Artificial Intelligence (AI) is a field of computer science that deals with the creation of intelligent agents, which are systems that can reason, learn and act autonomously. The potential of AI is vast, and it is being developed and applied in a variety of industries including healthcare, finance, manufacturing and retail. But where do AI and the blockchain intersect? Discover how AI crypto may change the face of the cryptocurrency market.
How Does AI Work?
Artificial intelligence is based on the principle that it is possible to create machines that can learn and work on their own, just like humans. This is done by feeding the machine data, which it then uses to learn and improve itself. The more data the machine has, the better it can become at its task. AI models are based on algorithms, which are a set of rules that dictate how the machine will learn and act.
Examples of AI models include decision trees, support vector machines and artificial neural networks. Natural language processing is used in AI to enable the machine to understand human language and respond accordingly. Deep learning is a type of machine learning that is based on artificial neural networks. It is used to automatically improve the performance of a machine at a task by making use of experience.
There are numerous AI cryptocurrencies on the market. Prominent examples include:
- Fetch AI: Building a decentralized infrastructure for artificial intelligence that will enable developers to create, train and monetize AI models. This allows businesses to access AI services in a more efficient and cost-effective way.
- SingularityNET: Decentralized marketplace for AI algorithms. Designed to allow businesses and individuals to buy and sell AI services in a more efficient way. The platform includes a number of features that make it easy to find, compare and purchase AI services.
- Velas: Uses AI to power its consensus mechanism. Designed to be more scalable and energy-efficient than other blockchains. The platform also includes a number of features that make it easier for developers to create and deploy applications.
- Numeraire: Goal is to provide equity trading on the Ethereum blockchain.
- Cortex: Powers AI-enabled smart contracts. Provides developers with a toolkit that allows them to create and deploy AI-powered smart contracts. The platform also includes a decentralized exchange where users can trade AI models.
- Ocean Protocol: Allows businesses and individuals to share data in a more secure and efficient way. The platform includes a number of features that make it easy to find, access and monetize data.
- dKargo: Improves the efficiency of logistics. Easily track, manage and pay for shipments.
How the Blockchain Works
Blockchains are the basis for cryptocurrencies, which are digital currencies that use cryptography to secure their transactions. Cryptocurrencies are traded on decentralized exchanges, which are platforms that allow for the peer-to-peer exchange of cryptocurrencies. The blockchain is a distributed database that contains a record of all the transactions that have ever been made. The blockchain is used to secure and verify these transactions. Each transaction is represented by a block, which contains a timestamp, the sender’s address, the receiver’s address and the amount of cryptocurrency being traded. The blocks are then chained together, with each block containing a hash of the previous block. The blockchain is thus a chain of blocks, each of which contains a record of all the transactions that have been made.
The Confluence of AI and Cryptocurrency
It seems only natural that the emergence of AI would be followed by its entry into the new world of cryptocurrency. After all, AI algorithms have been used for trading (Algo-trading) in traditional markets for decades, originating in the 1930s and gaining prominence in the 1980s. According to a 2020 survey, algo-trading can reduce risk by determining the impact of trades on the market, providing lightning-fast trades with bots and most importantly, removing the impact of human sentiment or emotions from the equation. Unlike established markets that have a history of millions of data points available for analysis, cryptocurrency trading is still in its infancy. This presents both opportunities and challenges for those looking to use AI in this new space.
AI for Crypto Trading
Like traditional markets, cryptocurrency is highly volatile, which makes it difficult to predict. This presents a challenge for crypto AI models, as they need large amounts of historical data to be accurate. Perhaps the most significant difference between the use of AI in traditional markets and crypto is the user base. Institutional investors spend heavily on proprietary algorithms, so few of these are available to retail investors. By comparison, the use of AI in trading cryptocurrencies is accessible to retail investors with many exchanges providing trading bots. Each of these bots has its own set of rules or algorithms that it uses to make trading decisions. Examples include:
Benefits of AI Crypto
There are a number of benefits to using AI in the cryptocurrency market. These include:
- Increased accuracy: AI-based trading bots can make decisions with greater accuracy than humans. This is because they are not subject to emotions or other psychological biases.
- Faster trades: Trading bots can make decisions much faster than humans. This is important in the cryptocurrency market where prices can change rapidly.
- 24/7 trading: AI-based trading bots can trade 24 hours a day, 7 days a week. This allows traders to take advantage of opportunities that they may otherwise miss.
- Wallet Security: Crypto wallets are using AI to secure their users’ funds. With the increasing number of hacks, AI is being used to secure wallets by identifying and flagging unusual or suspicious activity.
- Regulatory Compliance: AI is being used to help cryptocurrency exchanges comply with regulations. By monitoring transactions, AI can help exchanges to identify and flag suspicious activity.
Risks of Artificial Intelligence Crypto
There are also a number of risks associated with the use of AI in the cryptocurrency market. These include:
- Black box risk: It can be difficult to understand how an AI-based trading bot makes decisions. This “black box” risk is a major concern for many investors.
- Security risks: Cryptocurrencies are a target for hackers. If an AI-based trading bot is compromised, it could result in the loss of funds. Furthermore, AI models can be used to help identify and prevent fraud and money laundering.
- Dependence on data: AI-based trading bots are only as good as the data that they are given. If the data is inaccurate, the bot may make bad decisions.
AI Will Power the Future of Crypto
The AI crypto ecosystem is developing rapidly with the combination of ai models with blockchain technology. This evolution promises greater efficiency, security and accuracy for investment decisions in a volatile marketplace. At TransitNet we’re building the world’s first crypto proof of ownership registry to let people establish ownership for their crypto wallets. Join us now to be first in line when we launch.
Sources:
Cryptoslate – All AI Cryptos
Medium – The History of AI Finance
The Trade – Algorithmic Trading Survey: Hedge Fund 2020