After almost a decade, most people have come to understand that cryptocurrencies have uses beyond money laundering and buying drugs on the internet.

Views on cryptocurrencies have generally become more positive after they went mainstream in 2017. However, there are still some practices in the ecosystem that would give skeptics reason to avoid participation in the cryptocurrency community.

It turns out that some up and coming cryptocurrency exchanges that report trading volumes worth billions of dollars are churning out false figures.

Crypto Exchange Ranks Investigates BitForex

There have been a number of reports exposing the falsification of figures and other bad business practices of some recently established exchanges.

One of these reports concerns CryptoExchangeRanks (CER), a site which provides real-time data on cryptocurrencies. Cyber security, arbitrage view and public opinion on the various exchanges are also among the areas covered by CER.

A month ago, CER investigated BitForex exchange for exaggeration of trading volume figures. This was after coinmarketcap listed BitForex as the 7th ranked cryptocurrency exchange by daily traded volume on 15th July 2018.

This drew some suspicion since the list placed BitForex, a relatively new exchange, far ahead of older and well-known exchanges in the ecosystem. Bitforex was reported to have traded $200 million while the better-known Kraken exchange, which has been in existence for years, recorded $27 million.

This was not enough to draw conclusions since Binance, a 1-year old exchange, has demonstrated that a lot of progress can be made in the cryptocurrency space within a short period.

The investigation involved a comparison of the traffic received by BitForex’ website and more popular exchanges like Kraken and Kucoin.

Analysis of the traffic statistics of Bitforex on Similar Web showed that the exchange’s website had about 60,000 unique users. This number was found to be much less than that of Kucoin and Kraken, which were ranked far lower in terms of volume.

Kucoin and Kraken registered 889,000 and 666,000 unique visitors respectively. It was highly improbable that Kraken, with 666,000 unique users, traded $27 million while at the same time BitForex traded $200 million with just 60,000 unique users.

For this to be possible, the users on BitForex would have to trade at least tens of thousands of dollars each on a daily basis.

Additionally, CER took a look at the social media platforms of BitForex and other exchanges.

Once again, when it came to level of activity and community engagement, BitForex fell short in comparison with other exchanges that reported lower volumes.

Now, while Binance did indeed progress from a new exchange to one of the world’s top exchanges in a short period, unlike BitForex, Binance has a large following as well as social media presence to go with their reported figures.

The Binance subreddit, for instance, is swelling with mostly content customers. Similarly, Coinbase, another top exchange, is run by high profile figures and also boasts a large twitter following.

Based on the findings, it seemed evident to the authors of the report that BitForex was reporting false figures to the general public – something the authors attribute to a desire for the new exchange to quickly gain legitimacy and expand its user base.

Wash Trading and Similar Malpractices

This is not the first time cryptocurrency exchanges have been called out for bad practices.

Coinbase was heavily criticized for launching support for Bitcoin Cash with little warning and prior to the announced date.

At the height of the previous cryptocurrency bull market, had to exclude Korean exchanges from their calculation of prices as a result of suspicions of wash trading.

Since some of the major South Korean exchanges operated without charging transaction fees, there was no disincentive to users trading with themselves to manipulate prices of tokens and coins. This was also the case with Chinese exchanges prior to the September 2017 ban.

Policing the Crypto Space

What we can take from this is that the cryptocurrency space is still in its infancy and thus figures put out by any centralized entity must be taken with a pinch of salt.

In addition to the activism of cryptocurrency community members, we need more entities like CryptoExchangeRanks to act as a check on such practices and help the crypto-economy gain legitimacy in the eyes of both traditional finance and the broader world.