Fintech firm DeFiVerse’s Akshay Bajaj on what automated cryptocurrency trading is all about
The technique of using computer programs (crypto trading robots) to buy and sell digital currencies on one’s behalf is known as automated crypto trading, also known as automated cryptocurrency trading. The majority of automated crypto trading platforms are application program interfaces (APIs). Furthermore, newer cryptobots use smart contracts and work directly on the blockchain. In a conversation with FE Blockchain Akshay Bajaj, CEO and co-founder, DeFiVerse, a fintech company, talks about the benefits and challenges of automated crypto trading. (Edited excerpts)
How would you define automated crypto trading?
Crypto robots can be used in strategies such as liquidity injection, yield farming, and crypto options vaults are services that can be automated by robots. Cryptobots take advantage of the features of blockchain technology. Nevertheless, concepts such as ‘exploit; or ‘attack’ is used as it is usually the layman who ends up paying more due to such activities.
What are the challenges of trading crypto bots?
Unlike the traditional market, cryptocurrencies offer a completely transparent overview of all transactions. This means that all information is available to everyone at all times. Bot exploits happen as follows: The bot will scout the market for someone about to make a trade and quickly enter the same trade before the original trader, charging them a higher rate. This is possible due to the way transactions are processed on the blockchain (higher fees get higher priority). Since these types of attacks are not illegal or even unfair, there is no good solution to them, and traders must account for these slippages.
What are the pros and cons of automated crypto trading?
The advantage of automated strategies, especially in a 24/7 market, is that robots never sleep and are always looking for a good trade entry. Another advantage is that robots operate solely from their algorithm, so the human element that can lead to error is removed from the equation.
Most robots will not make money, and profitability can only be judged over a fairly long period of time. Another major limitation is the technology framework that a bot uses. Power and internet outages, software updates, code errors and failed transactions (which can happen in crypto) lead to inaccurate trades.
What are the security issues associated with automated crypto trading?
For a bot to work, users must grant it access to funds. This can be exploited by hackers who have compromised the bot, or who can scan the blockchain for bot signals and try to hack the specific accounts. Also, the device running the bot can be targeted physically or through phishing attacks.
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