Artificial intelligence (AI) today represents one of the most advanced areas in information technology, with machine learning at its core. This technology is already being integrated into various fields, including the cryptocurrency industry, which is currently experiencing a peak in popularity. The inevitable inclusion of AI in cryptocurrency trading processes and the creation of smart tokens is approaching, but what impact will this have on the cryptocurrency market?
To understand this, let's explore how cryptocurrency technologies intersect with artificial intelligence in the new phase of FinTech industry development. We will also see how AI can influence the cryptocurrency market and what factors may hinder its full implementation.
- New Phase of Financial Technology Development in Cryptocurrency and Artificial Intelligence
- How AI Influences the Cryptocurrency Market
- Limiting Factors in the Application of AI in the Crypto Market
- Possible Changes in the Cryptocurrency Industry Thanks to AI
New Phase of Financial Technology Development in Cryptocurrency and Artificial Intelligence
Blockchain and artificial intelligence are among the most discussed technological trends today. Despite their differences, researchers see significant potential in combining these two technologies. According to PwC forecasts, by 2030, artificial intelligence will increase the global economy by $15.7 trillion and lead to a 14% growth in global GDP. Gartner also predicts that by that time, the business value created by blockchain technology will reach $3.1 trillion.
The integration of machine learning and AI into blockchain helps improve system architecture. Artificial intelligence can significantly enhance blockchain efficiency, overcoming its limitations such as energy efficiency and security of the distributed ledger. Machine learning will also be beneficial to organizations adapting blockchain for specific tasks.
The application of AI in cryptocurrency trading is extensive. In addition to automating trading and price forecasting, AI can be used for risk management and optimizing investor trading portfolios. AI systems can detect fraudulent schemes and provide long-term market monitoring, making them valuable risk management tools. AI algorithms can optimize cryptocurrency portfolios based on investment goals and risk levels.
AI systems can make optimal trading decisions and automate processes such as price tracking and order execution. Additionally, AI can enhance the security and reliability of cryptocurrency transactions by detecting fraudulent schemes and improving verification procedures. Consequently, AI can make the cryptocurrency market safer and more attractive for traders and investors, promoting its growth and development.
How AI Influences the Cryptocurrency Market
The integration of artificial intelligence (AI) into cryptocurrencies is becoming a significant trend, as this technology can transform the following areas:
- methods of conducting transactions;
- asset management;
- investment decision-making.
AI makes the use of cryptocurrencies faster, safer, and more efficient for both individuals and businesses. Moreover, AI reduces the risk of fraud, market manipulation, and human errors, making cryptocurrency investments more reliable and trustworthy. Below are the key issues that AI will be able to address in the crypto industry after full implementation.
As the cryptocurrency market develops, with the emergence of new crypto projects and digital coins, price manipulation issues have also arisen, threatening the stability of the economic system. These problems lead to capital outflow from the cryptocurrency market due to a lack of trust in its instruments amid unexplained price spikes, and increase regulatory pressure from authorities like the SEC, aiming to eliminate market manipulation possibilities.
Using computational technologies and algorithms, AI allows for market movement forecasting and comprehensive data analysis to improve interactions with financial market elements. Currently, crypto investing relies on technical and fundamental analysis, providing only a superficial understanding of market direction. AI will be able to analyze large volumes of information, including news and forums, to quickly and accurately forecast market trends for any crypto asset.
- Development of Automated Trading
The introduction of artificial intelligence technologies in the cryptocurrency market can significantly improve algorithmic trading, undoubtedly leading to increased profitability. Currently, algorithmic trading relies on complex mathematical models, which are inferior to AI due to limitations associated with human-written code. AI addresses this problem by enabling the selection of the most optimal trading strategies for each risk level.
- Improvement of Crypto Security
The integration of blockchain with artificial intelligence will help effectively combat cybercrime and fraud. Thanks to machine learning algorithms that recognize suspicious activity, the security of the trading process will become more reliable. This will improve identity management during registration, automate KYC processes, and analyze crypto data to prevent fraudulent transactions. Combined with existing security practices, AI will significantly enhance the protection capabilities of the cryptocurrency market.
