by Jake Wengroff
Cryptocurrency spoofing is the process by which criminals create fake buy and sell orders in an attempt to create a false sense of supply and demand, thereby artificially influencing the price of the cryptocurrency. Spoofing is accomplished by creating the illusion of pessimism (or optimism) in the market, according to Investopedia, which in turn encourages trading activity.
However, trading when signals are fraudulent and assets are mispriced due to manipulation still occurs, and is particularly rampant in the cryptocurrency community. “A quick look at crypto’s threat landscape, and you will notice one commonality,” cautions Abhilash Garimella in Security Boulevard. “The higher the value of a cryptocurrency, the higher the volume of fraud targeting its users.”
If the name spoofing is familiar, it comes from the traditional cybersecurity world. Spoofing occurs when fraudsters create fake websites, apps, or even personas, in order to trick users into entering their credentials into that spoofed, lookalike site, thinking it’s the real one and trusting it.
Typical Spoofing Trading Scenarios
One common crypto spoofing strategy takes place when traders place large buy or sell orders without the intention of ever filling them. When fraudsters do this, they trick the market into thinking that large transactions are occurring — when they aren’t — motivating other investors into either buying or selling.
This flurry of activity no doubt moves prices. However, to complete the spoof, the trader cancels the orders once the price of the cryptocurrency moves in the direction they desire. This most likely hurts the honest investors, who now are unsure what to do.
While this sounds like it would involve a lot of work and a lot of people monitoring the market to carry out the fraud, spoofing is usually done using algorithms and bots.
An NFT spoofing setup might include the creation of a fake NFT store that is a replica of a well-known one. According to Security Boulevard, scammers spin up websites that look exactly like the original ones and try to trick users into either logging in with their credentials or giving away their credit card information.
Why Spoofing Goes Undetected
It’s important to note that spoofing is illegal across many major markets, including the United States and the United Kingdom. But why is it still so rampant?
Cryptocurrency prices are not based on the same set of measurements as are other assets, such as a company’s stock or a municipal bond. As such, the feeling of optimism or of pessimism can have an impact on a group of investors’ tendency to buy or sell that digital currency, leading to price fluctuations of the crypto asset, as elusive as it might be.
This sentiment-driven nature of the market allows spoofing to be possible and even highly effective. Traders wishing to manipulate the market for a given cryptocurrency can create the illusion of optimism or pessimism by spoofing, or initiating fraudulent buy or sell orders.
Extra Security when Trading Crypto
While it’s important for investors to be vigilant and cautious of situations that look too good to be true, fraud is still rampant in the cryptocurrency community. Crypto exchanges and platforms can only go so far to protect clients from fraud.
Real-world, market-driven solutions are needed to protect crypto asset owners from loss in the event that private keys are stolen.
TransitNet is creating the industry’s first third-party title registry, to add a layer of protection for cryptocurrency assets by providing proof of ownership. With a title in place, crypto investors can feel safer that additional security measures exist to protect them in the event that their private keys get stolen or become lost.
Join the forefront of the new crypto infrastructure. Request an exclusive invitation to TransitNet’s title registry when it launches today.
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce and the Internet of Things.
Investopedia – Cryptocurrency Spoofing
Security Boulevard – 5 NFT scams you need to know