How can crypto ecosystem benefit from Artificial Intelligence? The AI has become a necessity today and is being used in every aspect of human life and all segments of the industry.
Over the years, with the development in the crypto space, AI is also playing a significant role in this particular industry, especially in crypto investing.
This technology allows the crypto firms to stay ahead in the competition and enhance their efficiency in spite of the changing financial regulations, investor preferences, and demographic trends that pressurizes both the buy and sell side of the firms.
AI is an innovative technology and is easily accessible to even the non-technical users, especially with those with no-code environment.
Such no-code AI platforms offer an intuitive and easy to use user interface.
Using this interface data analysts and scientists can create and implement AI models without needing to write any codes for that.
These no-code AI platforms have literally transformed the definition of AI adoption.
Several financial services and crypto firms use this technology for its lower energy consumption and set up costs.
However, AI is not suitable for every firm due to their infrastructure.
In such situations, due to the absence of a proper strategy to use AI beneficially, it can be very risky to implement AI into it.
Having said that, now, if you are wondering whether or not you should use AI for your crypto firm, here is an article that will clarify all your doubts and apprehensions.
Right from the implementation to its benefits, you will come to know all about the use of AI in the crypto space in this article.
How Can Crypto Ecosystem Benefit from Artificial Intelligence?
The concept and emergence of crypto coins are quite new as compared to traditional financial instruments like stocks.
Bitcoin was the first crypto coin that came into existence in 2009 but since then it has grown rapidly and exponentially and has even catapulted other types of crypto coins.
As a result, the financial world experienced the rise of several crypto investment platforms that allows people to invest in crypto safely and confidently.
Over the past couple of years, in spite of the impact of pandemic due to Coronavirus and international conflicts, the crypto market had produced consistent returns quite unexpectedly.
However, crypto investing comes with its characteristic challenges and technical difficulties.
Also, crypto is known for its high volatility and fluctuations in its prices.
It is this specific aspect of crypto that has confused both institutional and retail investors.
This typically results in investment decisions made based on emotions.
Therefore, investing in crypto needs a lot of research, time and skill.
This has been facilitated by the emergence of a lot of tech-driven tools.
However, the crypto traders and investors are now more inclined to using Artificial Intelligence and Machine Learning to help them in investing.
AI and ML are valuable for crypto because these are typically backed by blockchain technology.
With the combination of AI and blockchain technology several challenges related to crypto trading and investing can be addressed easily.
Some of the beneficial ways in which AI can be used in the crypto ecosystem are:
- Price prediction of crypto coins
- Sentiment analysis of the crypto exchanges
- Investment monetization and
- Automated crypto trading.
But the question is how can all these be achieved by using AI in crypto and make consistent profits?
Ideally, there are four specific ways in which you can ensure success in AI implementation. These are:
- Creating and following a carefully designed strategy to use AI
- Educating the internal team on AI and its usage along with the benefits of implementing AI and the potential challenges
- Establishing a comprehensible process for improvement of AI and
- Ensuring proper protection of the AI systems to prevent data leaks, security, and compliance issues.
Most importantly, you should not consider AI to be the replacement for the employees in the firm.
AI should be ideally considered as an effective tool that will enhance the skills of the employees which will eventually bring in more productivity, profitability, and value to the firm.
However, it is simply not a ‘plug and play’ effort. It requires a strong and talented team to implement AI as well as a compatible framework.
Most people are happy with implementing Machine Learning into finance, which is actually the subcategory of AI.
However, this cannot be further from the reality!
But, AI, on the other hand, is actually an outstanding tool for pattern recognition.
AI, therefore, sees the patterns in a price data or the chart and deduces which direction the price is likely to move in.
Typically, financial data have a diverse range of statistical properties.
This needs a very special approach to deduce any pattern in it. It is very hard for humans, even for those theory driven models, to detect these patterns simply based on intuitions and assumptions.
And, the easy correlations that can be deduced by simply human intuition have been long exhausted.
