The Rise of AI Cryptocurrencies: How Machine Learning is Reshaping The Crypto Industry
Sep. 21, 2023. 8 min. read.
The AI Revolution in Cryptocurrency - Explore the fusion of Artificial Intelligence and crypto, from personalized DeFi to smart trading, and glimpse into the exciting future of this transformative partnership.
Artificial Intelligence (AI) tools like OpenAI, and blockchain-powered networks like Ethereum have shaped the first few years of the 2020s, leveraging the power of Big Data, decentralized computing and network effects to disrupt a multitude of industries and reshape economic, social, and even environmental issues for better or worse.
The cryptocurrency revolution aims to transform finance through blockchain technology. Now, artificial intelligence (AI) is supercharging crypto with sophisticated machine learning algorithms.
Where AI and blockchain intersect, they unlock a new wealth of possibilities for users, bolstered by AI’s productivity gains, blockchain’s security and its transparent and immutable participation trophies of cryptocurrency and non-fungible tokens (NFTs).
The appeal is easy to understand: AI offers real solutions to major challenges like security, scalability, and accessibility. And the industry is taking note, with more and more blockchain projects appearing that integrate machine learning into their DNA.
This new breed of AI cryptocurrencies are rising from the wasteland of 2022’s crypto bear market to leverage AI for optimized transactions, predictive analytics, automated trading, and more.
So the big question is, can AI-enhanced digital assets really unlock crypto’s true capabilities? Or will artificial intelligence’s data privacy issues drag virtual assets down with it to regulatory purgatory? Let’s check what all the hype’s about.
What Are AI Cryptocurrencies?
In most cases, these tokens serve either as a means of payment for transactions, or as rewards for participants on the AI platform, or as a way of giving governance rights to holders.
It’s important to note that not all cryptocurrency or blockchain projects which use AI in their systems have a token.
How AI Cryptos Work
AI cryptocurrency projects use machine learning algorithms to make core crypto features smarter. They sift through huge datasets to offer a more personalized and improved user experience.
These AI coins are special types of crypto assets. They use artificial intelligence to make things better for everyone – whether it’s making your user experience smoother, scaling up the network, or tightening security.
And it’s not just about enhancing existing features; these coins are fueling new kinds of AI-focused projects. From decentralized marketplaces like SingularityNET to future market predictions and even managing your crypto portfolio like SingularityDAO, these AI coins are here to transform every inch of the digital financial landscape. Who and how will be addressed in a later article in our Crypto AI series.
The Top Five AI Cryptocurrency Projects in 2023
You want names? OK OK. Here are five cool crypto projects that are leveraging artificial intelligence right now. We’ll cover more in our next article.
- SingularityNET (AGIX)
Founded by well-known AI researcher Ben Goertzel, SingularityNET is a decentralized AI-focused blockchain that allows anyone to monetize or utilize AI services. In its own words it’s building the next generation of decentralized AI and its network is powered by its AGIX token. SingularityNET has a blossoming ecosystem of partners and supported projects, such as Cardano and (yours truly) Mindplex.
- Fetch.ai (FET)
Fetch.ai is building an AI-powered blockchain to enable autonomous smart infrastructure. The open-access decentralized network allows devices to transact and share data via AI agents, with use cases across smart cities, supply chains, healthcare, and more.
- Numerai (NMR)
Numerai is playing a numbers game, as its name suggests. It crowdsources machine learning for stock market predictions, and encrypts and anonymizes datasets to organize data science competitions among its community of data scientists. Winners are rewarded in NMR tokens based on the accuracy and predictive power of their models.
- Matrix AI Network (MAN)
Matrix AI Network leverages AI to optimize blockchain architecture. The Intelligent Contracts and Intelligent Services chains allow smart contracts and machine learning models to interact seamlessly.
- Ocean Protocol (OCEAN)
This project focuses on data sharing, aiming to make datasets available for AI development without compromising on privacy.
Benefits and Challenges of AI Cryptocurrencies
Sorry Bitcoin: AI-injected digital assets deliver many advantages over traditional cryptocurrencies. Such as:
They’re more efficient
By automating manual processes, AI reduces costs and errors. Through the use of smart contracts, users also eliminate intermediaries, reducing another source of friction.
They’re more secure
AI algorithms provide adaptive defense, and better threat detection against increasingly sophisticated cyberattacks.
