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The Anatomy Of A Fake Cryptocurrency Trade: How Exchanges Create Phony Transactions

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Take a close look at trading activity on BKEX—a cryptocurrency exchange founded in 2018 and registered in the British Virgin Islands—and you’ll see something odd. Compare its transactions side-by-side with those of Binance, one of the largest crypto exchanges in the world, and you’ll notice BKEX’s trading history is a replica, printing the same numbers delayed by a few seconds.

According to CoinMarketCap, BKEX has $1.1 billion in daily volume, making it the 20th-largest exchange on the planet. Yet it seems to be simply copying Binance’s trade history and passing it off as its own, in perhaps the laziest attempt in history to fool people into thinking it’s a lively place to trade digital assets.   

A new report by Alameda Research, a 20-person crypto trading firm with offices in Hong Kong and Berkeley, California, reveals a clever set of tricks used by crypto exchanges to fabricate volume.

In the wake of other reports on phony trades, including one by digital asset manager Bitwise indicating that 95% of all transactions are bogus, Alameda felt it could create better research by leveraging its trading data and experience.

READ MORE | Is Forex A Scam Or Money Goals?

The startup was cofounded in 2017 by Sam Bankman-Fried, 27, an MIT alum and former trader at high frequency trading outfit Jane Street. Gary Wang, 26, a fellow MIT grad and former Google software developer, is his cofounder. The firm has $100 million in assets, and over the past month it has traded $1 billion a day on average, making it one of the largest crypto trading firms in the world. 

Exchanges make money by charging users to trade, and they have many reasons to artificially inflate volume. More activity means a higher rank on the still-popular website CoinMarketCap, which can attract new users.

Exchanges also charge fees to new cryptocurrency projects that want to get listed in their marketplace, and the perception of popularity helps them command higher rates. Since an exchange’s place of business is just a website or an app, and many located outside the U.S. are unregulated, it can publish any numbers it wants and call them trades.

Meanwhile, CoinMarketCap continues to insufficiently vet exchanges’ transaction volume, often taking companies at their word and publishing dubious numbers. 

According to Alameda’s research, another method exchanges use to juice their statistics is sneaking in large, fake transactions amid a flurry of smaller ones. CoinEgg, a Hong Kong-registered exchange that trades $1.1 billion a day reported by CoinMarketCap, recently employed this tactic with litecoin (LTC) trades.

During a period when Alameda observed 15 different offers to buy and sell litecoin in a maximum quantity of 134 LTC, several trades printed as large as 2,000 LTC, as if a buyer appeared out of thin air. 

Trading marketplaces typically publish their “order book,” showing a list of bid prices at which people are willing to buy an asset, plus a separate set of offer prices where people are willing to sell.

READ MORE | How Cryptocurrency Scams Work

For instance, Bill might be willing to buy bitcoin at $10,000, while Mary wants to sell at no less than $10,050. For a trade to happen, a new buyer must be willing to pay the $10,050 that Mary is offering, and the vast majority of trades that clear will align with orders that previously showed up in the order book, unless two users place offsetting orders at the same exact time. 

Yet on some exchanges, trades get executed at prices and sizes that fall outside anything sitting on the order book. On Digifinex, a Singapore-based crypto trading venue, Alameda observed bids and asks for bitcoin between $8,296 and $8,298, but several trades printed at $8,290 and $8,293, prices lower than what anyone was willing to sell at.

On LAToken, a Moscow digital exchange, Alameda saw bids and offers with a maximum size of 1.6 bitcoin in the order book. Implausibly, several trades sailed through at sizes up to 20 bitcoin. LAToken founder Valentin Preobrazhenskiy says his platform only has a “tiny share” of 20-bitcoin orders and that exchanges use inflated volumes as a marketing tool.

“The situation would change when large exchange-ranking sites would add a section for trading volumes based on trades reported to regulators,” he says. On Singapore-based ABCC, the best bid and offers Alameda saw were for sizes less than one ether, yet several transactions materialized with sizes of up to 11 ether. 

Among trading venues, there’s also the well-worn method of simply printing transactions that fall in the middle of the bid and ask prices, which Alameda’s research spotted in IDAX and Coineal. In total, Alameda’s report gives examples of fishy trading patterns on 60 different crypto exchanges. Aside from LAToken, none of the exchanges named above responded immediately to Forbes’ request for comment. 