Moreover, apart from the magnitude of data, the amount of noise is also enormous for any human mind to grasp, and not all crypto investors and traders have the brains of Newton or Einstein.
Identifying price patterns from such a large amount of data is related directly with the idea of ‘microscopic alpha’ that was introduced by López de Prado.
Therefore, it calls for more advanced techniques to extract alpha, which is where the AI and ML comes in.
Typically these AI and ML driven models can do much more than human understanding.
Therefore, it is a good move to combine AI and blockchain for the benefit of the entire ecosystem.
As you may know, blockchain is a distributed ledger containing immutable records that allows an immediate and transparent sharing of encrypted data between all the participants on the network at the same time.
They verify and complete a transaction on the chain.
Moreover, a blockchain network is also useful for tracking several other things such as:
- Production and more.
And, in the process, there are lots of computers involved.
When AI is combined with the process, it simply leverages the computers and data enabling the machines to sometimes mimic the decision making and problem solving abilities of a human mind.
In addition to that, it will also encompass the subcategories such as deep learning and machine learning that also use AI-based algorithms trained on data in order to make classifications or predictions.
All these will enhance the capabilities of blockchain and make it even smarter!
There are lots of benefits of using AI with blockchain apart from better decision making, automation of cyclic tasks, and a superior customer experience. Some of these are:
- Authenticity – The test of explainable AI is addressed by the digital records of blockchain which offers better insights to the structure and the provenance of the data that is being used. This improves data integrity and trust along with providing an audit trail which enhances data security simply due to the integration of AI into blockchain networks.
- Augmentation – Since AI can read and correlate data more quickly and comprehensively, it adds to the intelligence and efficacy of businesses based on blockchain networks. It augments the data processing ability of the blockchain irrespective of the volume at a great speed which inevitably augments data management and usage and model sharing with more workable insights that builds a more transparent and trustworthy data economy.
- Automation – With automation, a combination of AI and blockchain technologies will bring in new value and opportunities to those businesses especially that involve different parties. It removes friction from the process therefore expediting it and increasing the efficiency.
AI improves the functionality of the smart contracts when it comes to executing transactions and several other functions such as recommending for:
- Recall for expired products
- Stock purchases
- Resolve disputes
- Choose the most justifiable shipping method.
The best part is that all these activities will be performed according to the set thresholds of the particular events.
The Turning Point
The combination of blockchain and Artificial Intelligence is the turning point and it has the potential to bring radical transformation and innovations in the future.
This is why several companies based in blockchain networks, and most importantly the crypto industry, are using the combination of the two to identify the benefits.
Several statistics and survey reports suggest that this is the current trend among the businesses.
For example, the statistical figure of the International Data Corporation indicates that the global expenditure on AI is more than 50 billion dollars.
It also reveals that more than 50% of businesses today all over the world have leveraged the combination of blockchain and AI.
This existing trend of applying Artificial Intelligence in the blockchain has improved the efficiency of the networks by improving specific functionalities such as:
- Data protection
- Data monetization
- Smart computing power and
- Creation of varied data sets.
In short, the trend of combining blockchain and AI has offered the users a much better platform than before that has improved the decision making processes.
It also helps in maintaining accuracy in the documentation process of every variable and data that are involved in the decision making process of the AI algorithms and increases the efficiency in audit trail monitoring by automating different processes.
The combination of AI and blockchain technology has a lot of different use cases across different industries, over and above crypto.
This is because this combination makes the best uses of sentiment analysis by gathering useful data and insights from news and social media.
The data is then stored, filtered and processed by natural language processing techniques in real time.
This helps in evaluating the market sentiment of a given crypto coin.
The valuation of crypto coins typically depends on the market sentiment which can be either positive or negative, or greed or fear.
When machine learning is used it helps in detecting different patterns in different dimensions absorbing all of the existing uncorrelated features.
This can be related to:
- Sentiment analysis
- Mining speed and more.
