Tacen’s Analysis: Fake Bitcoin and Fake Order Books
The beauty of cryptocurrency is that it’s hard to fake things that are immutable and publicly accessible. Blockchain technology makes it difficult to substitute fake things for real things.
Did you notice that we said words like “hard” or “difficult,” and not “impossible”? Unfortunately, that was on purpose, and it’s because some exchanges have made it possible for crypto projects to fake their way to success.
FAKE ORDER BOOKS
Imagine Exchange A wants to show itself to be a popular exchange. Unfortunately for Exchange A, many traders don’t want to move their money to an exchange that has no volume – meaning, many traders don’t want to tie up money in an exchange if nobody will execute the other end of the trade.
To get around this, Exchange A decides to inflate their order book by moving around countless fake transactions. In this way, they give the illusion of high levels of volume on their exchange, tricking traders into thinking that there is more activity on Exchange A than there really is. Unfortunately for these traders, that means that depositing money into a trading account on Exchange A may mean that the money is stuck there for quite a while, waiting for someone else to complete the other half of the trade.
If that trader is really unlucky, they risk losing their money entirely if Exchange A decides to take their deposit and run.
Fraudulent activity on a crypto exchange can also impact the price of a cryptocurrency in fraudulent ways. When traders see artificial demand for a token disguised as true demand, it could cause the price of the token to rise when there’s really no reason for it to rise. The opposite could also happen: fake sell orders could cause the price of a token to plummet. This type of price manipulation is all too common in this space.
To make matters worse, some centralized exchanges may even complete orders for a certain crypto without having the tokens on hand to actually give to the trader. For example, imagine that a trader gives Exchange A 22,489 $TUSD in exchange for 1 $BTC. Exchange A accepts the trade, taking 22,489 $TUSD from the trader and placing 1 $BTC in their account. Unbeknownst to the trader, Exchange A hasn’t actually given them custody over that 1 $BTC yet, they’ve simply credited it to their account.
Usually, this isn’t a problem. But if too many traders try to withdraw the crypto from their accounts, and Exchange A doesn’t have enough supply on hand to meet their obligations, it could cause delays, account locks, and even an exchange collapse.
We’ve seen it happen too many times before.
A BETTER WAY TO TRADE
Tacen Exchange is dedicated to avoiding both of these fates. Through the use of a network of community operated Settlement Data Providers, Tacen Exchange can safeguard itself from fraudulent exchange activity, ensuring traders that the only demand they will see is true demand. Similarly, because Tacen Exchange never takes custody of a trader’s tokens, there is no possibility for us to become overextended or not have enough of a token for a trader to withdraw.
Tacen Exchange is the highly rare combination of centralized and decentralized features, resulting in the best of both worlds for every type of trader.
New to Tacen and wanting to learn what it’s all about? Be sure to follow us on Twitter to catch the latest updates and join our Discord community to meet the team and make friends. We love to give crypto to our community, and staying active on our Twitter and in our Discord server are the best ways to be the first in line.
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