The methodology behind Alameda’s research was to test each exchange on six different criteria. First, they manually looked at an exchange’s order book and observed where trades printed. If more than 10% of transactions didn’t appear on the order book, it failed on this dimension. Another test involved observing the percent of an exchange’s trades that took place at the best available bids or offers. 

A third criterion was to analyze how much Alameda itself traded on a given exchange, since the startup deals in “virtually every cryptocurrency,” considers its algorithms “exchange-agnostic” and estimates that it trades 5% of all global crypto volume.

“If we trade more than .5% of an exchange’s reported volume, we consider that exchange to pass according to this criterion,” the report  reads. For more details on its methodology, see the full report.

Beyond exchanges’ bad behavior, the report has other provocative insights. It claims that crypto—including both “spot” trades of actual digital assets and derivatives, like bitcoin futures—trades $38 billion in real volume a day, and 87% of that happens on Asian exchanges, with just 9% happening on U.S. venues. The strict regulatory environment in the U.S. is likely a contributing factor in Asia’s dominance, Alameda says. 

Compared with Bitwise, which released a follow-up fake volume reportin May 2019, Alameda thinks more crypto volume is real. For large exchanges like OKEx and Huobi, which were founded in China, Alameda estimates about 70% of their transactions are authentic.

Bitwise is much more skeptical, as is the Blockchain Transparency Institute, which has estimated that more than 60% of Huobi’s volume is fake and more than 90% of OKEx’s volume is fabricated. 

A Huobi spokesperson says it doesn’t engage in wash trading, but that it has observed some market-makers doing so on its platform, and it takes steps to stamp them out.

An OKEx spokesperson says the company isn’t involved in and doesn’t tolerate wash trading, adding, “Recently we have joined the Data Accountability & Transparency Alliance (DATA) led by CoinMarketCap, as a commitment to reveal as much data as possible.”

-Jeff Kauflin; Forbes Staff

Technology

‘WFH’ here to stay?

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The home will be hub and flexible working the norm. The result? Renewed employee trust, wellness and cost savings, say more companies.

Even the words out-of-the-box seem out of date at a time when shipping containers are turning into ICU hospitals and arms firms are making ventilators and personal protective equipment.

If technology is being repurposed, so too homes and humans.

Over the last few months the world over, the pandemic-induced ‘new normal’ has seen homes turning into head offices, with the volatile economy forcing businesses to rethink long-term strategies in a work from home (WFH) environment that looks here to stay.

Even the big corporates say this could extend post-pandemic.

Barclays CEO Jes Staley said its staff will not revert fully to its pre-January work habits. “There will be a long-term adjustment in how we think about our location strategy; the notion of putting 7,000 people in a building may be a thing of the past,” he said after the company reported its first quarter profits for 2020.

Internet giant Google said all staff are expected to work from home until 2021, according to a May 2020 report in Bloomberg. S,imilarly, Facebook will let staff work remotely through 2020. Twitter, on the other hand, announced a short while later it would let staff work from home “forever”.

Euromonitor International’s Global Consumer Trends 2020 report has highlighted areas that Covid-19 will have an impact for the year ahead. Some of these include multi-functional homes where, in the long-term, the home becomes the hub and businesses will adapt accordingly; private personalization, which will put privacy concerns on hold in the short term but will return in the long term; and inclusivity for all would see disabled communities benefitting from technology.

In South Africa, the government has stipulated five levels of lockdown dictating how businesses may be carried out, including which sectors can operate as levels change. This requires flexibility and being able to adapt from one week to the other.

Jordan Rittenberry, Edelman Africa CEO, says the company’s transition towards more flexible working policies has been sped up by the Covid-19 pandemic, and the process has been a success with renewed trust in employees.

“We believe that flexibility, particularly in the current environment, is a useful way for companies to treat their staff right and foster mutual trust,” he tells FORBES AFRICA. “The pandemic has required a rapid mind-set change as companies take on new responsibilities towards the people that work for them and employee wellness is the first port of call as we navigate these uncharted waters.

“Every crisis presents opportunities and new ways of doing things. The shift we are seeing now is one of those that could help to meaningfully improve employer-employee relationships if managed carefully.

“As more people work from home, we will naturally require less space over time and this will yield cost savings to the business that can be passed on to clients.