With all these features and improvements in functionalities, combination of blockchain and AI offers new opportunities across different industries such as:
- Healthcare – It improves treatment insights, user needs support, pattern detection through patient data, maintaining health records electronically, patient privacy, and cooperation among all workers.
- Life sciences – It improves visibility, traceability, as well as success rates of clinical trials. The supply chains involved with the pharmaceutical industry can use advanced data analysis techniques to ensure data integrity, patient tracking, transparency, automation, data collection and consent management.
- Financial services – It can transform the financial service industry by improving trust, removing friction, and speeding up transactions. With all records stored on the blockchain and readily available as and when required ensure faster closings that improves consumer satisfaction.
- Supply chain – It eliminates the cumbersome paper-based processes with faster sharing of reliable data among the participants of a supply chain. It adds to the intelligence and speed of executing a transaction with automation.
These are not the only sectors that are benefited by the combination of AI and blockchain.
There are several others but including them all in one particular article will make it unnecessarily long, and perhaps boring.
In short, it can be said that blending AI and blockchain technology will create new opportunities for all industries whether it is manufacturing industry by tracking their carbon emission data, transportation industry with tracking of vehicles for timely delivery and more.
Impacts on Crypto Ecosystem
Coming back to the crypto ecosystem, with more accurate price prediction, the combination of AI and blockchain surely will revolutionize crypto trading and investing along with the whole market space.
In crypto space, one of the most significant issues is its volatile nature, and it is not only in the case of Bitcoin.
Typically, this volatility aspect is mainly driven by the diverse perceptions of the participants in the market regarding the intrinsic value of crypto.
In addition to that, the other significant factor is whether or not crypto should be treated as cash or cash equivalent, intangible asset or inventory.
And, most importantly, whether or not it can be accepted as a medium of exchange with goods and services is the concern of the users.
As a result, acceptance and adoption of crypto on a global scale is somewhat pulled back due to the unclear future of it which results in innumerable fluctuations within the different crypto exchanges.
However, in spite of its downsides, crypto is being recognized by the major tech institutions, large financial firms, and more which sparks logic on the certainty of the future of crypto.
Also, the general public has started to invest in crypto thinking that it is a good asset for private wealth management and for creating a hedge against inflation.
And, with the easy access of different crypto exchanges they can pursue their dreams even more easily now.
With an increased recognition of the credibility and opportunities offered by crypto, even celebrities, banks and prominent industrialists have shown their interest in it which paves the path for the mainstream adoption of crypto.
However, today, identifying the buy and sell or investment signals is not as easy as it was a couple of years ago.
The main reasons behind it are the increase in:
- The need for manual research
- Investment options
- Data extraction and
- Analysis processes.
AI has proved to be a good and efficient tool to make all these things better within the finance industry.
However, when it comes to the crypto space it is even more powerful and productive due to the combination of it with blockchain technology.
It ensures powerful and more accurate data analysis that results in more accurate price predictions.
Knowing the crypto market much better now the investors can make more informed and educated investment decisions.
The combination of AI and blockchain not only provides valuable insights to the investors but it also helps the data scientists to build better forecasting models and neural networks.
This helps further in gathering, clean-up, processing, and scrutinizing large sets of historical data which in turn ensures precise price prediction at any specified date and time in the future.
Add to that, the combination of AI with blockchain enhances the trust and value of digital records.
This helps in analyzing the sentiments of the crypto market due to the natural language processing ability of AI.
A positive sentiment indicates the rise in price of a crypto coin and a negative sentiment indicates otherwise.
AI can collect large sets of data from the internet, news, articles, blogs, social posts, forums and stock message boards.
It can analyze them quickly to determine whether the market sentiment is positive, negative, or neutral.
It is easy to analyze different signals with the help of AI and identify any manipulations in the market by using different sentiment indicators.
