Crypto AI Hype: Cryptocurrencies Feed on AI Hype as Technology Offers New Uses for Blockchain

New lawsuits filed by the U.S. Securities and Exchange Commission against Coinbase Global Inc. and Binance Holdings Ltd. have raised serious questions about the future of cryptocurrencies. As digital assets face growing regulatory pressure and other market headwinds, they have also been dethroned as the latest tech fad. When Open AI has launched his ChatGPT bot in November, paved the way for practical uses of artificial intelligence. Since then, AI has captured the attention of founders and investors, the same people who fueled the cryptocurrency boom.

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Artificial intelligence may have stolen the show, but some cryptocurrency enthusiasts say it could bring new opportunities to the blockchain industry.

“We could actually see a situation where AI is sort of a catalyst for a rapid return to blockchain,” said Adam Struck, founder and managing partner of the Struck Crypto hedge fund, who has been diving deeper into AI since the release of the ChatGPT bot.

According to Alex Felix, managing partner and chief investment officer of cryptocurrency venture capital firm CoinFund, blockchain technology can bring greater transparency and decentralization to artificial intelligence, which can be extremely unclear in terms of what data is used to train models.

CoinFund recently backed Tools for Humanity. The crypto startup co-founded by OpenAI’s Sam Altman, which raised $115 million, shows a real-world use case for crypto in AI, Felix said.

Tools for Humanity, which has developed a digital currency called Worldcoin, has created a small sphere that scans people’s eyeballs to generate a unique blockchain-based ID for that individual, providing them with a digital “proof of ownership” that, when combined with Worldcoin, can also be used to facilitate secure payments.

“For us, it all started with the question: Where is the world going with AI? And the way to solve that problem was encryption,” said Tiago Sada, chief product officer at Tools for Humanity.

Felix likens the current AI craze to the cryptocurrency IPO boom of 2017, when investors rushed to snap up random crypto tokens, many of which were scams. But he said this time around, it’s easier to vet new projects and determine whether someone has deep enough expertise in AI.

“It’s harder to fake credibility because the circles are so small,” Felix said.

Discovering the hackers

Some cryptocurrency advocates say that just as blockchain can bring greater transparency to artificial intelligence, the technology can strengthen cryptocurrencies by improving how digital asset platforms organize data, secure information, and interact with users.

Hackers have successfully siphoned millions of dollars from blockchain protocols. AI bots can reduce the slew of cyberattacks plaguing decentralized finance, according to Struck.

“You could basically do a lot of what’s called pen testing or penetration testing just by having these bots simulate attacks,” he said, adding that such testing could find vulnerabilities in smart contract code that hackers can manipulate to steal money.

Bots can also be used to moderate content to filter out spam and scams on messaging platforms like Telegram, Discord, Signal, WeChat and WhatsApp, Struck said. While this type of advantage isn’t limited to cryptocurrency, it’s important for an industry where many scams originate on social media.

“A lot of users are focused on these messaging apps,” he said.

Beyond protecting investors from scams, many in the industry see other ways AI could streamline users’ interactions with cryptocurrencies.

Solana Labs, which developed the Solana Blockchain, launched a ChatGPT plugin in May “to improve the user experience and make it easier to understand what’s happening on the blockchain,” said Tal Tchwella, head of product at Solana Labs.

Cryptocurrencies have been criticized as too difficult for regular consumers to handle, but the ChatGPT plugin walks users through blockchain transactions in a conversational way.

In a virtual demonstration, Tchwella showed how a customer can connect their crypto wallet and ask the bot to show them non-fungible tokens they can afford or a specific collection. After browsing through the options, customers can ask the bot to help them purchase an NFT. The bot then generates a QR code that customers can scan to complete the sale.

“AI is going to impact every area, every sector, every industry, and we’re just trying to embrace it,” Tchwella said.

Avoid the hype

However, other cryptocurrency firms have been hesitant to jump on the AI ​​bandwagon, citing its potential dangers. Derivatives exchange Bitget nixed a ChatGPT integration due to concerns that users would receive misleading information and false facts in their queries.

Tools for Humanity has been mocked for its eye-scanning technology and has been questioned about whether it actually protects the sensitive biometric data it collects.

While The Graph, an indexing protocol, has been using artificial intelligence and machine learning to make blockchain data easier to find and use for more than two years, it doesn’t want its GRT coin to be classified as an AI token, according to Tegan Kline, CEO of Edge & Node, the startup that created the platform.

Unlike other cryptocurrency companies that have quickly turned to artificial intelligence to capitalize on the hype, he said Edge & Node prefers to be known first as a blockchain startup because there are still “challenges” with AI, including the fact that the technology makes it harder to tell what’s true online.

Meanwhile, “a lot of people are putting AI in their pitch decks to attract more venture capital funding,” Kline said.

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