Crypto trading isn’t as egalitarian as it is purported to be. Consider gas fees and how they work on the Ethereum network. If a user is willing to pay a higher fee than the recommended amount for his or her transaction, then he or she can jump the line and make a trade first.
Coming out on top in uncertain market conditions is that simple, in a sense. This principle can easily be extended to trading bots, as CoinDesk did in their article on the subject today, to say that such trades can be scheduled in advance. The system of gas fees is therefore, easy for some to manipulate.
Since the overall gas system was, however, created to increase the efficiency of the network by prioritizing high-fee transactions and queuing low fee transactions, it is logical to wonder if anything can be done about this exploit. One of the most nightmarish outcomes that could occur in the future would be for an order that was placed on a decentralized exchange to be essentially stolen by a faster trader.
The fact is, however, original research from Cornell suggests this is already occurring. As CoinDesk puts it, the Cornell team involved found that “arbitrage bots” are exploiting several decentralized exchanges to keep certain traders ahead of everyone else. Remember that age old crypto saying of “buying the dip?”
Doing so might not actually be possible for everyone, except those with deep pockets, significant technical know-how, or both. The Cornell team goes on to specify that the bots mentioned above even bid up gas prices on certain markets until one wins out and ends up paying whatever the final price is. What this amounts to is basically blatant market manipulation so that the average trader is freezed out. In that sense, it could be argued that crypto is turning into a mini-Wall Street already. Those that move faster truly seem to win more. If we want to continue to promote Satoshi’s vision in all that we do, then we should be examining ways to make these bots obsolete.
By: BGN Editorial Staff