Frontrunning has caused a loss of $280 million to unsuspecting traders each month
The global cryptocurrency juggernaut rolls on - attracting millions in India too. A Chainalysis recent report pegged India at the second place in cryptocurrency adoption. But while India is seeing a spurt in cryptocurrency trading and usage, the threat of frontrunning cannot be discounted. Frontrunning, simply put, is trading of cryptocurrencies based on publicly unavailable information about a future transaction. While the statement may sound innocuous, frontrunning has caused a loss of $280 million to unsuspecting traders each month worldwide, reports Cybernews.
"I like to compare front running to insider trading in financial markets. In frontrunning, traders make use of non-public information like pending transactions to maximise profits before a transaction can be confirmed," explains Aliasgar Merchant, Developer Relations Engineer, Tendermint.
Raj Kapoor, a global blockchain expert based out of Mumbai, lists down several factors that contribute to frontrunning: "Information asymmetry, where common traders have no inside information but miners have prior information about future transactions, play a major role in frontrunning. There is always some time delay in completing a transaction in blockchain. Miners sometimes exploit the time lag to book a transaction and earn undue profits".
In a Medium blog, Mr Merchant notes how block producers (called leaders) wait for information on exchanges in the mempool and try to broadcast their own exchanges before traders. Mempool is a place which keeps the data on all the unconfirmed crypto transactions. He also notes two possible frontrunning attackers. Miners, Mr Merchant writes, are in the best position to attack since they are the ones who build the blocks in transactions, while "full nodes" - users monitoring transactions - can front-run pending transactions by quoting a higher gas fee.
For the uninitiated, gas fee is the charge paid to successfully conduct a blockchain transaction. Higher the gas fee, higher the chances of a successful transaction.
Mr Kapoor, the Founder of India Blockchain Alliance, also blames seemingly inconsequential, but factual factors such as network issues and personal prejudices for the rampant frontrunning in the cryptocurrency space. "Someone with a better network can break the queue and place his order ahead of everyone. Sometimes, miners with personal prejudices can also block the transactions too," he shares.
Apart from the obvious monetary loss, frontrunning can also break the trust of many existing and potential investors. To fight frontrunning, several blockchain platforms have devised methods to mitigate it.
Recently, blockchain platform Telos announced the launch of EVM Mainnet, which aims to not only mitigate frontrunning but also high gas fee and slow transaction speeds. Noting that frontrunning has been turning depressing and complex, Douglas Horn, Telos chief architect, says, "Telos EVM is faster, better and cheaper. The simplicity of integrating with Metamask (a cryptocurrency wallet) allows investors to trade safely."
"Telos is making use of hierarchy to execute transactions. This means they give execution of orders a priority on the basis of when they arrive. It's a good approach and can prevent frontrunning to an extent," opines Mr Merchant. Mr Kapoor prefers a more wait-and-watch approach for a viable solution. "There are a few, but not really tested. Telos EVM seems like a good idea, but we need to see how it pans out in real scenarios."
While Telos, according to Mr Merchant, uses the "hierarchy" to execute orders, there are other reported ways to fight frontrunning. Gas fees limiting, where the gas fee is limited to be less than or equal to the maximum gas fee defined by the owner of smart contract, and off-chain ordering where the ordering is done on a traditional system and settlement is done on blockchain.
Given that decentralisation is considered the biggest USP of blockchain, can a regulatory body such as SEBI or SEC be the ultimate solution against frontrunning? Mr Kapoor believes that the establishment of a regulatory authority will be the end of the crypto sector. It will defeat the concept of decentralisation. "The solution will come from within the blockchain community. It is all within the family," he adds.
Waiting for response to load...
FAQs
A recent report predicts that Bitcoin will reach a new all-time high in 2024. Bitcoin (BTC) is expected to reach a new record of $88,000 (€82,000) throughout the year, before it settles around $77,000 at the end of 2024, according to a new report. The cryptocurrency's current price sits at around $43,000.
Why is crypto making a comeback? ›
Institutional investment drives Bitcoin's recovery
Bitcoin's recent surge has been buoyed by an influx of institutional investors entering the crypto market.
Why is crypto surging? ›
The price of crypto assets has steadily risen for various reasons, including the approval of spot Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) in January this year, and the upcoming Bitcoin halving, which has historically been followed by a crypto bull market.
