AI and Crypto: A Converging Future for the Internet
The internet’s evolution has been marked by extraordinary technological developments. Now, artificial intelligence (AI) and blockchain/cryptocurrency technologies (referred to as ‘crypto’) are positioned to shape the next phase of the internet’s development.
This analysis is based on a recent thought leadership report issued by S&P Global. The report examines the potential benefits, issues, and future scenarios for the convergence of AI and crypto technologies.
The Current Landscape
Over the last three decades, the internet’s growth, including web-based communication, online publishing, and e-commerce, has led to an explosion of available information.
AI, with its ability to analyze large datasets, has become instrumental in identifying patterns, generating new information, and deriving meaningful insights. This has expanded businesses’ and consumers’ capacity to create, store, and share information.
However, the rapid growth of online information also carries inherent risks. These include concerns around information traceability, identity management, cybersecurity, and the increasing energy consumption of data centers. Crypto technologies, which provide decentralized network solutions and information security tools, are proposed as potential mitigations to these risks. The report states that, “The combination of AI and crypto is nascent and rapidly evolving…”
Three Potential Scenarios
S&P Global assessed the impact of AI and crypto through three forward-looking scenarios:
- Incremental advancements in AI and crypto: Modest efficiency gains result. Decentralized Physical Infrastructure Networks (DePINs) leverage blockchain tokenomics for real-time interactions in physical or online networks.
- Rapid expansion of AI that exacerbates centralization risks: AI is centralized in a few large tech corporations. Decentralization efforts with blockchain are limited, and risks increase due to centralization and the potential for opacity and reduced accountability.
- Decentralized internet powered by crypto and AI: A decentralized internet emerges, using blockchain to distribute data and decision-making across multiple nodes, reducing the risk of bias, censorship, and privacy exploitation associated with centralization.
Synergistic Applications across Key Areas
For each of these scenarios, S&P Global examined the impact of AI and crypto in five key areas:
- Cybersecurity
- Financial Markets
- Computational Resources
- Internet of Things (IoT) and Networking Smart Devices
- Supply Chains
Cybersecurity
The increasing sophistication of cyber threats, coupled with the use of AI by malicious actors, requires that organizations focus on increased security measures to minimize potential financial and reputational damage. AI can be used in threat detection and automated responses to improve cybersecurity in blockchain networks, DePINs, and decentralized finance (DeFi). For example:
- Deep-learning models can analyze large datasets for previously unidentified vulnerabilities, known as zero-day vulnerabilities.
- Large language models can be trained on libraries of malware to detect patterns of attack and pinpoint vulnerabilities in existing code.
Risks include data bias in training sets and the potential for AI models to be targeted and manipulated. Continuous updates and validation are essential.
Financial Markets
Traditional financial markets face risks from inefficiencies, fraud, and manual oversight. The automation required to address inefficiencies carries added risks. Smart contracts on a blockchain can improve transparency and efficiency. AI can be used to streamline markets by automating routine tasks like financial settlement and compliance checks.
Multi-party computation protocols can be employed to secure data integrity across blockchains, and AI compliance tools can enhance security by identifying anomalies and potential fraud.
Crypto wallets can allow AI agents to transact with each other through on-chain payments.
Computational Resources
Compute power and data storage are often siloed. The increasing use of AI places additional demands on computing power and existing energy resources. DePINs can facilitate peer-to-peer resource exchange, incentivizing participation with tokens, so enabling monetization of excess capacity and optimizing hardware use. AI-driven pricing can match infrastructure with demand which reduces computing costs and improves efficiency.
While crypto is often criticized for its energy consumption, this is not a universal characteristic. Bitcoin’s proof-of-work consensus mechanism consumes a significant amount of energy. Some bitcoin mining companies are using access to cheap energy to offer AI services to diversify operations. Data center firms are also looking to acquire or collocate with miners’ infrastructure to access cheap energy.
Internet of Things (IoT) and Networking Smart Devices
Effective networks of smart devices have the potential to build smart networks, enabling efficiency gains within municipalities. By using crowd-sourced sensors, municipalities can gather data – with contributors rewarded with crypto tokens. AI data analysis then can be used to optimize infrastructure management.
Risks include tamper-proofing and data-privacy concerns.
Supply Chains
Supply chains face inefficiencies and risks due to manual processes and a lack of real-time data integration. AI can be used to predict delays, adjust operations, and optimize routes, which is supported with smart contracts.
Risks include evolving legal frameworks, complexity of AI models, and data privacy and security concerns.
Conclusion: The Future Is Intertwined
The report concludes that AI and crypto technologies, at their core, are information technologies and will play a continued role in the evolution of information, communication, and economic networks. There is potential for synergies between the technologies that may support their growth, mitigate centralization risks, and give rise to impactful applications.
The key question, according to the report, “is not if adoption will happen, but when it will occur.”
