What is crypto front running?
A description of front running can get technical fast, especially if you’re not familiar with crypto. But in layman’s terms, front running involves bad actors waiting for a victim to make a crypto transaction that they hijack by paying more “gas fees” (which dictate the speed with which a transaction is processed on the blockchain) than the victim. This puts them ahead in the transaction queue. After the front runner buys the crypto ahead of the victim, the price of the crypto goes up (because there’s less of it). The front runner then immediately sells the newly purchased crypto at the higher price just as the victim’s slower transaction occurs, and the front runner realizes a profit. The victim is left with less crypto than they were expecting because the price went up in the last moments.
Cypto front running is analogous to a similar scheme in stock market trading. The difference comes in the fact that stock market front running hinges upon the schemer having prior knowledge of a large upcoming trade that will increase a stock’s value—commonly referred to as insider trading. Crypto, on the other hand, exploits the base technology of the currency itself, employing pre-programmed bots to act with mili-second speed in the moments after a transaction is publicly announced on the blockchain but before it is actually executed.
So where does the scam come in? Shady Front runners will claim to have “insider knowledge” about what crypto assets will go up in value and when. They “teach” others to do their own front running by getting them to install some code that will do all the work, thereby generating passive income. (Of course, in crypto as in the traditional stock market, this sort of insider trading is illegal, according to the Securities and Exchange Commission.) And this is when the front running scam begins.
How does a crypto front running scam work?
Victims are lured in by the promise of easy passive income, explained in persuasive YouTube videos from “crypto gurus” who show them how to execute front running code in their computers.
But rather than helping a mark make passive income, the code is actually a cover for malware. Once you copy it to your computer, you are vulnerable to being monitored by the scammer, who will tell you to allocate the funds that will be “traded” on your behalf. But all you’ll be doing is giving away your crypto to the scammers.
How to protect yourself from crypto scams
Unless you know how to read code, never run any code unless you completely trust the person supplying it to you (and that trust should be built on more than having watched a bunch of their YouTube videos.
It also goes without saying that if something seems too good to be true—like making more than $1,000 a day in passive income from just copying and pasting a few lines of code—it probably is. Any promise that a particular trading strategy or technique will guarantee high returns for very little effort should raise your suspicions.