Does cryptocurrency have any intrinsic value? ›
The Bottom Line. Bitcoin's price constantly changes based on demand and investors' perception of its worth. Whether Bitcoin has intrinsic value appears to depend—at least for now—on how it is individually valued.
What will $1000 of Bitcoin be worth in 2030? ›
If Bitcoin continues this pattern into 2030, the price could peak around 2029 or 2030. If Wood is correct and Bitcoin reaches $3.8 million, if you invested $1,000 in Bitcoin now, it would be worth $54,280 in 2030. This would result in a compounded annual growth rate (CAGR) of nearly 95%.
Will crypto be around in 10 years? ›
Key Takeaways. Bitcoin, the cryptocurrency, is most likely to remain popular with speculators over the next decade. Bitcoin, the blockchain, will probably continue to be developed to address long-standing issues like scalability and security.
Will crypto recover in 2024? ›
The 2024 Bitcoin halving is expected to happen on April 17, 2024, and is being highly anticipated. Experts, including Robert Kiyosaki, have predicted that Bitcoin could reach $100,000 by June 2024, while Standard Chartered suggests that Bitcoin could soar to $200,000 by the end of the year.
How long will the crypto bull run last? ›
Bitcoin's price is up about 120% from this time last year. But judging by sentiment amongst crypto enthusiasts on X, we're only in the early innings of the bitcoin bull market that many believe will last through the better part of 2025. How can people be so confident that bitcoin's price will continue to rise?
Which crypto will boom in 2024? ›
This article will introduce five top cryptocurrencies that are tipped to explode in 2024: Pikamoon, Solana, The Graph, Sei, and Cosmos. Diving deeper, we'll explore the factors that may contribute to their explosive growth, analyse market trends and insights, and examine investment strategies.
Is Bitcoin nearing an all time high of $69000? ›
The price of Bitcoin climbed to a record high of about $69,000 Tuesday morning, continuing a months-long rally and helping fuel a surge in other cryptocurrencies as it keeps ticking upward from its 2023 doldrums.
Specifically, bitcoin has moved like a speculative asset: a high-risk class of investments that draw interest for their potential to greatly increase, as opposed to their underlying utility. When interest rates shrank during the pandemic, allowing people to borrow and invest money more easily, bitcoin boomed.
Which coin will reach $1 in 2024? ›
Exploring the potential cryptocurrencies like Pikamoon, Dogecoin, Book of Meme, Rosewifhat, and Zilliqa as contenders to hit the $1 milestone. Key factors like utility, viral potential, and clear roadmaps suggest their potential amidst market sentiment and unique tokenomics.
Who controls the value of cryptocurrency? ›
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
What asset is cryptocurrency backed by? ›
Asset-backed cryptocurrencies (ABCs) are digital tokens that derive their value from real-world assets, such as commodities, precious metals, real estate, or other tangible or financial assets.
Will Bitcoin ever crash to zero? ›
It is theoretically possible. Bitcoin has been around for close to 15 years now, and although it has survived several dramatic crashes before making new highs, its extreme volatile nature puts investors at risk of losing all their money.
How much will $1 Bitcoin be worth in 2025? ›
Bitcoin Overview
| Year | Minimum Price | Average Price |
|---|
| 2024 | $83,001.70 | $85,601.44 |
| 2025 | $122,154.78 | $125,577.44 |
| 2026 | $177,945.20 | $184,224.58 |
| 2027 | $263,695.63 | $272,906.71 |
8 more rowsAnalysts estimate that the global cryptocurrency market will more than triple by 2030. This all leads to one big trend. Cryptocurrency, once only understood among a relatively fringe community of anti-establishment investors, is now becoming a household name – and quickly.
How long until crypto recovers? ›
When will crypto recover to its previous highs? A return to 2021's market peak may take years, but it can also happen much faster than many expect. It's likely that market-leading cryptocurrencies like BTC and ETH will continue to dominate the market.
Will crypto rise again in 2025? ›
Bitcoin is currently worth $1.2 trillion and the entire cryptocurrency market is worth $2.3 trillion. In short, there will have to be a massive influx of liquidity into the crypto market in order for Ethereum to quintuple in price by 2025.
