What investors need to know about the crossover between A.I. and crypto

Published Thu, Jul 13 20232:38 PM EDTUpdated Thu, Jul 13 20236:40 PM EDT

Debate has swirled this year over whether improving artificial intelligence will help humanity or threaten the species. But since it's clear that large language learning models aren't going away, one idea gaining currency today is that crypto's blockchain technology could help keep in check at least a piece of the societal risk. It's an opportunity worth watching for investors, and crypto speculators have recently been doing just that. AI-related cryptocurrencies jumped Wednesday after memecoin influencer Elon Musk announced the launch of his new artificial intelligence company , xAI. They saw a similar spike in May after Nvidia reported booming demand for chips that power AI applications. It may be too early to find serious investing opportunities. For many, the current climate looks like a chaotic combination of two young technologies that few understand, coming together to recreate dot-com era levels of hype. Others see the crossover between the worlds of AI and cryptocurrency as inevitable. "There are going to be some silver and bronze wins, but the big gold medal out there that people are chasing is marrying these crossover strengths around automation and efficiency" — two of the main values of both AI and crypto, said Jack O'Holleran, co-founder and CEO of blockchain company Skale. Grayscale Investments recently highlighted three potential risks posed by AI that crypto could potentially limit: identity verification, centralization and data ownership and privacy. "Consumers' ability to maintain privacy over this data remains paramount," regardless of whether or not companies choose to monetize user data, Grayscale said in a report. "In the most extreme risk, access to and exploitation of confidential information could lead to harmful consequences, such as identity fraud, unauthorized access to banking info, potential discrimination, or even blackmail." "We believe blockchain can enable individuals to combat the trend of data monetization and centralized privacy risks by enabling individuals to maintain sovereign ownership over their personal data in a privacy-preserving manner," the report added. O'Holleran said he believes the biggest companies in AI either don't exist or are early-stage startups. At this point, investors wanting to play the crypto-AI crossover can buy stocks that provide broad exposure to both industries — such as chip manufacturers and some other tech companies — or invest in early AI-related crypto protocols, William Ogden Moore, a Grayscale research analyst told CNBC. Accredited U.S. investors can gain direct exposure to AI-related crypto protocols by investing in private venture fundraising rounds, he added. For unaccredited investors, there are several tokens tradeable on crypto exchanges, but these are extremely early projects with small market capitalizations. Investors should do appropriate research and due-diligence checks. Building opportunities New projects have been popping up this year. The venture capital giant Andreessen Horowitz, also known as a16z, led a funding round this summer in Gensyn, which aims to use its blockchain-based computation network to help developers train AI models. Another startup called Giza raised money this week for its platform, which aims to help integrate machine learning into smart contracts. Sam Altman, the man behind ChatGPT parent OpenAI, reintroduced his own crypto-AI hybrid, Worldcoin, this summer. Built on the Polygon blockchain, it aims to offer people a digital wallet and digital ID to help distinguish bots from humans. "So far in 2023, venture capitalists have invested $422 million in crypto applications related to AI, privacy, and identity," according to Grayscale. "In total, the crypto-AI intersection represents more than 10% of total crypto venture capital (VC) funding to date, including two out of the four largest funding rounds." The right time? Smart contracts at the heart of the blockchain movement aren't particularly intelligent the way AI technology is, but they're "phenomenally valuable" for automating payments, O'Holleran said. AI, on the other hand, doesn't have a secure programmable money functionality. "When you combine those two things, the amount of use cases where you can use smart contracts, I believe, will grow exponentially across many high-volume, low-cost, transactional processes and workflows," he said, including transportation, shipping, social, and consumer internet, advertising, technology and gaming. O'Holleran, who began working in AI in 2008, recalled how "reticent" people were at the time to even use the term AI, which was far less advanced than it has since become. "A lot of AI has frankly been doing very basic things or pulling insights for things that are obvious," he said. "We've now hit this knee of the curve — all of a sudden, AI is really smart. I can't tell you how many use cases are sitting out there waiting to be pushed forward because of AI. It's this mass movement." Although blockchain technology is much younger, its community has similarly talked for years about the giant user base it would grow by focusing on the right use cases and building the right products. It hasn't found that explosive growth yet, but market participants say it will if it can move crypto past its online casino era and prove it has more everyday utility.