AI and cryptocurrency: the two buzzwords dominating debates and discussions for what seems like forever. First, it was cryptocurrency and now it is the turn of artificial intelligence or AI to be in the limelight. Everyone is talking about ChatGPT Bing Chat or the newest AI model.
While it may look like cryptocurrency and blockchain are now going to play second-fiddle to AI, this is far from true. AI is not a direct competitor of the crypto industry. It is something that if utilized properly can vastly improve crypto trading and address some limitations of the crypto industry.
The role of artificial intelligence in cryptocurrency is something that is not talked about as much but is important to understand how AI can be used for the betterment of crypto traders. Read on to find out more about the role of AI in the crypto industry and the challenges towards wider adoption of AI technology for crypto trading.
What is Artificial Intelligence?
Artificial Intelligence(AI) is the ability of a computer or device to perform tasks commonly associated with human cognition and intelligence. This may include processes such as identifying patterns, interpreting speech, ability to reason and discover meaning.
Although the concept of AI has been around since the 1950s, the conversation around it and its applications picked up pace in the 21st century with the development of voice assistants and chatbots. The popularity of programs like ChatGPT that can give text responses similar to human creation has renewed the debate around AI and its implications for several fields including cryptocurrency.
Benefits of Using AI for Crypto Trading
While AI may seem like the “it” technology now and something that might overshadow blockchain and cryptocurrency, these emerging technologies are quite overlapping. As a matter of fact, AI has the potential to change and improve the crypto trading experience in many ways.
AI programs can analyze large amounts of data from various sources including official reports, news articles, and social media posts. In this way, AI can identify patterns that human analysts may miss. This helps crypto traders in making more accurate predictions about market trends.
Faster Decision Making
AI algorithms have streamlined the process of data collection, analysis, and interpretation. This helps traders respond faster to market changes and make instant decisions to capitalize on new trading opportunities. The ability to make fast and well-informed decisions is one of the main advantages of AI for crypto traders.
AI has the potential to bring significant improvements in algorithmic trading. This will further help crypto traders in choosing the best trading strategy for each type of risk and increase their profits.
Better Crypto Security
Scams and other cybercrimes are a big issue in the crypto industry. The application of AI can help prevent fraud and enhance security in the crypto market. Among other things, AI can be used for better user identification, automating KYC processes, and identifying and preventing fraudulent transactions and scams.
Development of Smart Contracts
DeFi platforms running with the help of smart contracts are becoming more popular. These smart contracts, however, are not free from loopholes and other inefficiencies. AI can be used for creating bug-free smart contracts and for automating troubleshooting.
Improved Risk Management
Using AI for market data analysis can help traders minimize the risk of losses while trading cryptocurrency. AI can be useful for in-depth analysis of market data to identify risks such as signs of a market crash. Traders can then accordingly plan their strategy to reduce their risk and avoid losses.
Blockchain for AI
Yeah, turns out the relationship between blockchain and AI is a mutual and not a one-sided relationship. After talking about the role of AI in improving crypto trading, let us see how blockchain can benefit the development of artificial intelligence.
Decentralized Values for AI
Blockchain technology can be useful for developing decentralized AI models. Theoretically, this is supposed to help curb the development of centralized AI monopolies and ensure the privacy of data. It is also expected that blockchain can be used to reduce biases in upcoming AI models.
Blockchain for Curbing Misinformation
The development of AI has also led to a sea of misinformation with the spread of deep fakes and other associated technologies. In the era of fake news and misinformation, blockchain can be used to confirm the authenticity of photos and videos.
Cryptocurrency for Transactions
Some people argue that with further development of AI models, they may be able to function as personal assistants or agents in the future. For transactions between such agents, cryptocurrency like Bitcoin would be a much better option as compared to the dollar and other fiat currencies.
Challenges to Adopting AI for Crypto Trading
With all this talk of the future of AI, cryptocurrency, and the role of AI in crypto trading, we need to take a step back and also discuss the challenges in the wider adoption of AI for crypto trading.
Lack of Proper Data
The quality of an AI program depends on the data that is fed into the system. There is, however, a lack of good-quality data that can help AI models interpret market patterns and optimize trading strategies. Blockchain networks and crypto markets have not yet been fully studied which poses a challenge for testing AI models in real market conditions.
Limited Computing Power
The development of AI requires high processing power for analyzing market data, creating optimum strategies, and performing other tasks related to digital assets. Under the present conditions, it can be difficult to set up the necessary ecosystem with the required high-tech equipment.
Lack of Public Trust
There is widespread skepticism and mistrust in society regarding both cryptocurrency and AI programs. This negative attitude can be a hindrance in the development of AI models and their implementation in the crypto trading industry.
Why AI is the future of Cryptocurrency?
AI is the future and it is the future of cryptocurrency too. The fusion of blockchain and AI is expected to bring great results in the crypto industry. They are not exactly competing but complementary technologies that can be used to change the face of Web3.
AI models will not only help crypto traders streamline data analysis but also assist them in diversifying their portfolios and guide them toward better risk management. It will also make the crypto market more efficient and secure by identifying scams and improving ID verification systems.
In return, blockchain technology is expected to help develop decentralized AI models and curb the spread of misinformation by authenticating digital assets like photos and videos. AI is, therefore, expected to play a big role in the future in the crypto market and open a whole slew of possibilities for Web3 development.