Are cryptocurrencies the future of fraud?
Bennett Kleinberg
Dawes Centre for Future Crime, UCL
Two important events
- The Internet happened
- Cryptocurrencies
What could go wrong?
Crypto P&Ds
low market cap |
faster time scale (near real-time) |
lack of reliable information |
broader spread of misinformation |
low price |
new vehicles for “rumours” |
P&D in the wild
Can we detect them automatically?
Data
- scraped cryptocurrency exchange data
- trading data of 1-h granularity
- 20 days of trading, 5 exchanges, 977 trading pairs
Data + code available at https://osf.io/827wd/
Criteria for P&Ds
- sudden price increase (PUMP)
- sudden volume increase (PUMP)
- marked price drop (DUMP)
Conditional local point anomaly detection
Anomaly parameters
Estimation window |
12h |
Volume increase |
300% |
Price increase |
5% |
Price drop |
1.00 SD |
Alleged pumps |
2150 |
Pump-and-dumps |
1617 |
Crypto/crypto |
97.0% |
Low market cap |
81.8% |
P&D detection
Core findings
- potential for detectability
- mainly crypto/crypto pairs
- mostly low market cap
Zooming in
- Exchange-level
- % of traded coins \(\neq\) % of P&Ds
- Some exchanges are used more often than others
- e.g. “Kraken”: 6% of traded coins, < 1% of P&Ds
- among most regulated marketplaces
Zooming in
- Coin-level
- Most are never targeted
- Some are targeted again and again
- 30% of coins \(\sim\) 80% of P&Ds
Repeat victimisation of coins
Core findings
- potential for detectability
- mainly crypto/crypto pairs
- mostly low market cap
- repeat exchange victimisation
- repeat coin victimisation
New questions
- What are the characteristics of repeat victims?
- How is misinformation spread?
- How are groups building trust?
- What’s more than pump-and-dumps?
Ongoing work
- Detection:
- Signals in the accumulation phase
- Signals in the pumping phase
- Anticipation:
- Changes to MO
- Transition to new targets
Interdisciplinary challenge!
Bigger picture
If you had to design policing from scratch …
- fully embrace data
- avoid catch phrases (“big data”, “AI”)
- solve the capabilities problem
- go “open data”
Worst case: the gap becomes so wide, we’re not realising there is one.
Are cryptocurrencies the future of fraud?
Yes Maybe No