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How traders 'pump and dump' cryptocurrencies (businessinsider.com)
174 points by bradvl on Dec 18, 2017 | hide | past | web | favorite | 50 comments



This article is complete bullshit.

I'm a member of this group, only because I was added without my consent, which is probably the case for most of the users in the group.

Just for giggles, I watched them do a pump and dump one time, and they basically sold the pump hard, managed to get about 10 Bitcoin in some tiny market cap coin, and then one guy sold all the way back down and left the "members" of the group holding the bag.

This group is a scam, but not in the way that this article says.

Also, telegram isn't encrypted as far as I know.


Telegram's key feature is encryption. https://telegram.org


Depends on what you mean. End-to-end encryption is an optional feature in Telegram and is disabled by default! Client-to-server encryption is not worth mentioning.


Only on phones, there is no option to encrypt on desktop.


According to their website all data is encrypted. From what I understand it's transparent and does not require enabling via an option.


This is a longstanding issue with Telegram, and deceptive advertising that a lot of people have an issue with. They use client-server encryption sure, but unlike Signal or WhatsApp, they do not employ end-to-end encryption by default; you must enable it for two person chats, and it is not available for group chats. Unless something has changed, you get full chat history when you log in from a new device or are invited to a pre-existing group, meaning that the chat history is stored on their servers, and if not in plain text it can be unencrypted for new group members or devices.


Telegram has two different encryption schemes:

    - client to server, server to 2nd client
    - full end2end encryption
The first is default and stores all communication in plaintext on telegram servers. The first scheme enables universal search, instant "cloud backup" for the whole communication of that account, instant access for newly deployed devices, etc.

The second works only on demand, is restricted to 1:1 chats, doesn't work in the browser and is generally not used that much among regular users who don't know about the feature.


I have a friend and his father who was involved in pump and dump schemes on the stock market decades ago. They probably netted over $1 million during the dot com boom. This one might not be true, but there certainly are pumpers and dumpers working on cryptocurrencies.


> Also, telegram isn't encrypted as far as I know.

Sure it is. There are (optional) E2E one-on-one secret chats. Doing E2E for a group is obviously a bit harder, as that's broadcast or multicast encryption -- think the DirecTV problem -- but the protocol itself is encrypted nonetheless.

https://en.wikipedia.org/wiki/Telegram_(messaging_service)#E...


Optional end to end encryption with an additionally crippled UX just means 1. no used end to end encryption in practice and 2. a worse reputation for e2e as a whole.

Telegram has it as much as Facebook Messenger has it. It's a fig leaf.


Sounds more like whale/s telling people to raise the price of a coin then dumping on them, rather than some kind of a 'collaborative' pump.

The article is talking about minutes after all so there's likely no outside buyers fast enough to react. Essentially most 'members of the community' will lose, but some lucky ones will be fast enough to dump before the whale for at least some cash.


>The article is talking about minutes after all so there's likely no outside buyers fast enough to react.

The article doesn't talk about it, but there are campaigns organized over days and weeks to talk up a coin. It's not all about minute timescales.


I've observed these telegram groups in action and have followed the execution of their campaigns. True, they market them for days but the spike and drop in price is indeed quick to the tune of minutes. The organizers load up on the coins ahead of time and are basically preying on their unwitting followers. If you hang out crypto telegrams or slack for long enough you'll see that the organizers spend pretty much all of their time recruiting newbs for the next pump.


Exactly the same outcome as Runescape "merchanting" aka pump and dumping where the majority of the participants were looking to make a quick flip and end up screwed over by the organizers who bought in much earlier start selling early as well. I think much of what is happening in the crypto currency scene has played out in virtual economies a decade earlier and irl for hundreds of years prior.


Do you have evidence of these?

Don't get me wrong, I believe you, but convincing evidence, even anecdotal, would be useful.

Of the big coins, not the hundreds of random ones with "To The Moon" Reddit comments.


>Of the big coins, not the hundreds of random ones with "To The Moon" Reddit comments.

In terms of personal experience, I've not seen anything as explicit as this article. And nothing with a giant market cap coin. More like a gray area between pump and dump and a bunch of over enthusiastic marketers.

Like I'll be reading a forum and notice a ton of people hyping up a small market cap coin. Check their post histories and they are generally new or they've only talked about the coin. Eventually find the slack/discord for the coin, people are posting links to forums/threads/mentions of the coin in the discord, and people are organizing shifts to give support. The comments are all purportedly coming from a genuine place (and to an extend they may be) but they were posted as if they were just random people stumbling across this discussion -- not an organized group explicitly trying to spread the good word.


Pump'n'Dump of that sort for small coins has been going on since literally the beginning of altcoins. I'm not in the altcoin arena now, but I assume it's the same as it was.