Some of the most common types of sentiment analysis that help in interpreting the crypto market are:
- Polarity – This analyzes the labels and statements on the basis of whether these are positive, negative or neutral for the investors and analysts to establish a trend
- Tone or emotion – With the use of natural language processing this analysis provides insights on tone or emotion of the text and
- Aspect-based analysis – This categorizes data based on specific service or company and the sentiment of each one on the basis of the feedback of the customers and their analysis.
Combination of AI and blockchain technology will also help in improving the crypto trading strategies by stimulating human intelligence with better analysis automating the process to allow making high-frequency trades.
This will enhance the chances of the crypto traders to make more profits.
Typically, high-frequency trading refers to a specific type of algorithmic trading.
It is used mainly by investment and hedge funds. In this process, a large number of orders are executed within a matter of a fraction of a second.
This is based on computation of complex mathematical data, predictive analysis, and advanced forecast methodologies.
The crypto traders will be benefited a lot when they have automated high-frequency trading signals.
This algorithm based trading will allow them to buy and sell crypto within seconds and therefore they will be able to maximize their investments and profits.
Therefore, AI with blockchain will help the crypto traders rely heavily on different trading signals to monetize crypto insights much more easily.
The combination will ensure that the traders always get clean, processed and relevant information on the platforms.
What is more, with the natural language processing techniques of AI, this data can be further extracted and classified based on different characteristics such as:
- Currency name
- Currency founder
- Document type and more.
This will help even the non-tech-savvy crypto traders and investors to make the best use of the insights by using the intuitive interface which will increase their chances to make more profit.
Therefore, it is quite clear that combining two different technologies such as AI and blockchain helps in making the best use of their traits, even better than if they worked independently.
This will not only help the crypto traders and investors but also the whole market. It will help the market to develop in all different aspects such as it is:
- Market cap
- Growth rate
- Challenges and
- Future trends.
Moreover, AI and blockchain combination will also improve data encryption.
AI has the potential to work with encrypted data but ensure a high level of security in the process due to its more developed algorithms.
The security aspect is further enhanced with the blockchain security algorithms.
This means that blockchain AI applications can be used successfully for storing extremely sensitive personal data.
Therefore, with smart and secure data processing approaches, AI and blockchain is a smart combination to unlock convenience and value in specific industries such as crypto, and healthcare.
As you may know, hashing algorithms used in the new mining blocks use brute force to find the solution to a puzzle of a specific transaction.
This needs a lot of processing power.
The combination of AI and blockchain will ensure a much better blockchain management as it will offer a reliable solution to the issues related with processing power required by a blockchain network to validate a transaction.
It will take away the brute force and instead use more reasonable and intelligent approaches.
This will help in tracking and monitoring transactions, understanding and explaining the complex algorithms and ensuring more transparency.
It is the data point to data point approach of the blockchain and AI combination that will improve the credibility of the data.
One of the most significant benefits of the combination of AI and blockchain offered to the crypto market is in forecasting peer-to-peer markets based on the diverse dynamics with near-perfect accuracy.
It will make life much easier for the novice crypto traders who do not have the complete knowledge of the crypto space and its products.
It will also help them to find parties quite easily when they want to make a deal.
This is because the combination of AI and blockchain will solve one crucial problem of the crypto market – its lack of liquidity.
The wild fluctuations of the exchange rates of the digital currencies do not make them a very good choice for making business payments.
Also, there is an ever-existing difference between demand and supply of the coins which results in high price and high fees.
When AI and blockchain are combined, users may use it to find a side-matching protocol to transact directly by paying minimum fees to a bank or a broker.
With so many benefits offered, it is not surprising that today a lot of individual companies are particularly engaged in developing AI-based platforms related to services in the crypto market whether it is simple trading or investing or offering loans against crypto.
It is true that there are several preconditions to the extensive use of AI in crypto as it is fairly new but, as pointed out in this article, the AI and ML basics can eliminate the confines of humans in accurate price prediction and make profits from crypto investing.