Updated: Oct 31, 2022
Images credits: The Economist
The new economy where people are finding solace in the intangible digital world has opened up a plethora of new opportunities and possibilities in every field. The world of finance is also one of the places where the changes can be observed. From barter to credit cards, the world of financial exchange has evolved in every generation of human civilization. The 21st century has witnessed the advent of digital currencies, which has the potential to accelerate the 4th industrial revolution on an altogether different level.
The new economy has also led to the rise of artificial intelligence where things are done without human involvement or errors.
The tendency of AI to do things that are highly calculative and time taking made it useful in every sector. One of them is Cryptocurrency where the day starts with high fluctuation and ends with the same. Cryptocurrency needs very careful and accurate calculations and predictions for its proper functioning and this is not possible for a human being. Here enters Artificial Intelligence, which is indeed changing the face of digital currencies and making them more predictable and reliable. As cryptocurrencies are based on blockchain technology, AI can work in tandem with blockchain to provide more accurate predictions, sentiment research on the crypto markets, automated trading, and superior investment insights.
For instance, as cryptocurrencies are highly volatile and difficult to predict, it becomes pertinent for investors to devise ways to better understand the market sentiment. To understand the market sentiments, a whole lot of data has to be gathered and processed to observe whether the market sentiment is negative or positive. Data is taken from diverse sources such as articles, blogs, interviews, social media handles, comments, etc. to predict the market sentiments and thus a more accurate change in the value of cryptocurrency. Senno, is one platform that does this analysis and presents data in a very short time.
AI has already become a popular tool in the financial business, and when integrated with blockchain, it becomes even more powerful. Big financial institutions, such as Goldman Sachs, Citigroup, and Barclays, have already integrated AI into their workflows, while small and medium-sized businesses are starting to do so as well. Further, using AI for simplifying data immensely helps an inexperienced trader to understand the patterns and invest wisely. Several digital platforms do the same work. For instance, CryptoHawk.ai analyzes large data of bitcoin and ethereum using deep learning and AI to identify significant patterns to create accurate predictions.
This upcoming technology of Artificial Intelligence is giving birth to a new sector of economy and finance which is considered to be more autonomous and will give more freedom.
This new sector is called Decentralized-Finance or DeFi. The system of DeFi works on blockchain technology and aims to cut down the centralized authority for monetary regulation. DeFi works on the same concept as Bitcoin technology but it varies from bitcoin because its use of block changes as per variation of simple values to complex values. As Bloomberg quotes, “Defi is now taken seriously” and according to a survey by a European institution, across different financial, banking, insurance, and trading institutes in Europe, it was found that most of them have their framework setup on the DeFi’s Framework.
This step was taken by many firms so that they can gear up for the future, and many of these firms are investing hugely in DeFi to ensure control over new emerging finance systems. In February 2020 nearly $1 Billion were invested in DeFi and within one year more than $40 million were also invested, this was Defi Pulse which is a Defi tracking website. Companies like Blockbank which is a crypto and online financial platform have invested as high as $ 43 billion. This sector is changing every day and with developments in Artificial Intelligence, there is much more scope of changes in this new sector.
BLOCKCHAIN AND AI
Currently, many global firms like CCC, Veriton, and Logic Monito are investing huge amounts in AI and deep learning integrating with the use for complex blockchain mechanisms. These firms aim to make an autonomous and decentralized Global economic market, with the help of AI. It provides agents like the blockchain ecosystem, with high efficiency and reliability to compute complex problems and codes to perform transactions and keep the security of those transactions.
In 2021, Shopify, one of the biggest online shopping platforms, announced its plan to use AI and machine learning and aims to expand its reach with this new developing digital decentralized economy. Similarly, in 2021, a leader in AI technology, SingularityNET launched a new project “SingularityDAO” as one of their own DeFi, this project aims to revolutionize the global Finance sector by providing people with dynamic token holding, accurate market prediction, and making new marketing strategies, thus setting out new standards in the market.
BOON OR BANE?
However, AI can also be manipulated to make things done as per the need of the fraudster, which can be disastrous for the investor. The AI-based Crypto bots and Defi supercomputers which are outdated and not maintained, adjusted, and monitored can give wrong information, leading to huge losses. The future of Cryptocurrency rests on the ability of the investors to predict accurate sentiments and information to understand the highly volatile market in a simpler way.
Many third world countries are lacking in finance, financial awareness and some don’t have proper internet technology access. There are questions for liquidity flow in DeFi and monetary stability. Many questions are being asked about the working and stability of AI to regulate and maintain the whole economic system. No doubt AI, in the future, will play a very significant role in the world of decentralized currencies as it does in the Financial markets.
However, precautions must be taken to ensure that the use of AI in the decentralized market is legit and properly maintained so that it cannot be used for other purposes. The new market has already been sprung with many of these questions and doubts.
It is a technology we haven’t seen yet working properly and only time will tell the future of AI and Decentralized markets
BY NAYAN CHANDRA MISHRA AND MIHIR SINGH