Really, there wasn't much different between that era and the yahoo penny stock boards of the late 90s.

Learning to detect and filter that noise is a crucial skill if you're gonna trade those things.


"Really, there wasn't much different between that era and the yahoo penny stock boards of the late 90s."

I came here to say exactly this. Coins are extremely similar in nature to pink sheets. Bitcoinforums et al are the new yahoo finance forums. Full of shills and pumpers, be very VERY wary.

I was doing "research" this weekend for some long tail alts I could ride the pump on next. I couldn't help but note the number of template Diva Wordpress sites out there, all using the exact same template just with different fonts and minor style changes. All have some bullshit "whitepaper" (overused term of the year). Then I thought this can't be that hard to start my own. So, I am. Hopefully I'll pump my own coin within the next few weeks. I've noted a few criteria that I'm sure will attract some gamblers/fools.

On a side note, the eBay market for mining rigs and accessories is stunningly healthy.


I am interested in the criteria you have identified.

Would you be willing to discuss this further? I have some silly ideas.


LTC seems like a bubble.


All cryptocurrencies are a bubble.

Technology is still not there yet. There's no scaling solution anywhere in sight.

These valuations are for a product that does not exist.

If scaling miraculously comes then the price might hold, otherwise the transaction fees will grow up to a point that most small investors won't be able to make that 2nd layer entry transaction and will be stuck on the expensive 1st layer.

The price will then crash.


>Technology is still not there yet. There's no scaling solution anywhere in sight.

lightning network?


The what what? This whitepaper? https://lightning.network/#intro

Show me some working software or this is all hand-waving bullshit. That thing's dated 2015, so where's it at?


> Show me some working software or this is all hand-waving bullshit.

You're in luck:

https://play.google.com/store/apps/details?id=fr.acinq.eclai...

https://medium.com/@lightning_network/lightning-protocol-1-0...

There are currently 3 implementations by different teams being tested, all compatible with each-other and open-source.

No, it's not production ready, there are still plenty of bugs and missing features but it's close and you can go test it right now on testnet if you want to.


> ...there are still plenty of bugs...

Yeah, well, that sounds like incomplete to me. Will it beat GNU Hurd to market?

Perl 6 shipped so anything's possible.


You're shifting the goal-posts, there is working software and it's clearly not "hand-waving bullshit". It needs testing (which you can help with, it's all open) and improvements but it's definitely not vapor-ware.


A potential solution is a lot different from an actual, working, trusted solution.

Elon Musk has plans to land people on Mars. He hasn't landed people on Mars.

If and when it goes live, sure, you've got a point. Until then it's just speculative.


steem scales, 1 million transactions as 7 day average. http://www.blocktivity.info/ as of today...


Perhaps, but does the size of the blockchain (data and network bandwidth) scale as well?

Here's[1] a rough estimate of the growth of data on Steem.

[1] https://steemit.com/steem/@crokkon/steem-blockchain-size#@bl...


What, you don't want your crypto client to need multiple 8TB drives just to boot up?


IOTA is probably the closest to what you suggest


My understanding is that IOTA has achieved scale by sacrificing the durability to DDOS/network spam attacks. See: https://www.reddit.com/r/Iota/comments/7egqk7/is_iota_really...

There's no such thing as a free lunch in distributed system design! If IOTA had solved for scalability without sacrificing other attributes, the technology would probably be integrated into other coins very quickly.


NEO, XRB and Byteball scale


You're probably right - the folks in this group think they're running the scam, but they're mostly (unsympathetic) victims of it. Safe bet the admin's purchasing the coin before sending the "pump FooCoin!" message, and dumping it before sending the "make it crash now" one.


How traders pump and dump sub 50 btc volume coins is a more accurate title.

Manipulating a coin with 1k+ volume is significantly harder.


I've been hearing talk about 1k people own >40% of BTC[1]. I think having that kind of market share gives you that kind of power, especially if you coordinate your moves (like the article suggests).

This article more seems like spammers. Same kind of thing that the stock spammers did with emails. There's a nice DefCon video about this [2]. Basically some people have a lot of the stock (or coin), get people to buy, and dump on them. I think the evidence that people have been doing this with the smaller stock exchanges show that it can be done with BTC. I think if you watch BTCs price long enough, you can even see these patterns.

[1] https://www.bloomberg.com/news/articles/2017-12-08/the-bitco...

[2] https://www.youtube.com/watch?v=ytDamqTjPwg


> I've been hearing talk about 1k people own >40% of BTC[1].

