Artificial intelligence and cryptocurrencies have been two of the most talked about technologies in the last five years. Individually, both fields have reshaped industries and markets. Artificial intelligence has transformed technology across multiple spaces: crypto will be no exception.
The possibilities
What possibilities do the combination of AI and crypto hold?
Enhanced trading
Artificial intelligence will have a tangible impact on crypto trading and investment strategies. AI-powered trading bots are booming in the crypto industry. One survey conducted in 2023 in the United States showed that one in three investors would be happy to let a trading bot make trading decisions for them. As time goes by and machine learning algorithms develop more accurate, secure market predictions, this will only increase. AI algorithms will be able to draw on social media sentiment, historical data, current news and personal preference. These can be highly tailored to individuals, making crypto investments more accessible and simpler.
Regulatory and compliance assistance
Artificial intelligence can be extremely helpful for developing and enforcing regulatory processes. AI can help crypto regulators identify potential risk and develop policies that cover these risks. The enhanced transparency that comes with AI being able to analyze data on blockchain networks and provide insights promises an increase in trust.
Security
Crypto and blockchain technology offer secure access to decentralized markets. They are built to be safe against fraud, hacking and malicious activities. AI can help to enhance this security even further by assisting with the real-time monitoring of transactions and detecting suspicious activity. AI is also useful in predicting potential threats before they happen, by looking at vast amounts of data to understand patterns and anticipate dangers. This makes it easier to detect anomalies and dangerous bot activity, or identify vulnerabilities in smart contracts for cryptocurrency exchanges.
Data privacy
AI raises issues of data privacy, as centralized AI systems often require massive amounts of personal data to run. This can lead to security flaws around surveillance, data breaches and privacy violations. This is much less of an issue for blockchain, which is decentralized and offers stricter data ownership and privacy. By utilizing blockchain technology with AI, individuals can retain more control over their data and personal information.
Challenges
AI’s convergence with crypto will face some challenges and risks. Ultimately, AI is neither fully artificial - requiring large-scale, human-managed informational input to work - nor fully intelligent, as once again it relies on what humans program it to learn. The same downfalls that come with human intelligence are liable to hit artificial intelligence. There are also some other challenges that crypto faces with increased AI usage.
Fraud
Artificial intelligence makes crypto scams easier, although it is certainly not restricted to crypto activity. Deepfakes, images, or voices can make schemes that engage people in crypto scams even easier. Whether that’s by using public figures or celebrities to provide endorsement or releasing positive news about a product that convinces investors to go ahead, there is plenty of potential for scammers to use AI to convince others that they are safe. Artificial intelligence also facilitates an easier release of crypto scams or disinformation at an even bigger scale. Scam investments, widely disseminated on social media and messaging apps, are cropping up with increasing regularity thanks to the ease of doing so through AI. It was recently announced that the Australian regulators took down 600 ‘crypto scams’ in the last 12 months.
While many of these scams are easy to spot, and deepfakes have yet to become fully convincing, crypto is just one industry that is impacted by these issues. That means that some people are guarded elsewhere but fail to see these scams around finances. It is up to all industries to find ways to see through AI-facilitated fraud, and there will likely be significant investment to ensure that happens. That being said, there are now an increasing number of tools on the market creating means to identify this kind of fraudulent behavior.
Scalability
Both AI and blockchain face scalability issues. AI models require significant computational resources, as do some consensus machines that run blockchain. Combining the two does not solve either’s resource dependency. Advances such as proof-of-stake and layer-2 solutions for blockchain are helping to alleviate these challenges, but as AI and crypto combine there will need to be significant advances to help them operate at scale.
Regulation
Regulation in cryptocurrency has so far been reactive. When a problem or issue arises, governments and regulators react to that particular threat. Regulation is rarely proactive, which is unavoidable given the rapid advancement of technology - especially in the crypto space. Technology advances rapidly, so it is simply not possible to regulate against things that have yet to be invented. However, regulators do need to start engaging with the industry to identify potential issues that require attention. The same can be said for artificial intelligence. Regulators are already scrutinizing AI technology for issues around safety and anonymity. Different regions approach these regulatory challenges differently, leading to an inconsistent jurisdictional map across the world. Regulators of both artificial intelligence and cryptocurrency, worldwide, will need to work together to ensure that the combination of technologies is adequately tackled by legal frameworks.
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