Crypto and AI: Exploring the Power of the Fusion

September 6, 2023

Crypto World

Mike Ermolaev

The much-talked-about artificial intelligence has caused a shift in investment and know-how from Web3. Even so, artificial intelligence (AI) and crypto are complementary technologies, with the capability for one to shape the other. This article isn’t about crypto vs AI, or which is more superior, but about combining crypto with AI to generate new value.

What Is AI? 

Artificial intelligence (AI) is a technology which involves machines mimicking human intelligence processes, and is used extensively across various industries such as supply chains, marketing, product making, research, and analysis. 

According to Next Move Strategy Consulting, the artificial intelligence (AI) market is expected to be worth $1,847.58 billion by 2030, up from its current value of nearly $100 billion. 

Source: Statista.com 

The popularity of artificial intelligence soared with OpenAI’s ChatGPT release in November 2022, which attracted 100 million monthly users by January 2023. It became the fastest growing consumer app in history, surpassing the likes of TikTok and YouTube, which took 9 months and 18 months respectively to reach the same milestone. Twitter, Spotify, and Netflix achieved similar success after 5 years, 11 years, and 18 years, respectively.

How Was ChatGPT Trained? 

ChatGPT was trained through “Reinforcement Learning from Human Feedback” (RLHF). At first, the model underwent supervised fine-tuning, where instructors operated as both humans and AI bots. Using this method, the trainers built a dialogue sequence that simulated human communication, which was then added to the model’s dataset to make it more conversational.

ChatGPT was tweaked by adding a reward model to reinforce learning at the next step. Trainers interacted with the tool and generated responses, ranking them from best to worst.

In this way, OpenAI could refine its model even further using its own technique called Proximal Policy Optimization.

Source: OpenAI Blog

Investments in the Crypto-AI Intersection Are Just About to Take Off

Quite unexpectedly, the month that ChatGPT was released saw turbulence in the crypto market when the well-known exchange FTX suddenly collapsed. This caused a shockwave that saw AI firms captivating the attention of venture capitalists, while the crypto industry was pushed to the sidelines.

Though crypto is still facing challenges, the situation is not hopeless. Investors are just beginning to realize the potential synergies between crypto and artificial intelligence as evidenced by the $422 million that has been invested in AI crypto projects this year. Without a doubt, the success of ChatGPT has spurred a surge of interest in AI crypto projects. Nearly every day, we see a great deal of AI cryptocurrencies emerging.

Since its emergence, the crypto-AI intersection has raised more than 10% of all crypto venture capital (VC) funding. Clearly, this combination has enormous potential, and it is likely that we will see even more investment in this area going forward.

There are a number of AI crypto projects underway, including ones related to data privacy, algorithmic governance, and identity and verification. The market capitalization of all AI and big data tokens combined stands at $4.43 billion as of this writing.

And below are some of the most recent fundraises for AI сrypto projects: 

Project	Date	Raise	Stage	Funds and Investors
Story Protocol	6 Sep	$25,000,000	Series A	Andreessen Horowitz, Balaji Srinivasan, Hashed Fund, Mirana Ventures, SamsungNext, Alliance DAO, Foresight Ventures, dao5, Insignia Ventures Partners, Endeavor, 11:11 Media, Two Small Fish Ventures, Roham Gharegozlou, Charlie Songhurst, David Lee, David Bonderman
D3	5 Sep	$5,000,000	Seed	Shima Capital, C² Ventures, Infinite Capital, Maelstrom, VentureSouq, Dispersion Capital, MZ Web3 Fund, Lightshift Capital, Nonagon, Kestrel 0x1, Paul Stahura
Gleen AI	5 Sep	$4,900,000	Unknown	Slow Ventures, The Spartan Group, 6th Man Ventures, CoinShares, South Park Commons, Krust, Script Capital
Antmons Entertainment	5 Sep	$1,800,000	Unknown	Candaq, Ranker DAO, Oakt Ventures, Wettach Guild
Tako Protocol	31 Aug	$2,000,000	Pre-seed	Mask Network, DWF Labs, Signum Capital, UOB Venture, AC Capital, Smrti Lab, RSS3, HashBrown Research
Stroom Network	31 Aug	$3,500,000	Seed	Greenfield Capital, Lemniscap, Cogitent Ventures, Mission Street Ventures, No Limit Holdings
DeForm	30 Aug	$4,600,000	Seed	Alchemy, a_capital, Naval Ravikant, Scalar Capital, Elad Gil, Scott Belsky, Marc Bhargava, Kindred Ventures, Sota Watanabe
Coral Finance	30 Aug	$500,000	Unknown	Momentum Capital
Lyvely	29 Aug	N/A	Seed	Cypher Capital
ProsperEX	29 Aug	N/A	Strategic	Emurgo

Source: Cryptorank.io

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What AI Problems Can Crypto Solve?

As a starting point for exploring the AI-crypto tandem, let’s examine what crypto can offer AI first. 

1. Crypto Can Solve Identity and Verification Issues

Generative AI has made it much simpler to generate content, leading to a huge surge of deepfakes. 

Statistically, the rate of deepfakes in the US more than doubled between Q1 2022 and Q1 2023, increasing from 0.2% to 2.6%. Meanwhile, in Canada, it increased from 0.1% to 4.6%.

This surge of false information could potentially bring about civil unrest, corporate espionage, and election distortion, making it an important danger to public safety. 

