Front running is illegal. It is not legal in traditional stock markets as providing insider information to outsiders is not permitted. However, the same cannot be considered illegal in the crypto and NFT markets as the information is publicly stored in digital ledgers.
Internet is basically known as a medium of information and this increases the front running in cryptos and NFTs as no data is kept private in the sector. In traditional trading, utilizing private data is completely banned.
Traders can easily know the buy or sell orders list ahead of taking a position through a decentralized exchange (DEX) where the data is made available publicly on the blockchain platform. Hence, technically speaking, it is not shorting of the system.
Front running in NFTs can be detected by monitoring the trade data like purchases, fund transfers and wallet addresses of the user.
Developers can prevent front running in NFTs by making private transactions and making use of hidden mempool. Users can do the same by segregating the transaction into multiple smaller transactions as well as making adjustments to the low slippage.
Wash Trading Vs. Front Running
Wash trading is different. It is selling and buying of the same asset simply to increase the value artificially. NFT is susceptible to it as many platforms allow trading anonymously simply by linking wallets. This means one individual can have multiple wallets and connect all to the platform. The purpose can be to sell through one wallet and buy from another to increase the value of the asset.
Front Running Bot
A dedicated bot helps in facilitating front running trading better than humans. It functions on a millisecond timescale. It is capable of reading transactions from mempool, compute the transaction size as well as configure and execute transactions within a millisecond.
Lately, front running in crypto and NFT markets is becoming more complex and depressing as well. It basically started when crypto enthusiasts used bots to jump line and offer high gas fees for high-value transactions. It is now being practiced more by ethereum miners. It has become ethical malpractice.
With time, the miners have started inserting their own bot transactions besides paying the minimum gas fees. This has led the mining pool operators to extract the value from other users and without their consent.
Ethereum 2.0 failed to ease such concerns. Miners are skipping the line and the call is to find a way to stop such practice by a handful of users.