Each time cryptocurrencies float in and out of the news cycle, new followers are gained and price rises occur. While the same simple stories run – mostly centred around Bitcoin and it’s intrinsic worth, or what blockchain actually is – there are armies of developers working to create innovative projects. They rarely get attention outside of dedicated blockchain media, but 2021 may be different. The confluence of technologies that are widely trusted are increasingly coming into contact with what has, up until now, been the niche spheres of decentralized apps built on blockchains.
In this article we’ll be focusing on AI’s role in the crypto industry of 2021. Why? The world of crypto is already full of advanced concepts, algorithms and a mass of data. It is only natural that AI is to play a central role in organizing information and leveraging blockchain capabilities to conduct market analysis, fuel development, and decrease the gap between centralized and decentralized finance. So let’s jump in and see exactly what’s going on!
AI and Blockchain — Together at Last
Blockchain enables secure storage and sharing of data, while AI can utilize information stored on the blockchain to make sense of processes, generate insight and add value for individuals and businesses working across the tech and financial spheres. This makes them natural bedfellows, so you may be wondering why this partnership has taken so long. In fact, it hasn’t… artificial intelligence interacting with blockchain is not new; there have been numerous products bringing the two together for a few years. The difference is that now there is enough interest and awareness for something exciting to really happen. As a recent article in Forbes suggests, blockchain and AI are integral to Web 3.0, the latest iteration of the internet that prioritizes data security, while also allowing for personalization.
Not only is awareness of blockchain and crypto at an all time high, but the longevity of trusted exchanges along with endorsements from industry leaders involved in tech are drawing in bigger investors, who are seeing smaller returns on their traditional investments due to lower interest rates. This provides fertile ground for further development and the marketing of all types of crypto products, but especially those involving AI.
What are the challenges for AI blockchain solutions?
While we have indicated limitless opportunity for different blockchain and AI linked crypto projects, there is also the challenge of keeping up to date with all the rapid industry changes, and, due to more widespread investment and use, increasing regulatory demands from different stakeholders and governments. As we see it, the job of blockchain solutions in 2021 is to:
- Help fuel further adoption;
- Convince investors that their tools are worthwhile and safe;
- Stay on the right side of authorities while staying true to principles of data security and anonymity.
This last point is probably the most contentious. As crypto becomes more prominent, it is only natural that governments and central authorities want to have some control, both for reasons of taxation and trying to limit organized crime. Europol have recently lodged a request with European Authorities for cryptocurrency businesses to institute tougher KYC checks. While this is an understandable move, many crypto adopters have done so precisely because it is free of government control and doesn’t involve their data sitting with a centralized business that is more prone to hacking and/ or misuse of client data. This is indeed a difficult tightrope, and will be looked at again below when discussing the benefits of crypto solutions that incorporate AI and how they are likely to be used over the coming year.
AI Blockchain Solutions — 6 Benefits
So what exactly is AI bringing to the world of crypto? In this section we will take a look at some of the general benefits and how they are being utilized by different exciting projects in 2021.
1. Market predictions and trading for investors – With all the transparent data that blockchains hold and the rapid fluctuations in cryptocurrency valuations, using artificial intelligence to help investors make smarter, data-driven decisions while minimizing risk is an obvious foray. Using things such as Robotic Process Automation (RPA), Machine Learning and Natural Language Processing (NLP), AI can bring solid benefits. Here are just a couple:
- Automation and speed – Bots can read market data and make strategic trades straightaway, without succumbing to fear, greed and overconfidence that comprise the “human factor”.
- Testing and strategy diversification – Machines can test various strategies based on historical data and then employ different trading strategies at the same time in order to reduce risk.
Due to the benefits in terms of value and risk reduction, it is hoped that bigger investors who were wary of crypto will finally enter the market. In 2021, we will undoubtedly see a greater usage of AI in the trading sphere, both through dedicated crypto trading platforms such as AI crypto, as well as more traditional wallets that integrate AI elements (more detail in point 5).