“Besides employee costs, real estate is our biggest expense,” he says. Pieter Bensch, Executive Vice President at Sage Middle East and Africa, has come to a similar conclusion. “We realized that we do not need as much office space going forward and working remotely using cloud technology tools has maintained productivity levels from our colleagues,” says Bensch to FORBES AFRICA.

“Our entire workforce began working remotely before lockdown and are in no rush to return until it is safe but have encouraged video calls so they can see each other.

“Our cloud accounting and payroll product sales have increased, which is a clear indication that our customers now understand the power and benefits of cloud solutions to maintain business continuity.”

The mental wellbeing of employees has also been top priority.  “All Sage colleagues received a free subscription to Headspace, a brilliant award-winning app and guide to everyday mindfulness,” adds Bensch. The company also formed a ‘[email protected]’ community for staff looking for peer support on how to adapt with differing family needs and challenges.

A Johannesburg-based agency called BetterWork that specializes in design thinking for human resources has been hosting weekly lunchtime Zoom calls since the beginning of lockdown in South Africa. Attendees include a mix of its professional network, members of The GoodWork Society and other members of the general public. Some of its takeaways have proven that WFH is more productive than working in the office, which cited minimal distractions and the extra hours gained from not having to sit in traffic. Additionally, introverts seem to be thriving and tend to feel more comfortable with contributions to teamwork. On the other hand, BetterWork says parents on the call have expressed being overwhelmed with not just their own work but also the additional responsibility of being teacher-guides to their children.

The company believes the home-office is now the responsibility of the employer where people-focused services such as tele-therapy, support for parents and social programs become an additional duty to ensure a healthy, productive team. It adds that an obvious benefit would be the compensation or subsidizing of laptops, stable internet connectivity, webcams, etc.

Palesa Sibeko, Co-founder of BetterWork, says offices are typically expertly assessed and constructed to suit an organization’s work activity needs, but the same is not true for the millions of homes that are now acting as places of work. “There is not a concerted effort to view home-work life more holistically, to identify the needs and address them to create environments conducive to doing great work.” BetterWork says it is currently looking into how to support organizations on this important mission.

– Nafisa Akabor

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Health

Warning: COVID-19 Contact Tracing Apps Could Be Turned Into Tools For Domestic Abuse

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If governments don’t focus on strong privacy protections in their COVID-19 contact tracking tools, it could exacerbate domestic abuse and endanger survivors, according to a warning from women’s support charities.

They’ve urged the U.K. government to include domestic abuse and violence against women and girls (VAWG) experts in the development of such initiatives.

Though the U.K. doesn’t yet have a widely available track and trace app, the charities – including Women’s Aid and Refuge – are already anxious enough about the current tracing program, where infected people are called up and asked to register themselves online as someone who has contracted COVID-19. They’re then asked to share details on people with whom they’ve been in contact so they too can be informed.

In a joint whitepaper, the nonprofits said they were anxious about contact tracing staff inadvertently leaking contact details of survivors to perpetrators. They also raised fears the program could be turned into a “tool for abuse.” 

“For example, perpetrators may make fraudulent claims that they have been in contact with survivors in order for them to be asked to self-isolate unnecessarily, and in these circumstances survivors will have no means to identify the perpetrator as the original source,” they warned. “Perpetrators or associates may also pose as contact tracing staff and make contact with victims [or] survivors requesting they self-isolate or requesting personal information.”

The paper also claims abusers are already using the coronavirus pandemic for “coercive control,” in some cases deliberately breathing, spitting and coughing in survivors’ faces. As Forbes previously reported, the sharing of child abuse material has also spiked during global COVID-19 lockdowns.

As for apps, the report warned they required location services to be switched on. “While the NHS app itself doesn’t collect location data, if a perpetrator has installed spyware onto a survivor’s phone or is able to hack into it, then turning on location services will expose their location.”

Problems with Palantir?

The charities also raised concerns about a number of companies who’d partnered with the U.K. on the contact tracing initiatives. They said Serco, which is handling recruiting for contact tracing staff, “has a significant track record of failings and human rights violations, including running a controversial women’s immigration detention centre where staff have been accused of sexual misconduct and involvement in unlawful evictions of asylum seekers.” Serco also recently had to apologize for leaking email addresses of contact tracer staff.