That seems dubious. These numbers usually don't account for custodial wallets e.g. exchanges


"The Bitcoin system is the best known and most widely used alternative payment scheme, but so far it was very difficult to get accurate information about how it is used in practice. In this paper we describe a large number of statistical properties of the Bitcoin transaction graph, which contains all the transactions which were carried out by all the users until May 13th 2012. We discovered that most of the minted bitcoins remain dormant in addresses which had never participated in any outgoing transactions. We found out that there is a huge number of tiny transactions which move only a small fraction of a single bit- coin, but there are also hundreds of transactions which move more than 50,000 bitcoins. We analyzed all these large transactions by following in detail the way these sums were accumulated and the way they were dispersed, and realized that almost all these large transactions were descendants of a single transaction which was carried out in November 2010. Finally, we noted that the subgraph which contains these large transactions along with their neighborhood has many strange looking structures which could be an attempt to conceal the existence and relationship between these transactions, but such an attempt can be foiled by following the money trail in a sufficiently persistent way." - Dorit Ron and Adi Shamir

ref: https://eprint.iacr.org/2012/584.pdf


Yes, plus how to tell the difference between hodlers and lost keys?


I am on Telegram and none of these channels really have any bearing on pumping a coin. There might be some movement on smaller coins but these channels rarely play a major part.

Typically what happens, is a whale starts buying a particular currency and magically you start to see news articles appear on major and smaller niche crypto blogs. Then the reddit posts start appearing causing a even more hurried frenzy to buy the coin. It is very similar to how traditional stocks are pumped.

On a side note, I am noticing a trend from Forbes, Business Insider, and CBS News that are very hostile to the crypto space. They will literally grasp at any resemblance of shadyness to write a negative article.


feels like a fear and smear campaign to allow the government sweeping authorities and regulations "for everyone's own good" that probably offer little help to the problem the fear and smear campaign was calling out.


Happening every day at the penny stock stalls in small doses, but in crypto currency, these guys get off scott free with huge sums


Is coordinated buying really considered pumping? Don't you also have to distribute misleading information?


I have a feeling these businessinsider articles are actually coming from the pump and dump groups' press kits.


Oh, this brings back memories. Back in 2013/2014 when bitcoin first touched 1k, I got to know some of these groups.

First, there are positive campaigns run for multiple coins through YT channels (some really respected ones), reddit posts, bitcointalk forum etc. Once enough frenzy is generated a pump date is announced but not the coin name. The coin name depends on various factors like -how many coins these guys have accumulated, which coin is generating some vibe outside their efforts, how much of the supply has been mined etc.

Once the time arrives, the coin name is announced in the chat group, twitter etc. And the coin price flies on a particular exchange. It seems obvious that the price should tank. But it doesn't. Because there are a lot of things going on here:

a. In the cryptocurrency world, everyone has a constant FOMO fever. So, if they see a coin flying they buy irrespective.

b. Then there is lot of belief in technical analysis too. So, if there is some MA crossover, RSI crossever etc happens then people buy irrespective.

c. There are a lot of "arbitragers" who have automated setups to try and catch up the difference. So they sell at the high price exchange and buy at low price exchange. But, the imperfect market ensures that they actually end up pulling the price at the lower exchange. The price does drop but it doesn't go to the previous low price.

d. Lastly and most importantly the orderbook gets messed up and price is re-framed.

These coins are thinly traded. So, there is some form of equilibrium at the low price - there are both buyers and sellers at this price. Once the pump is over the price has inched higher. The bag holders have bought the coins at a higher price so they wont sell for a loss. Then the FOMO, TA and arbs come in to create an equilibrium market at the higher prices.

Things don't end there. The pump and dump schemers also are unable to get out at the high so, they keep creating positive buzz for the coins. In most cases, the same coin gets pumped up by many (or maybe same) groups multiple times.

Look at the chart for the Magi Coin mentioned in the article:

https://coinmarketcap.com/currencies/magi/#charts

It is going higher and higher.

If you look at the market on bittrex, which btw is the go to market for these schemes:

https://bittrex.com/Market/Index?MarketName=BTC-XMG

you will find multiple price swings, which are actually prices being pumped.

Does it work for big coins? Yes it does. But, those are much more nuanced than telling people to pump a coin. There it takes form of some announcement - mostly it is a vaporware feature which remains WIP for a long time or some collaboration.


you had me at...

"Russian messaging app Telegram is heavily encrypted and,..."

enough of the mccarthyism.

anyway, time to log off of my freedom infused american hacker news app and go work for a bit in my almost fascist italian code editor on my communist chinese computer


It's not even really Russian. It's based in Germany. Pretty sure the founder and his brother of VK fame haven't been back to Russia since Telegram was created. Either are dual citizens or only have non-Russian passports now too.


The current link anchors to the bottom of the page.


Thanks, we've removed that from the link.


These days, iN KOREA, it is crazy!! Several days, it shows going down tread, but in las weekend it goes up and upper! you guys, I want to ask you, how long does this situation go?




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