistant Professor, University of New Mexico
References:
Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), "On bitcoin and red balloons" Proceedings of the 13th ACM Conference on Electronic Commerce 2012: 56-73.
Eyal, I and E Sirer
(2014), "The majority is not enough: Bitcoin mining is vulnerable"
XVIII International Conference on Encryption and Financial Data
Security 2014.
Gandal, N, J Hamrick, T Moore and T Oberman (2018), "Price Manipulation in the Bitcoin Ecosystem", Journal of Monetary Economics 95: 86-96.
Griffin, J and A Shams (2018), "Is bitcoin really untamed?".
Hamrick, J, F Rouhi, A Mukherjee, A Feder, N Gandal, T Moore and M Vasek (2018), "The economy of schemes of cryptocurrency pumps and landfills".
Kamps, J and B Kleinberg (2018), "To the moon: definition and detection of pump-and-dump of cryptocurrency" Crime Science 7 (1): 18.
Li, T, D Shin and B Wang (2018), "Schemes of pump and waste cryptocurrency".
Ron, D and A Shamir (2013), "Quantitative analysis of the complete chart of Bitcoin transactions," in Financial cryptography and data security, volume 7859 of Lecture Notes in Computer Science: 6-24.
Xu, J and B Livshits (2018), "The anatomy of a pump-and-dump scheme of cryptocurrency".
Yuxing Huang, D, H
Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver,
A Snoeren and K Levchenko (2014), "Botcoin: Monetization of stolen cycles"
in Proceedings of the Symposium on network and distributed system security.
Final notes:
[1] There have beenmedia articles on the phenomenon of the pump and the landfill. Mac reported
on pumpand's dumping patterns in a Buzzfeed article published in January 2018,
available here. This was followed by the work of Shifflet and Vigna in a Wall Street newspaper article published in August 2018, available here.