Serco denies that it has any kind of significant track record of failing and human rights violations and that the evictions to which the charities are referring were in Scotland and were ruled legal. It also said that in seven years there had been no substantiated complaints about any sexual wrongdoing at the Yarl’s Wood immigration removal centre, where reports had revealed allegations.

“We are proud to be supporting the government’s test and trace programme with our Tier 3 contact centre team working from pre-approved Public Health England scripts. This is important work and we would like to thank all our teams who have stepped forward. In just four week we mobilised many thousands of people, which is a huge achievement, and we are focussed on ensuring that all our people are able to support the government’s programme going forwards,” a Serco spokesperson said.

Palantir, the $20 billion big data crunching business, also raised an eyebrow. The company, which has secured millions of dollars in contracts to help health agencies manage the outbreak, has come in for criticism for assisting U.S. immigration authorities on finding and ejecting illegal aliens.

Palantir hadn’t responded to a request for comment at the time of publication.

UK’s delayed COVID-19 app

The charities’ warning comes as the U.K. announced its contact tracing app would be shifting to the Apple and Google models, which promise stronger privacy protections than the app being tested by the government. The main difference is in where user information goes. In the government’s app, anonymized phone IDs of both the infected person and the people they’ve been near are sent to a centralized server, which determines who to warn about possible COVID-19 infection. In the Apple and Google model, only the phone ID of the infected person is sent to a centralized database. The phone then downloads the database and decides where to send alerts. The latter means the government has access to far less data on people’s phones, pleasing some critics but aggravating the government.

Health secretary Matt Hancock said on Thursday that Apple’s restrictions on third-party apps’ use of Bluetooth may’ve been one reason the government’s own app wasn’t as successful as hoped. Bluetooth is being used to determine whether an infected person has been in close proximity with another person’s phone.

Earlier this week, Amnesty International cybersecurity researcher Claudio Guarnieri warned that global rollouts of contact tracing apps were a privacy “trash fire.” After analyzing 11 apps, he found many contained privacy shortcomings. So concerned was Norway that it suspended its tool.

Even with lockdowns easing, those who’re infected are still being advised to isolate. However,  the NHS guidance says that “the household isolation instruction as a result of Coronavirus (COVID-19) does not apply if you need to leave your home to escape domestic abuse.” That message may not have been amplified as much as it should’ve been.

Thomas Brewster, Forbes Staff, Cybersecurity

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Technology

Twitter Begins Asking Users To Actually Read Articles Before Sharing Them

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TOPLINE Twitter announced Wednesday that it will test a new feature that will prompt users to open up a link to an article before sharing it, which appears to be a move to further combat the spread of misinformation on the platform.

KEY FACTS

  • Some Twitter uses may be subject to a prompt to click on a link if they try to retweet without reading the article first, billed by Twitter as a feature “designed to empower healthy and informed public conversation.”
  • English speakers on Android devices will be the first to see the tests.Users will still have the ability to retweet a message without clicking the link first if they chose to tap through the prompt.
  • According to Twitter Support, an official company account, the platform will only check if a user has clicked the article link recently through Twitter, not elsewhere on the internet.
  • Twitter denied some skeptical users’ accusations that the platform is testing the feature to establish a revenue stream via click-through to outside websites, saying the platform is not testing ad products with the prompts.
  • Twitter Support told one user it would watch to see if reminding users to read an article before they share it leads to more informed discussion.

CRUCIAL QUOTE

“It’s easy for links [and] articles to go viral on Twitter. This can be powerful but sometimes dangerous, especially if people haven’t read the content they’re spreading. This feature (on Android for now) encourages people to read a linked article prior to retweeting it,” Twitter product lead Kayvon Beykpour commented upon the announcement of the feature testing.

KEY BACKGROUND

The new prompt tests are the latest Twitter effort to curb the spread of misinformation on the platform. Twitter last month displayed fact-check tags on two of President Donald Trump’s tweets that featured misleading information regarding mail-in ballots and voter fraud. Twitter also rolled out testing for a new feature to allow users to limit who can reply to their tweets. The platform has faced criticism from both sides of the aisle in recent weeks, from conservatives over accusations of censorship and from the left for not doing enough to stifle misinformation.

Carlie Porterfield, Forbes Staff, Business

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