ETC/ETH Market Manipulation and Why Everyone Looses

in #ethereum8 years ago

For the last few days the ETC/ETH market has been manipulated by the miners. Take a look at this:

Each one of the bumps on this graph is a large miner manipulating the price. Here is how it works:

  1. They have some significant amount of hash power that they control. Let's say 100GH/s.
  2. They originally that hash power towards the ETH chain.
  3. They buy some ETC. Let's say @ 0.18 ETC/ETH.
  4. They point the hashing power towards the ETC chain.
  5. This in turn increases the % of hash power on the ETC chain as opposed to the ETH chain.
  6. All the traders see the increase in power of the ETC chain and adjust their buy and sell orders to match the new market conditions. So, say ETC now has 20% of the hash power, the ETC/ETH pair now starts trading at 0.2 (up from 0.18 in #3).
  7. They now have made a 10% profit (0.18/0.2) just by switching chains.

If you take a closer look at the graph you'll actually see a trading volume spike before the price starts going up. This is more then likely the scenario I am referring to here, miners buying up ETC before switching their rigs over the ETC chain.


Why this hurts everyone

One could argue that the miners control the security of the both block chains so why shouldn't they profit from switching over to whatever chain they want to support? The problem here is that these guys are not switching over for some moral reason, they are simply doing it for profit. The ETC chain is more profitable to mine and they can make a mint up front. From a short term financial perspective this makes sense, the market effectively encourages them to do so.

If this continues what will eventually happen is actually that the ETH chain becomes more profitable to mine and ETC miners will now have a financial incentive to switch back over to ETH. Each time they switch they create more price volatility in their wake, bringing more speculation to the price of both ETH and ETC.

Price volatility doesn't benefit anyone in the long term. It scares newbies and potential investors from trying to buy into the Ethereum project on either side. It scares merchants form dealing with the crypto coin and most importantly it distracts the whole community from building useful DApps on top of Ethereum. Basically it erodes away the Ethereum value proposition for a quick buck.

Without some form of a penalty for miners switching from one chain to another this is all but inevitable... or maybe the proof of stake algorithm will finally be rolled out and save both chains from impeding doom.


Think I am off my rocker and that this is nothing more than a conspiracy theory or do you agree with me? Let me know.

Sort:  

You should relax. A little conspiratorial

Trying... now excuse me while I look for my tin foil hat :D

Hopefully the relative hash rate of ETC will stabilize and everything that I worry about in this article will be a moot point.

I upvoted You

Good info , you know your coins.
In my opinion it is very simple :
Every miner just wants the best bang for his bucks. If it is more profitable to mine ETC , miners will switch ( I think I am one of the rare idiots refusing to do so on moral grounds ) to that chain.

Traders will do what they always do : speculate , if they find opportunity to do so on the ETC chain - they will.

I have made a post similar to yours.

I absolutely agree with you. My worry is that this activity distracts from building useful applications with or on top of ETH or ETC.

ETC attracting shady miners, seriously though ETC will attract for-profit Developers too if the DAO hacker can get bailed out (you think the foundation bailed them out, lol no they made the stolen ETH WORTHLESS! The ETC bagholders and buyers are the ones who paid for the bailout of the DAO) then whats stopping other developers from publishing dapps with a certain bug and then claiming to get hacked after receiving massive funding?? ETC is so against hardforking DAPPS because code is law lol. Then developers will just put bugs in their codes on purpose. #DAOWasAnInsideJob

Congratulations @thenix! You have received a personal award!

Happy Birthday - 1 Year on Steemit Happy Birthday - 1 Year on Steemit
Click on the badge to view your own Board of Honor on SteemitBoard.

For more information about this award, click here

By upvoting this notification, you can help all Steemit users. Learn how here!

Congratulations @thenix! You have received a personal award!

2 Years on Steemit
Click on the badge to view your Board of Honor.

Do you like SteemitBoard's project? Then Vote for its witness and get one more award!

Congratulations @thenix! You received a personal award!

Happy Birthday! - You are on the Steem blockchain for 3 years!

You can view your badges on your Steem Board and compare to others on the Steem Ranking

Vote for @Steemitboard as a witness to get one more award and increased upvotes!

Hi! This post has a Flesch-Kincaid grade level of 7.2 and reading ease of 76%. This puts the writing level on par with Tom Clancy and F. Scott Fitzgerald.