This is where distributed ledger technology can play a role in ensuring data accuracy and defending against this growing threat. Secure, immutable data verification is becoming increasingly important for AI services to foster trust and transparency.

Moreover, as the world transitions to an AI-dominated era, the presence of bots online is expected to rise, making blockchain-based identity verification systems an invaluable asset. This can be achieved, for example, by decentralized identifiers (DID), pseudo-anonymous identifiers secured with a private key and verifiable only by the private key owner.

Additionally, there is also the concept of Self-Sovereign Identity (SSI) that allows people to store their identity data on their devices, revealing information for validation without depending on centralized databases. 

2. Crypto Can Decentralize Research and Development

Due to the advantages of owning large data centers, a few powerful companies may gain a monopoly in the AI market, leading to higher fees and control over users and developers. This could lead to consumers having no other alternatives. 

Blockchain technology has the potential to counteract these issues by providing access to decentralized data and computation marketplaces. As a result, AI services could gain greater democratization, with users having a say in their development. 

A decentralized future of AI is possible through blockchain-based rules which promote open communication and provide users with more power.

Moreover, more diverse human input into AI model training would contribute to the decentralized environment since it allows for contributions from different society perspectives than is possible in centralized AI training.

3. Crypto Can Solve Data Ownership Issues 

Blockchain technology can be used to give individuals control over their data, eliminating the risk of a single entity having access to a large amount of sensitive information. Additionally, it enables people to earn rewards for their data, as well as the ability to control how it is used. 

Decentralized marketplaces where data can only be accessed with private keys of owners offer the possibility to securely share data for AI training. In this way, people can gain some value from the artificial intelligence they are training without compromising their privacy.

4. Crypto Can Provide Diversity in Data

By monetizing their data, individuals can be rewarded for contributing to new datasets, and developers can test and train models on more diverse sources before deploying them in real-world applications. Ownership of data by individuals, rather than central entities, results in a wider distribution of data, thus allowing independent researchers to explore new applications of AI, which may yield better results.

5. Crypto Can Ensure Immutable Audit Trails 

In essence, blockchain is an immutable public ledger, meaning that the data stored on it is transparent, and cannot be erased or altered. 

Auditing a decentralized AI system that makes use of blockchain technology to document database updates, AI model retraining, and code modifications allows for a more informed regulation and monitoring of the capabilities and potential biases. Additionally, blockchains can be used as unalterable and open records of errors and mistakes made by AI systems. 

What Crypto Problems Can AI Solve?

Now let’s look at the AI-crypto synergy from the perspective of what AI services can offer to crypto.

1. AI Can Boost Projects’ Effectiveness and Efficiency

In the same way that AI is improving every industry, it can improve the cryptocurrency industry as well, bridging the knowledge gap between technical and non-technical people. Crypto projects will therefore require fewer operating expenses and be more efficient, allowing them to complete tasks faster. 

For example, AI can be used to automate customer service activities, allowing businesses to respond more quickly and efficiently to customer inquiries.

Additionally, AI can be used to analyze large amounts of data and generate insights, helping businesses to make better decisions. As a result, crypto projects can access AI-powered automation, data analysis, and decision-making capabilities, which will help them become more productive and efficient.

2. AI Can Assist with Blockchain Development and Security 

AI can be used to improve blockchain networks for speed and efficiency, leading to improved transparency, productivity, and security in the crypto world. Specialized platforms already enable developers to build and deploy AI technologies on the blockchain, executing on-chain machine learning models.

AI can improve the security of blockchain networks by detecting anomalies and malicious activities, such as double spending or invalid transactions. It can also help reduce transaction costs by efficiently allocating resources and by optimizing consensus protocols.

Additionally, AI can be used to improve scalability and security of blockchain networks, as well as to enhance implementation of smart contracts. AI can render the manual auditing process more accurate and efficient by providing a more detailed analysis and evaluation of the data.

Moreover, AI algorithms can be used in indexing blockchain data, increasing the speed and accuracy of querying data.

3. AI Can Improve Crypto Trading

The world’s financial markets are already dominated by automated trading, which relies heavily on program instructions, and artificial intelligence trading bots are the best versions of this type of trading.

Artificial intelligence is increasingly being used to improve crypto trading and enable crypto investors to make more profitable transactions. Using machine learning algorithms, automated trading bots perform predictive analytics to analyze markets and predict price movements. Users can then have them handle trades on their behalf, helping them maximize their profits from crypto trading.

According to Digital Journal, the global AI crypto trading bot market will grow at a CAGR of 23% between 2023 and 2030.

4. AI Can Enhance Metaverse Development 

AI can greatly accelerate the development of highly engaging and immersive virtual worlds. For example, it can be used to generate detailed graphics or create realistic interactions between players and non-player characters, as recently demonstrated by Nvidia. Metaverse AI crypto projects are gaining traction, and developers are seeing the potential of AI in this space.

Final Thoughts 

Crypto may have taken a backseat to artificial intelligence’s initial hype, but it is still crucial to consider crypto and AI together. The future will reveal how these two powerful technologies evolve and interact. However, when combined, blockchain and AI have the potential to open up a world of innovation and possibility, like two powerful keys to unlock a door to a brighter future. It is important to do your own research and stay up to date on the latest market trends in the crypto and AI space to make sure you are making informed investment decisions when committing to either of these technologies. It’s also crucial to understand your own risk tolerance and make sure that your investment strategy aligns with it.