Artificial intelligence or AI is an innovative technology that refers to the capability of machines to think and act like humans. It has been around for a while already but only in 2023 its popularity spiked.
The release of such tools as ChatGPT-4 and Midjourney contributed to the hype. The reason for such immense growth is their user-friendly approach and the versatility of options that even non-tech-savvy users can appreciate.
The blockchain industry doesn’t lag behind either. Many projects already build their tools with AI in mind striving to enhance their products and provide their users with top-notch solutions.
Yet, how can such different technologies cooperate? What impact does AI have on blockchain, who can make the best use of it, and what solutions are already available for the mass market? Let’s find out.
Google Trends: the overall interest in AI spiked in May 2023
Artificial intelligence represents the simulation of human intelligence conducted with the help of computer systems.
The concept of AI roots back in the 1950s. A British computer scientist Alan Turing suggested that machines can use the input information to solve different problems and make decisions, just like we humans do.
In the following decades, the scientific community continued researching this area. Though some significant milestones in AI development were achieved, they remained in the scientists’ “ivory tower”.
Only did the release of ChatGPT-4 in May 2023 manage to break the wall and bring the new technology to a broad audience.
In general, AI digests large quantities of data, labels it, analyzes the patterns, and then creates something new on the basis of these patterns.
The basic technology that the aforementioned ChatGPT relies on, for example, is a well-known T9. Remember using it in the good old push-button phones in the early aughts and cursing every time it miscomprehended your inputs?
Well, it has surely improved since then.
ChatGPT uses the same principle to construct whole sentences. Since it has been fed a humongous dataset of written text, it has learned to predict whole paragraphs following the prompts that users input. Thus, it mimics human speech and does it pretty well in comparison with all its competitors.
The tool has certain limitations, though. When the 4th version was launched, it only contained the data collected up until 2020. Some new information has been added since then, but still, it is not capable of answering questions about the latest releases and innovations.
At the time of writing, ChatGPT relies on the data that has been collected up until January 2022
The ways that Artificial Intelligence can be used in our daily lives are not limited by ChatGPT, of course. With its capability to quickly process large amounts of data, it has surely found its way into the blockchain industry as well.
In general, the key benefit that blockchain can boast of is the possibility to record and store information in an immutable way.
With that said, the primary use cases of AI in this are as follows:
Since the crypto market is highly volatile, it is crucial for traders to quickly spot the patterns and make informed decisions.
AI can do that much more efficiently than imperfect human brains and thus help traders spot profitable opportunities that they otherwise would miss.
Algoritms can also help long-term investors by analyzing historical market data and identifying global trends. With the new data constantly being fed to AI, these algorithms can help to automatically spot successful strategies by analyzing past mistakes.
Projects such as Finbold, for example, regularly post the trading insights they gain with the help of ChatGPT.
At the time of writing, it’s too early to judge the accuracy of these predictions. Still, it would be curious to see how precise ChatGPT was a few months later.
Oftentimes, traders lose their money as strong emotions cloud their vision and prevent them from making weighted decisions.
AI-based analytical tools can help them put emotions under control and act rationally.
In addition, AI can help traders significantly improve their efficiency by automating the decision-making processes.
AI-based trading tools can help traders execute transactions automatically concerning various indicators and their combinations. With 24/7 availability, they can help to eliminate human error and instantly respond to any changes in the market.
Finally, AI algorithms can analyze transactions, and spot potentially fraudulent patterns to notify authorities.
What’s more, they can help to automatically identify and block suspicious IP addresses to further improve the overall security of traders.
Despite numerous benefits, the new technology comes with some flaws as well.
Both AI and blockchain industries are pretty new. As a result, there are still many unsettled aspects that can turn into serious disadvantages.
Just like other programs, AI-based algorithms may contain bugs and errors. In addition, the data they are fed may contain misleading information. Besides, don’t forget about the market whales that can use such tools for the sake of market manipulations.
Thus, traders who consider such data when making decisions may bear significant money losses.
The implementation of AI-based systems is quite complex and costly. The creation of error-free algorithms requires high initial investment and strong technical skills, not to mention the maintenance of the whole infrastructure. As a result, this increases the entry threshold for standalone traders and small companies.
Artificial intelligence operates mostly with historical trading data which is a huge limitation. AI-driven algorithms do not take into consideration such factors as news, announcements, experts’ opinions, and traders’ psychology. Therefore, they do not see the whole situation and may make wrong decisions.
While the number of regions with clear legal definition of cryptocurrencies is still not very high, some laws already exist. One cannot say the same about AI-based solutions due to their overall novelty, though.
Regulatory bodies seem to be mostly overwhelmed with panic as the risks associated with AI technologies are pretty hard to control. Thus, traders using AI-based tools for crypto may face some unexpected problems with the law.
When it comes to blockchain, trading is surely not the only sphere of AI application.
Many projects have their primary products developed around AI and big data and combine them with blockchain to enhance their positions further. Let’s review some of the most prominent cases.
Launched in 2018, The Graph is one of the early blockchain projects building their products around AI.
It represents a protocol for indexing and accessing data from networks such as Ethereum and IPFS. Acting as an additional data layer on top of these structures, it collects, stores, and categorizes the data.
In fact, it provides an out-of-the-box infrastructure that developers can use for dApp creation and data tracking and acts as an AI-powered blockchain explorer.
Render builds a blockchain-based rendering platform that serves to perform a wide range of computational tasks.
With its help, crypto miners can rent their computing power through a decentralized network. On the other side of the equation, there are graphic designers, developers, and engineers who buy this computing power on a peer-to-peer basis for their own purposes such as dapp development and graphics rendering.
In the case of Render, AI helps to accelerate and optimize rendering processes. With the capability to quickly process large amounts of data, its underlying rendering engine OctaneRender makes the process smooth and efficient.
Ocean Protocol is yet another AI-powered blockchain system aiming to connect data owners with those who need this data, i.e. scientists, developers, and various analytical companies.
Similar to The Graph, it gathers and classifies huge amounts of on-chain data about NFTs, ERC20 tokens, wallets, and more. Data owners are free to share the information they have at hand and earn the native token of the platform for their contribution.
In addition, the protocol enables the monetization of data sets while presuming privacy. The built-in AI models enable data owners to specify which processes they want to make public and which ones they want to hide.
Artificial intelligence is undoubtedly a ground-breaking technology that has all the chances to radically change many spheres of our lives.
Yet, the scope of its application in crypto remains pretty limited.
So far, crypto traders are, perhaps, the most notable winners of this technological race. With the huge amounts of data that blockchains generate on a daily basis, AI-driven solutions can make this data structured and accessible.
Other AI-based technological solutions have a pretty narrow target audience. Due to the overall complexity of such a technological combination, it’s not likely that the usage of AI in crypto is going to spike any time soon. The lack of a clear legal structure doesn’t make things brighter either.
But still, pessimism is not the best route to take when it comes to assessing innovations. The marriage of blockchain and AI is still at an early stage, so we may yet see the advances of this combo in the upcoming years.
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Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
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