How to Hack Crypto Markets
Take a close look at Ethereum’s Valentine’s Day price chart. See the sharp rise? That was a single investor, conniving and hoodwinking his way through crypto’s back door for a neat $298,250 profit. Here’s how!
Cryptocurrency trading platforms come a dime a dozen, but to pull ahead as an industry leader on price, millions of dollars must flow through your exchange with minimal cash deposit logjams. Behind closed doors, most platforms are content to shirk security somewhat and mislay a Bitcoin wallet here and there if that’s the cost of over-extending for volume. Because that’s how you win!
In its own efforts to attract crypto enthusiasts, trading platform bZx recently unveiled a “flash loan” system. Basically, if you can write a contract that provably makes money trading a cryptocurrency, you get an instant loan to let rip on the bZx exchange. Sounds smart, but the users were smarter!
Last Friday, someone won a two-million-dollar flash loan. bZx’s algorithm saw profits at the end of the trader’s code, and without hesitation, gave the green light without a human staffer to check if the profits were being made at their own expense.
First, Ether was bought as collateral to borrow Bitcoin. Ether was then shorted against that Bitcoin and driven down in price before a bug in the platform’s code let the trader close the short position without lifting Ether’s price.
The Bitcoin was exchanged for even more Ether at that depressed level than was possible in the beginning. Prices quickly rose again, allowing the phantom trader to pay off the flash loan and keep what remained. No one’s seen him or her since!
What next? The biggest threat to the crypto world appear to be its own participants. Both centralized and decentralized exchanges like bZx are wrestling with an industry that’s hypersensitive to any kind of regulation, so despite the Invstr Crypto Index being on an impressive run, but do you feel safe in the neighbourhood?