Cryptocurrency manipulation schemes could be found and foiled by new algorithm

Imperial scientists have created an algorithm to predict when specific cryptocoins are at risk of 'pump-and-dump' schemes. The algorithm could help market regulators predict and prevent cryptocurrency schemes that sees traders spend seven million US Dollars per month, only to find the price of their purchased currency falls as the scheme unfolds. Pump-and-dump schemes are used to artificially inflate the price of a cryptocurrency - types of virtual currency - so that scheme organisers can sell the currency at a profit. However, the scheme works by rallying hundreds or thousands of investors together to boost, or 'pump' the price - some of whom don't act quickly enough when the price peaks, and will therefore lose money. Organisers of these schemes, who control the process and are ahead of the curve, can make large profits - while less experienced users often fall behind the curve and lose money. Dr Jiahua Xu Department of Computing Long used by traditional financial markets, pump-and-dump schemes are now common in crypto financial markets too. Pump-and-dump scheme organisers often use their knowledge to gain from pump-and-dump events at the sacri'ce of fellow pumpers, and the practice costs the cryptocurrency market seven million USD per month.