Back to Course

3. Advanced Course

0% Complete
0/0 Steps
  1. 1. What is Taproot?
  2. 2. Blockchain bridges – what are they?
  3. 3. What is Ethereum Plasma?
  4. 4. What is Ethereum Casper?
  5. 5. What is Zk-SNARK and Zk-STARK? 
  6. 6. What is Selfish Mining? 
  7. 7. What is spoofing in the cryptocurrency market? 
  8. 8. Schnorr signatures - what are they? 
  9. 9. MimbleWimble - what is it? 
  10. 10. What is digital property rights in NFT?
  11. 11. What are ETFs and what role do they play in the cryptocurrency market? 
  12. 12. How to verify a cryptocurrency project – cryptocurrency tokenomics 
  13. 13. What is the 51% attack on blockchain?
  14. 14. What is DAO, and how does it work?
  15. 15. Zero-knowledge proof – a protocol that respects privacy 
  16. 16. What is EOSREX?
  17. 17. What is Proof of Elapsed Time (PoET)?
  18. 18. Mirror Protocol – what it is? 
  19. 19. What are synthetic assets? 
  20. 20. How to create your own NFT? 
  21. 21. Definition of DeFi, and what are its liquidations?
  22. 22. New identity system - Polygon ID
  23. 23. Ethereum Foundation and the Scroll protocol - what is it?
  24. 24. What is Byzantine fault tolerance in blockchain technology?
  25. 25. Scalability of blockchain technology - what is it?
  26. 26. Interchain Security - new Cosmos (ATOM) protocol
  27. 27. Coin Mixing vs. Coin Join - definition, opportunities, and threats
  28. 28. What is Ethereum Virtual Machine (EVM) and how does it work?
  29. 29. Soulbound Tokens - what are they, and how do they work?
  30. 30. Definition of LIDO - what is it?
  31. 31. What are Threshold Signatures, and how do they work?
  32. 32. Blockchain technology and cyberattacks.
  33. 33. Bitcoin script - what it is, and what you should know about it.
  34. 34. What is zkEVM, and what are its basic features?
  35. 35. Do confidential transactions on blockchain exist? What is a Confidential Transaction?
  36. 36. Algorithmic stablecoins - everything you should know about them.
  37. 37. Polygon Zk Rollups ZKP - what should you know about it?
  38. 38. What is Web3 Infura?
  39. 39. Mantle - Ethereum L2 scalability - how does it work?
  40. 40. What is the NEAR Rainbow Bridge?
  41. 41. Liquid Staking Ethereum and LSD tokens. What do you need to know about it?
  42. 42. Top 10 blockchain oracles. How do they work? How do they differ?
  43. 43. What are Web3.js and Ether.js? What are the main differences between them?
  44. 44. What is StarkWare, and recursive validity proofs
  45. 45. Quant Network: scalability of the future
  46. 46. Polygon zkEVM - everything you need to know
  47. 47. What is Optimism (OP), and how do its roll-ups work?
  48. 48. What are RPC nodes, and how do they work?
  49. 49. SEI Network: everything you need to know about the Tier 1 solution for DeFi
  50. 50. Types of Proof-of-Stake Consensus Mechanisms: DPoS, LPoS and BPoS
  51. 51. Bedrock: the epileptic curve that ensures security!
  52. 52. What is Tendermint, and how does it work?
  53. 53. Pantos: how to solve the problem of token transfer between blockchains?
  54. 54. What is asymmetric encryption?
  55. 55. Base-58 Function in Cryptocurrencies
  56. 56. What Is the Nostr Protocol and How Does It Work?
  57. 57. What Is the XDAI Bridge and How Does It Work?
  58. 58. Solidity vs. Rust: What Are the Differences Between These Programming Languages?
  59. 59. What Is a Real-Time Operating System (RTOS)?
  60. 60. What Is the Ethereum Rinkeby Testnet and How Does It Work?
  61. 61. What Is Probabilistic Encryption?
  62. 62. What is a Pinata in Web 3? We explain!
  63. 63. What Is EIP-4337? Will Ethereum Account Abstraction Change Web3 Forever?
  64. 64. What are smart contract audits? Which companies are involved?
  65. 65. How does the AirGapped wallet work?
  66. 66. What is proto-danksharding (EIP-4844) on Ethereum?
  67. 67. What is decentralised storage and how does it work?
  68. 68. How to Recover Cryptocurrencies Sent to the Wrong Address or Network: A Practical Guide
  69. 69. MPC Wallet and Multilateral Computing: Innovative Technology for Privacy and Security
  70. 70. Threshold signature in cryptography: an advanced signing technique!
  71. 71. Vanity address in cryptocurrencies: what is it and what are its characteristics?
  72. 72. Reentrancy Attack on smart contracts: a threat to blockchain security!
  73. 73. Slither: a static analyser for smart contracts!
  74. 74. Sandwich Attack at DeFi: explanation and risks!
  75. 75. Blockchain RPC for Web3: A key technology in the world of decentralized finance!
  76. 76. Re-staking: the benefits of re-posting in staking!
  77. 77. Base: Evolving cryptocurrency transactions with a tier-2 solution from Coinbase
  78. 78. IPFS: A new era of decentralized data storage
Lesson 7 of 78
In Progress

