The Big Fix: how traders use dark web to ramp up digital currencies

ANONYMOUS traders are using a shadowy corner of the internet known as the dark web to organise the mass manipulation of digital currency prices.

An investigation by The Mail on Sunday has uncovered a website called CoinPump, which claims to be run by ‘experienced traders and software engineers’ and promises vast returns for those who put their money into ‘campaigns’ to fix cryptocurrency prices.

Unlike normal currencies such as the pound or dollar, cryptocurrencies exist solely on the internet and cannot be put into bank accounts. They are not recognised as legal tender and are accepted by only a small number of sellers. As such, they are more commonly viewed as a highly speculative investment.

The ringleaders of CoinPump, which is not related to entities with the same name on the normal internet, claim to use investors’ money to purchase large amounts of little-known cryptocurrencies and then pump up their value by promoting them on social media and increasing trading volumes by transferring funds between accounts.

When there is enough interest from other traders and investors, the organisers dump their digital money, selling it on to make huge profits. The manipulators call this tactic ‘pump and dump’ and tell prospective backers that they could make profits of up to 2,500 per cent on their investments. However, experts warn that those who invest in the schemes risk being ripped off because there is no guarantee the organisers can be trusted.

Jason Hill, lead security researcher at cybersecurity firm CyberInt, warned: ‘Something may appear to be a way to make a quick buck, but in reality it is a scam.’

Cryptocurrency prices can be highly volatile. Bitcoin, for instance, has risen 160 per cent so far this year to $9,600 (£7,600). The CoinPump website asks collaborators to invest in them with Bitcoin, which itself is a cryptocurrency but is seen as more mainstream and reliable than other forms of digital money.

Organisers say they charge investors 10 per cent of their profits after the campaign is complete.

Pump and dump schemes are also promoted on the mainstream internet. However, experts say the dark web is seen as a preferable arena in which to organise such campaigns because it offers users anonymity.

The dark web is a collection of websites, hidden from the view of most internet users, which can only be accessed through specialised browsing programmes. It is notoriously associated with the sale of illegal drugs and weapons, which are often bought using cryptocurrencies. The existence of sites such as CoinPump will add to concerns about the increasing prominence of cryptocurrencies.

In March, Bank of England Governor Mark Carney called for greater regulation of digital currencies to crack down on illegal activities and safeguard the financial system. Last week, Facebook launched its own digital currency, Libra, which Carney has said the Bank will be monitoring.

The Mail on Sunday last week accessed the CoinPump website and learned it was seeking to raise 40 Bitcoin – worth more than £300,000 at current market values – for its next campaign. The organisers do not say which ‘altcoin’ they will target next, but suggest it will yield a profit of 15-20 per cent on original investments.

The website acknowledges that the campaigns it runs would be considered fraud if they were altering share prices, but points out that such activity is legal in the cryptocurrency world. ‘Is it unethical?’ it asks. ‘Maybe. Is it fraud? No, it’s just market manipulation.’

CoinPump could not be reached for comment.