While the benefits are undeniable, at this point we must flag that there are some important questions that need to be asked. While AI trading is seen as a way for some to make cryptocurrency gains, presumably over fallible human investors who aren’t as quick, what will happen when everyone is using this technology? Who will be the losers? And how will trading data and modelling be affected by the fact that humans are no longer making the trades?
2. Furthering AI development – While we have been thinking about what AI can bring to blockchain and crypto, what about the other way round? Microsoft is currently leveraging blockchain technology to make AI data and modelling more accessible and increase adoption. Microsoft claims that this type of AI collaboration is a win-win:
- Smaller companies that wouldn’t normally have the budget to acquire and update data-sets have easy access through blockchain.
- In the absence of expensive software people can run machine-learning models through their phones or other devices.
- Microsoft can incentivize users to contribute to their machine learning projects in a cost-effective way.
3. Bridging CeFi and DeFi institutions – As mentioned above, trying to bridge the heavily regulated world of centralized finance and that of decentralized finance is not an easy task; however, knowing that integration will benefit both spheres, AI influenced products are doing their best to bring the two together. KeyFi is one of these products, and at the moment it is hard to miss the company’s marketing blitz.
While some centralized institutions are integrating with crypto wallets and other DeFi products, they require strong KYC/AML authentication, which involves storing personal data that many users don’t want to hand over. In our age of data sensitivity, information commonly sold to third-parties, and hacks on centralized repositories, this reticence by users is well-founded. KeyFi says that they can satisfy the requirements of all parties, while providing AI market analysis for users and simplified DeFi participation. They propose the following:
- Market Insights through data-driven AI analysis that can present lucrative DeFi investment opportunities.
- SelfKey Credentials System for data ownership. By utilizing SelfKey, KeyFi users can supposedly access the most popular DeFi platforms, without sharing more personal info than necessary, or having it stored on-chain. SelfKey, while promising data control, also aims to be a dependable way for centralized financial institutions to check credentials without having to store them.
- DeFi benefits such as staking and easy access to multiple platforms.
While we’ve talked about more advanced market analytics bringing in capital, the security and simplicity offered by AI products like KeyFi are just as important.
4. Data protection – Above, we looked at securing some of your personal data and storing it off-chain. This is a huge benefit when interacting with some products, but for others, having to store on-chain is a reality. AI promises to make this a secure process by removing human error, utilizing the most up-to-date cryptography and even giving users rewards through personalized recommendations, suggestions, and notifications.
5. Integrated products – As app development accelerates, all-in-one wallets are becoming a reality. Buying cryptocurrency and using it as easily as fiat, while accessing DeFi markets and taking advantage of AI investment strategies is the aim of Amon, who have teamed up with UnionPay to provide a debit card to users. This idea isn’t new, but having a solution that integrates so many features would be a game-changer if widely adopted.
6. Helping to secure blockchains and stem illegal mining – The Proof of Work (PoW) consensus model involved in block validation creates problems due to high energy consumption and the possibility of 51% attacks. A big step towards thwarting hackers, AI can be trained to predict transaction authenticity through past data and flag any potential attacks.
Another example occurs in the form of illegal mining. In recent news, computer scientists at Los Alamos university have put into place a sophisticated AI system to identify when a supercomputer has been hacked, in order to put it to work mining cryptocurrencies such as Monero and Bitcoin. As you can see, AI is a crucial feature in making blockchain operations more secure for all.
The benefits listed here point to an exciting 2021 for everyone involved in the cryptocurrency space. Security, access, AI analysis and better risk management provide fertile ground for greater investment in the blockchain ecosystem.
Furthermore, while the blockchain landscape is changing rapidly, capitalizing on a great idea can be made easier with the right specialists by your side. INC4 knows the ins and outs of blockchain, having successfully collaborated on many projects, and are ready to get going on yours! Contact a member of INC4’s team, and while you’re on their website, check out their report on the crypto market in 2020/2021.