- Enhancement of Smart Contracts
Currently, smart contracts are developed by different individuals, which can lead to errors and vulnerabilities. Using AI in smart contract development will ensure the creation of error-free contracts and lead to the emergence of blockchain 2.0, enhanced by various AI technologies. AI can also test smart contracts, conducting formal verification, automated bug detection, debugging, and analysis.
- Optimization of Mining
Mining, the process of extracting new blocks in the blockchain, requires significant financial and technological resources. Using AI will reduce resource consumption and speed up the mining process by optimizing computational models and algorithms. Such solutions are already being actively researched and applied in practice.
- Data Analysis
Full integration of AI into the crypto sphere will help optimize trading activities through market analysis and scenario modeling. AI will allow for the selection of ideal trading strategies based on market sentiment indicators, reducing the number of losing trades and improving price movement predictions. This will minimize the risk of losing money due to incorrect profit-seeking steps.
- Optimization of Investment Activities
AI will help optimize investment activities by analyzing the market and creating event development scenarios to select ideal strategies. Natural language processing based on AI will recommend which cryptocurrency to buy or sell, minimizing the risk of losses. This will significantly reduce the number of losing trades and allow traders and investors to better predict price movements.
Limiting Factors in the Application of AI in the Crypto Market
The cryptocurrency market is young and not well studied, which creates significant obstacles for its development and the introduction of advanced technologies. For artificial intelligence (AI) to gain widespread use in blockchain systems, it is necessary to eliminate several negative factors that hinder its application. These include:
Data Shortage
For full integration of AI with blockchain technology, much more data is needed than currently available to create AI models capable of predicting market movements and optimizing trading strategies. Additionally, to test AI in real market conditions and assess its effectiveness, a comprehensive understanding of blockchain networks is required, which are currently less than 50% studied. Unlike the stock market, which has accumulated data over nearly 100 years, the cryptocurrency market does not have such a rich historical experience.
Human Factor
Currently, all the best engineering developments in the field of crypto trading are created by people, making trading tools vulnerable to limitations and errors associated with the human factor. The youth and complexity of the cryptocurrency market prevent full utilization of AI's potential for its development and modernization.
Limited Computing Power
Analyzing historical market data, optimizing traders' performance on cryptocurrency markets, and performing other tasks related to digital assets using AI require significant computing resources. AI operates on high-tech equipment that must be stable and uninterrupted. High computing power also requires tools for maintenance and troubleshooting.
Lack of Public Trust
The development of AI in the cryptocurrency sphere will contribute to the creation of AI-blockchains and AI-cryptocurrencies, which will change the concept of technologies. However, despite the numerous prospects and advantages of AI, society still views it with distrust and skepticism. To overcome this distrust, it is necessary to conduct trials and tests demonstrating the practical benefits of AI in the crypto industry, especially in digital asset trading.
Possible Changes in the Cryptocurrency Industry Thanks to AI
When it comes to AI's impact on key indicators of the cryptocurrency market, one of the most significant changes will be increased security.
| Problem | Solution with AI |
|---|---|
| Hacking the blockchain is impossible without controlling mining resources | A cybercriminal must control most of the mining resources for a successful hack |
| Applications on blockchain platforms are not always secure | AI can detect vulnerabilities and launch protective mechanisms |
| Detecting attacks on the blockchain | An intelligent algorithm can automatically launch protective mechanisms |
| Minimizing damage from attacks | AI can isolate the attacked component, minimizing damage |
| Improving blockchain scalability and reliability | AI improves the scalability and reliability of the distributed ledger |
| Increasing throughput with a surge in transaction volume | AI increases throughput by increasing confirmation time |
As AI develops and its influence on the cryptocurrency trading market grows, regulatory measures can be expected to prevent abuses. As more people are attracted to this market, legislative regulation will be necessary to maintain stability and security. However, this is unlikely to lead to restrictions on the use of AI in cryptocurrency trading. Rather, efforts will be focused on protecting personal data, transparency of algorithms, and consumer protection.
The merger of blockchain and AI technologies will lead to significant improvements in various aspects of the cryptocurrency industry. This will create favorable conditions for transforming not only individual elements of cryptocurrency trading but also fundamentally changing the conceptual model of the crypto market, making it safer, more efficient, and decentralized.