They can be personalized
AI analyzes trends and patterns to tailor solutions to each user. This provides a better customer experience.
They’re faster and more scalable
AI optimizes protocols and transactions, increasing throughput, which translates to faster payments and high network capacity.
It’s not all a case of OK Computer though.
What are the biggest challenges for AI cryptos?
Complexity and Cost
Sophisticated AI models require advanced expertise and resources, which many of today’s crypto projects, hamstrung by a long bear market, have in short supply.
AI’s lifeblood is abundant user data. With Web2’s previous data exploits still fresh in the mind of consumers and regulators, this raises ethical concerns around consent and surveillance. And scanning people’s eyeballs isn’t providing good optics either, so to speak.
Training complex machine learning models uses a lot of computing power, which is a big no-no nowadays. Couple this with the general misconceptions over Bitcoin’s proof-of-work footprint, and it’s not a good look, even if most DeFi chains are environmentally-friendly proof-of-stake chains.
Laws have not kept pace with the rapid pace of AI and crypto development. Legislation for AI and crypto is in the pipeline that could put the brakes on the growth of both sectors.
How is AI applied in Crypto?
Let’s now look at some of the most popular current trends of utilizing AI in crypto:
AI in Decentralized Finance (DeFi)
- Automated Crypto Trading
As we covered in a previous article, AI-powered crypto trading bots have risen to prominence in 2023 due to their ability to automate the buying and selling of trading and investment positions based on technical indicators.
AI bots can analyze market data, identify trends, and execute trades faster (sniping) and more efficiently than humans. Recently a Cointelegraph journalist took on an AI bot in a trading competition and lost.
- Predictive Analytics
AI analyzes historical patterns in crypto prices, demand, and volatility. This powers price forecasting and predictive investment algorithms.
AI algorithms can detect anomalies and cyberthreats. Then they adapt cyberdefenses, like in Numerai’s cryptographic security protocol.
- AI-driven DAOs:
AI tokens are already used to fuel decentralized autonomous organizations (DAOs) and their applications, such as AI-powered trading algorithms and decentralized AI marketplaces. AI tools can optimize and speed up many DAO tasks, such as making proposals, summarizing governance decisions, transferring assets, and attracting new members.
- Fraud Detection
- Transaction Optimization
AI can fine-tune transactions and protocols to enhance speed, cost, scalability, privacy, and other parameters.
Analyzing user data allows AI cryptocurrencies to offer curated, tailored recommendations on investments, trades, and DeFi applications.
AI in Crypto Mining
AI presents solutions to enhance mining processes by improving algorithms, offering real-time data insights, and suggesting advanced hardware. Crypto mining uses powerful computational resources and specialized hardware to solve complex mathematical problems – whereas AI has a different set of hardware requirements.
Future Trends of AI in Crypto
Looking ahead, AI will likely evolve in tandem with blockchain infrastructure and aid its growth.
Here are four emerging trends:
AI-powered DeFi: Personalized and Efficient
DeFi is no longer just about simple transactions. With AI on board, DeFi are now your personal financial advisors, offering automated trading, advanced credit assessments, and tailor-made recommendations.
AI Oracles: Bridging Real and Digital Worlds
AI Oracles go beyond regular data feeds; they intelligently enable AI systems to bring real-world data into smart contracts, bridging the gap between crypto and the real world.
Autonomous Agents: The Smart Brokers
Think of AI agents as your switched-on personal financial planners. They represent you in DeFi transactions, adapting to market changes and aiming to boost your returns.
Embedded AI: The Evolution Ahead
In the future, AI won’t just be an add-on; it’ll be part of the blockchain’s DNA. Embedded AI will perform a myriad of tasks such as improving transaction validation and enhancing security.
While AI has taken a lot of limelight and lucre away from blockchain and crypto since its explosive rise in 2023, it should be viewed as a long-term ally that compliments instead of competes against digital asset technology. Its convergence with blockchain technologies has given rise to numerous promising AI crypto projects that will thrive over the coming decade.
The benefits are easy to see: machine learning can make blockchains faster, cheaper, and more accessible, while AI cryptocurrencies are poised for mass adoption as the technology improves.
Harnessing AI’s potential while addressing ethical concerns will be critical in democratizing DeFi and Web3’s realms. If that balance can be met, AI can transform crypto as limitlessly as it can transform other fields.