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The Role of Artificial Intelligence in The Blockchain and Cryptocurrency Space

The Role of Artificial Intelligence in The Blockchain and Cryptocurrency Space

Explainers

08 Nov 2022

In today's modern world, cryptocurrencies are a fascinating phenomenon. Digital coins, which have rapidly acquired fame and popularity, continue to be a highly lucrative financial instrument, capable of generating large returns on cryptocurrency exchanges or long-term investments in assets.

The adoption of Bitcoin has even tackled unique challenges in emerging markets.

Artificial intelligence (AI) is also swiftly gaining traction and impacting the trajectory of people's lives and society. However, while Blockchain and AI will see increased use and innovation, there are also concerns about the utility of these disruptive technologies.

In this article, we discuss the role of AI in blockchain, the benefits of combining both technologies, and how they can revolutionize the way people do business.

The Role of AI in Blockchain Technology

Today, crypto coins are attracting everyone's interest. From seasoned investors to newbie millennials and professional athletes, everyone is rushing to invest in cryptocurrencies, which can yield tremendous returns on long-term or short-term exchange investments.

AI AAX

Currently, any project involving machine learning requires a substantial amount of empirical data, which is why the stock market is an ideal resource. It should not be surprising that artificial intelligence is making waves in the crypto industry.

AI - A Familiar Friend to The Finance Industry

AI engineers intelligent robots particularly for calculating, comprehending, learning from experience, adapting to new conditions, and solving tough issues.

AI is already widely employed in traditional financial markets. Several hedge funds, for instance, use artificial intelligence to increase the profitability of their trades. Given that the stock market is a never-ending source of empirical data, it is understandable that the industry uses AI to speed up systems.

The volatility of cryptocurrencies raises the dangers of crypto trading while simultaneously making it more lucrative than any other investment. Prices frequently move throughout the day, allowing traders to achieve consistent profits, provided their calculations are accurate.

As a result, massive amounts of data must be processed in order to uncover crypto market trends that artificial intelligence and learning robots can then exploit.

The Benefits of Combining AI and Blockchain

Blockchain and AI will see widespread use in enterprise and custom software development in the next five to ten years. Even now, forward-thinking, tech-savvy business moguls recognize the immense potential of combining blockchains with AI.

Let's examine how one can reap the rewards of employing AI for blockchain and cryptocurrency.

Sort Through Vast Quantities of Data

AI is capable of sifting through enormous amounts of blockchain data, such as historical market data, publications, forums, and even social media comments. Using data analytics, investors can identify and forecast market-price-altering events and make more informed decisions.

Maximize Energy Efficiency

Data mining is an extremely energy-intensive process. This is one of the most significant problems in the modern world and Google has demonstrated that machine learning can solve the problem.

By training the DeepMind AI on historical data from thousands of sensors within a data center, Google was able to lower its data center cooling energy use by 40%. The same idea can be used for Bitcoin mining, resulting in cheaper mining equipment.

The role of AI
Google DeepMind graph showing results of machine learning test on power usage effectiveness in Google data centers (Image: Blog. Google)

Sentiment Analysis of The Cryptocurrency Market

Sentiment analysis is the use of natural language processing and AI to analyze people's opinions or feelings regarding a particular topic. When it comes to investing in cryptocurrencies, a positive overall feeling toward a digital currency might signal price gains, whereas a negative overall sentiment can predict price drops.

To evaluate the sentiment of the bitcoin market, it is necessary to collect and analyze vast amounts of diverse data. This includes news, blogs, articles, forums, social media posts, stock message boards, as well as their comments.

With AI, large volumes of internet and blockchain data can be handled at scale, and the sentiment — whether negative, neutral, or positive — can be assessed quickly.

By monitoring various signals and searching for unexpected trends in sentiment indicators, AI and machine learning can detect market manipulation. When an emotion is coupled with the data, investors will know what to do with the resulting insights

Improving Security

While the blockchain itself is secure, extra layers and applications are not considered breaches of DAO and Bitfinex. In the banking sector, machine learning will improve the implementation of blockchain applications and identify potential system breaches.

Experts are also developing methods that will enable AI to interact with encrypted data without exposing it.

Fully Automated Cryptocurrency Trading Strategies

Due to AI's ability to imitate human intellect, investors and analysts regularly apply AI in high-frequency trading tactics. Traders who execute transactions swiftly are more profitable than those who do them slowly.

In fact, many investments and hedge funds use high-frequency trading, a form of algorithmic trading in which a computer executes several orders in fractions of a second.

AI and Blockchain Are Better Together For Businesses

Many firms are already investing extensively in enormous quantities of data and the tools required to extract real value from it. The objective is to increase revenue and efficiency in existing products while simultaneously establishing new data-driven businesses for the future.

The issue is that businesses generate considerably more data than they can process, let alone use for decision-making. AI programs are capable of handling this difficulty while learning and associating relevant items with the task at hand.

Connecting a distributed, decentralized, and immutable ledger that can record the data traveling through a machine-learning decision is effectively a centralized process. This can make the data more logical and understandable.

Then comes blockchain, which can assist with the attribution, comprehension, and justification of such acts and outcomes. The system may be meaningfully validated, audited, and modified by storing the key data components as blockchain transactions.

Businesses have been experimenting with blockchain for this purpose. By combining the predictive capabilities of AI with the resiliency of blockchain, businesses can create safer, smarter, more transparent, and cost-effective automation solutions.

Benefits of Combining Blockchain Technology and AI

The most intriguing and influential technologies of this decade are artificial intelligence and blockchain. These digital assets even can rebuild trust in financial institutions.

Combining blockchain technology and AI successfully compensates for each other's shortcomings, allowing for reciprocal benefits, technological improvements, and robust organizational support.

Creating worldwide criteria for evaluating the usage of integrated blockchain and AI technology would be the next stage in the expansion of these two technologies. This will help assist businesses expand further.

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