23
Nov
19

Risky robotics: Why you should think twice about calling on trading bots

We live in a world that craves convenience. From personalised news, to pre-emptive shopping orders, to algorithmic music playlists, automation has worked wonders in making our lives that little bit easier.

 

So, with this in mind, it’s perhaps no surprise that cryptocurrency trading bots have made their way onto the market. Machines have a habit of being a little bit faster to recognise and act on emerging trends than humans and have the potential to be perpetually alert.

 

However, calling on a trading bot to bolster your crypto portfolio is a dangerous game to play, usually with very high stakes at risk. Here’s a look into why it’s advisable to steer clear from bots when it comes to trading digital currencies:

 

What are crypto trading bots?

 

The cryptocurrency market is a volatile place, and has been ever since the arrival of Bitcoin in 2009. Because of rapidly rising and falling asset values, traders are required to keep an eagle-eyed stance on emerging trends and market movements in order to maximise their profit margins.

 

Automation makes this process a relatively easy one in theory. Essentially, a crypto trading bot is comprised of an Artificial Intelligence system that makes decisions based on its programming. If a bot is required to purchase 1,000 shares in an emerging cryptocurrency when its value drops to a certain price, it will. If a trading bot is programmed to sell Bitcoin as soon as it reaches a value of $12,000, it will.

 

Bots are designed to constantly monitor the market while investors sleep, work or play. More advanced bots like Bitcoin Future even claims to have developed such an understanding of the mechanics behind Bitcoin, that it can accurately predict future fluctuations – thus better helping to inform the decisions of buyers.

 

With all of this in mind, why aren’t trading bots being utilised by traders on a massive scale yet? Unfortunately, there are some significant drawbacks to the safety and accuracy of trading bots, and its most significant dangers are highlighted below:

 

Scammers

 
This image shows how someone elicits private information from a computer. This is a scam of someone involved in bot trading schemes.
 

Given the volatility of the crypto market, it’s also susceptible to manipulation. Some trading bots will look to artificially skew certain markets and inflate coin prices wherever it benefits their developer.

 

This can sometimes be the case with subscription-based and general bots. Here, it’s important to read the fine print carefully before buying into a bot.

 

Another significant scam comes in the form of a specialised trading bot not actually being very good. Crypto markets are extremely lucrative with millions of investors hovering around desperate to make their next big break and turn profits. Some developers aim to exploit this desperation and sell a half-baked bot that isn’t appropriately programmed as a means of cashing in on the dreams of unwitting buyers.

 

If you insist on utilising a trading bot, the very least you can do is conduct a healthy level of market research. Keep on the lookout for trustworthy ratings and steer clear of any user agreements that don’t seem right.

 

Software flaws

 

The risk of faulty software is pertinent too, even if the performance of trading bots is generally improving when compared to previous years. This problem tends to primarily affect user-developed applications and subscription-based bots.

 

Trading bots are constructed through specific codes and algorithms that aid their functionality. Falts can occur during the development process that seriously limits the level of efficiency of the machines that we entrust with our assets.

 

Prospect of crashes

 

System crashes can occur with worrying frequency within these types of trading bots, too. There are plenty of causes behind system crashes when it comes to robot functions, with the major reason tending to relate to the presence of malware embedded within its coding.

 

According to Imperve, 90% of remote code execution attacks stem from cryptocurrency mining. Additionally, a bot may also be fundamentally incompatible with your computer, its operating system, or your browser settings.

 

If a bot is deployed incorrectly to the cloud, this could also spark a crash.

 

Fundamentally, trading bots aim to bring an unprecedented level of convenience to how we handle our digital currencies. However, at this stage, they require a lot of user discretion. If you’re looking at trading with significant sums of assets, it could ultimately be safer to take on the challenge yourself, rather than buying into the risks posed by these bots.

Raphael Birchner
CHAIA Master Brain