7. What is spoofing in the cryptocurrency market? 

Spoofing is a technique for manipulating the market. It falsifies its real state. It usually works so that a trader places a fake buy or sell order that will never be executed. Spoofing is used to manipulate the market and the prices of an asset, using various types of algorithms and bots. Of course, this is an illegal activity. 

How does spoofing work?

Very simply. As already mentioned, using bots or algorithms, a trader places a fake buy/sell order. When the order is close to execution, the bot or algorithm cancels it. The purpose of this technique is to create false buy/sell pressure; give the illusion of volume, consensus and an active market, and lead the market towards or away from a particular set of prices.

This backfires on the market because there is no clear way to tell if an order is fake. This illegal technique can be effective, for orders placed at moments of support or resistance. As we know, these are key moments for traders. 

Does spoofing only occur on the cryptocurrency market?

Spoofing does not only exist in the cryptocurrency market. It is also present, for example, on other financial markets. Consequently,, it can be effectively linked to another asset, which in turn affects the market of another asset, e.g., the USD exchange rate on Bitcoin.

When the market is expecting unexpected movements, then the technique is more effective. If there is FOMO in the market, this leads to high market volatility and therefore false orders can be executed rapidly. On the other hand, if the market is in an uptrend, spoofing is much less effective. However, it all depends on market users and many other factors. 

What are the consequences of spoofing?

We mentioned that this technique is illegal in the markets. It also has a very damaging effect on it. Why? Because it causes price changes that are not reflected in supply and demand. At the same time as the fraudsters control price movements, they profit from it. 

BONUS – INTERESTING FACTS

  1. The US Commodity Futures Trading Commission (CFTC) oversees spoofing activities in the stock and commodity markets. 
  2. The Dodd-Frank Act of 2010 regulates the illegality of spoofing. 
  3. The Financial Conduct Authority (FCA) in the UK also oversees this technique. 
  4. In 2018. Bloomberg reported on an investigation that the US Department of Justice (DOJ) has launched to determine whether spoofing manipulated cryptocurrency prices on the Bitcoin network. To conduct the investigation, the DOJ worked with the Commodity Futures Trading Commission (CFTC). The investigation is likely to have focused on Bitcoin not only because it remains the largest digital currency in terms of market capitalization.Also, because its massive price spike in late 2017 pushed hordes of new amateur investors into the cryptocurrency space.
  5. The UK is imposing sizable fines on traders and institutions responsible for using the technique. 
  6. In December 2020, the US Securities and Exchange Commission (SEC) rejected the Bitcoin Exchange Traded Fund proposal. All due to concerns that the Bitcoin market is susceptible to manipulation. 
  7. The asset market is changing and will therefore be more resistant to such attacks in the future. 
  8. Identifying a spoofing attack is difficult to discover. It requires careful analysis. 
  9. Spoofing should be minimized. Then the investment environment will be sustainable. 
  10. Cryptocurrency regulators often use this market manipulation technique to reject Bitcoin ETFs. 

Conclusion:

Remember that investing always involves risk, whether you invest in cryptocurrencies or other assets. Caution is the main approach of many experienced traders. If something looks too good, it most typically is. Use reputable exchanges that detect spoofing attempts and respond to them.

Discover staking with KNG token on Kanga Exchange