Back in 2011, 50 Cent got into hot water over a penny stock. In a series of tweets to his 3.8 million followers, he hyped up an obscure Florida imports company.
“HNHI is the stock symbol for TVG there launching 15 different products. they are no joke get in now,” went one tweet. “TVG stock went from 5cent to 10 in one day. You can double your money now. Just get what you can afford,” went another.
Shares for the company soared 290 percent. But the problem — as ProPublica reported at the time — was that 50 was a majority owner in H&H Imports and made himself a paper profit worth almost $5.2 million.
Ultimately, he avoided violating laws against “pumping and dumping” stock because he hadn’t sold any of it. But the massive swell of interest in worthless stock nevertheless demonstrated the power of a modern platform like Twitter to spread misinformation—all this years before “fake news” became a common term. It was reminiscent of the schemes “Wolf of Wall Street” Jordan Belfort operated over the phone through Stratton Oakmont in the 1980s, retooled for a new age of social media.
“What’s different now is that technology is a force multiplier, rapidly increasing the number of platforms and arenas to allow for this type of activity,” says Michael Marriott, research analyst for online security firm Digital Shadows.
“Not only are there simply more communication channels, forums, and currencies (or cryptocurrencies) for pump-and-dump fraud, but new business models have emerged that offer fraud as a service — whether it’s payment card fraud or pump-and-dump schemes. These reduce the barriers for entry for this activity.”
Digital Shadows recently released a report arguing that fake news in 2017 has become a sophisticated business model as well as a political tool. Titled “The Business of Disinformation,” the white paper attempts to draw together the different apparatus and motivations behind disinformation campaigns, intentions that it says are “not limited to the geopolitical realm” of, say, Russian interference in foreign elections.
A big part of the business of disinformation, Marriott argues, centers on the rise of cryptocurrencies. His report notes a dark web service called TheInsider, which seeks to purposefully “pump” the price of alt-coins (non-bitcoin cryptocurrencies) by spreading posts through social media that promote the currencies.
“TheInsider then trades these coins between its multiple accounts, driving the price up, before selling these to unsuspecting traders on currency exchanges looking to buy while share prices are still rising,” the report states.
“An Attractive Target”
Why do cryptocurrencies attract this type of manipulation? A lack of regulation. “Data we collected in our cryptocurrency benchmarking study shows that overall cryptocurrency trading is more lightly regulated than trading in other asset classes,” explains Garrick Hileman, research fellow at the University of Cambridge, Judge Business School.
“This lower overall level of regulatory oversight can make cryptocurrencies an attractive target for market manipulators. The significant number of small, relatively less-experienced investors in cryptoassets is also attractive to those looking to hoodwink investors.”
Odysseas Sclavounis, a researcher in the governance of public blockchains at the Oxford Internet Institute and Alan Turing Institute, echoes these points, claiming that “with such small markets, big players can easily move the price when they buy and sell.”
According to Sclavounis, this small market capitalization works particularly well with a highly unequal token distribution, where “a couple of individuals may hold double-digit percentages of a cryptocurrency, allowing them to manipulate the price.” He also notes the use of closed WhatsApp groups where traders actively coordinate to “pump the price and then dump in tandem,” with users having to pay to gain access to the group.
“Fake news is sometimes circulated to crash the price of a cryptocurrency or to increase it,” Sclavounis adds, pointing to a case in June 2017 when a 4chan post falsely claimed that Vitalik Buterin, creator of the world’s second most valuable cryptocurrency, had died in a car crash. The price of Ethereum subsequently crashed 11 percent.
To prove he wasn’t dead, Buterin took to Twitter and posted a selfie holding up a piece of paper with information related to the latest block on the Ethereum blockchain—a play on posing with the day’s newspaper.
If cryptocurrency has a shady relationship with disinformation, how should regulators go about fixing this? Hileman notes that more established asset classes, such as equities, have independent research that investors can use to evaluate the merits of different prospective investments.
“For example, approximately 30 firms publish ongoing research on Facebook’s stock alone. Nothing like that level of coverage exists for any cryptoassets, even though cryptoassets have a total market cap equal to roughly half the size of Facebook’s.”
He adds that a further problem is many investment recommendations marketed as cryptocurrency research are of “dubious quality and lack proper ethical disclosures.” It goes some way to show that there’s still a lot of confusion and misunderstanding about cryptocurrency among authorities and regulating bodies in general.
China, for example, has outright banned cryptocurrency exchanges, in what Marriott says appears to be “a temporary measure until authorities can gain a better understanding of the problem.”
Better Living Through Blockchain
The answer to verifying reporting in this area may be held in the technology behind cryptocurrency itself: blockchain. A number of ventures are seeking to create a model for journalism that decentralizes funding sources and awards reader participation.
PressCoin, for example, is setting out to create a system where both readers and journalists are compensated in the cryptocurrency for level of engagement, “weighted in community-controlled ways which seamlessly calculate each user’s or node’s value to the overall system, in real-time,” its white paper claims.
Aggelos Kiayias, director of the Blockchain Technology Laboratory at the University of Edinburgh, says there is certainly a lot of potential for blockchain to resolve some of the crises facing media organizations.
“In particular, one can use blockchain technology to keep track of the reputation of news sources,” Kiayias says. “This still allows freelance journalism to use social media and internet-based ways of dissemination, like blogs, to communicate stories to a wide audience, while at the same time enabling a way for viewers to assess the trustworthiness of the news source.”
It’s too soon to tell if ventures like PressCoin live up to their ambitions. There hasn’t yet been strong evidence that blockchain-based reporting can compete with the established networks between traditional media outlets, business, and governments, let alone come up with a fairly weighted way to compensate contributors for their work.
All the same, the growth of these projects shows how blockchain is retooling the apparatus of disinformation to tackle market manipulation in the age of fake news and cryptocurrencies — and it’s a vision that involves fewer famous rappers and more decentralized ledgers.