WHY ARE CRYPTOCURRENCIES VULNERABLE TO PUMP-AND-DUMP SCHEMES IN EUROPE?
Jorge E. Constantino Torres
Master candidate in International Technology Law at Vrije Universiteit (VU) Amsterdam, The Netherlands., NL
Jorge Constantino is currently a Master candidate in International Technology Law at Vrije Universiteit (VU) Amsterdam, The Netherlands. In 2015, he graduated as a Bachelor of Laws from Queensland University of Technology (QUT), Brisbane, Australia. Since, he has worked in legal practice in Australia and currently works as a sessional academic teaching Law at Queensland University of Technology (QUT).
Cryptocurrency is a digital exchange medium stored in the Distributed Ledger Technology (DLT) and form the basis for the term crypto-assets. In the United Kingdom, the Bank of England does not make a distinction amongst cryptocurrency and crypto-asset. Similarly, the European Central Bank (ECB) defines crypto-assets as a digital asset enabled by cryptography. This paper focuses on the group of cryptocurrencies (or crypto-assets) that belong to Public Permissionless Blockchains. This paper will explain historical pump-and-dump, and how this old scheme appears to be applied now to cryptocurrency trading. Then it moves to explore the nature of the blockchain ecosystem where cryptocurrencies exist, proposing that ironically the encryption and immutability nature of the blockchain make cryptocurrencies vulnerable to pump-and-dump schemes. Lastly, it argues that the lack of adequate regulation in Europe leaves cryptocurrencies vulnerable to pump-and-dump schemes. The overall effect is that consumers become the targets of fraudsters, which also affects investors, and further affects the development of cryptocurrencies and the blockchain itself. This paper does not seek to engage in a discussion whether the adequate terminology is “cryptocurrency” or “crypto-asset”. Thus, it would consider both terms as equal parallels. Similarly, it is not an objective to establish distinctions between a Private and Public Blockchain, nor whether they are Permissionless or Permissioned. Rather, the discussion below refers to cryptocurrencies such as Bitcoin or Ethereum, contained on Public Permissionless Blockchains.