Cointime

Download App
iOS & Android

How AI Will Change the Crypto & Blockchain Space

Validated Individual Expert

In Cryptocurrency and Blockchain, AI and machine learning has the potential to bring about a true paradigm shift, making blockchains more secure and more efficient. In this article we will be exploring this paradigm shift, and why machine learning should be at the core of every blockchain.

What makes blockchain an incredibly useful technology is the fact that, every wallet and every transaction is recorded on a public ledger. Every move, no matter how small, is being logged and recorded onto the blockchain. That’s how Applications such as Metamask are able to accurately determine the Gas fee for a transaction. This also creates a sea of information and therefore resource, which currently remains untapped. There are only a handful of companies that provide chain analytics, but even even that use-case itself remains quite limited. There is only so much you can accomplish by analyzing on chain-data, but not be able to take a course of action based on this analysis.

AI as a Blockchain “Ghost in the Shell”

The approach that I’m proposing in this article is to have an AI or deep neural network as an integrated part of the blockchain. In a sense, this could be looked at as an intelligent entity that contains the awareness of the blockchain. This integration would make the chain aware of itself. A self-aware system with a certain degree of agency and the correct permissions will be able to repair, heal and raise its own efficiency in a way that a traditional decentralized network is unable to.

Practically Bulletproof Security

The majority of blockchain exploits and many of the hacks that we have witnessed in 2022 had one thing in common. They rely on the fact that once an entry point has been discovered for an exploit, there is no way that the chain, the validator nodes or anyone else can react quickly enough in order to revert a fraudulent transaction.

This is especially true with some of the cross-bridge hacks that took place in late 2022, such as the Nomad Hack, which was also dubbed as the first crowd looting event on the Blockchain. In essence, people noticed the hack as it started unfolding, and most were just left watching, while others figured out that it’s exceedingly simple to replicate the hack and started siphoning crypto themselves.

Introducing neural networks and ensuring the blockchain is aware of all transactions at all times, would make such exploits a thing of the past. Here’s practical example of how this may work:

  • The AI recognizes that an unprecedented number of transactions have been put forward for processing from a new and unused wallet, and gets flagged as an anomaly. From here on, it can go two ways but assuming human intervention is needed —
  • The suspicious transaction is being sent to a pending-review pool and validator nodes are being notified.
  • Validator nodes then get to vote whether this is a legitimate transaction or not.

The above would still be vulnerable to a 51% attack, as it still relies on a majority to agree on a decision, but it keeps the network decentralized.

The second option would be for the AI to be given agency. Instead of simply reporting to validator nodes, the Intelligent layer of the blockchain would be able to act in the chain’s best interest all by itself. This would be a lot quicker and arguably a lot more secure too but in this paradigm shift we’re no longer talking centralized-decentralized. This is now a self aware organism, tasked with preserving itself and the rules of the chain. Validator nodes will still play an important role as decentralized computing, and will still play a role in decision making, but transaction validation can now be offloaded onto the neural network.

Network Optimization

A blockchain network’s performance can be impacted by several factors, including the number of nodes, the distribution of transactions across the network, and the efficiency of consensus algorithms. These factors can result in bottlenecks that slow down transaction processing times.

An AI can be used to analyze the blockchain network’s performance and identify these bottlenecks. Based on on-chain data, the Neural Network can suggest ways to optimize the network, reducing the time it takes to process transactions. For instance, AI algorithms can analyze the distribution of transactions across the network and suggest ways to balance the load, reducing the burden on any one node.

AI can also be used to predict potential issues before they occur, allowing the network to proactively address them. This can reduce downtime and improve the overall speed of transactions.

Better Consensus Algorithms

Consensus algorithms are crucial for the secure and efficient functioning of any blockchain. They determine how transactions are validated and added to the blockchain. A Neural network can be used to improve the efficiency of these algorithms, which can result in faster transaction speeds.

An AI will be able to dynamically suggest new and improved versions of current consensus algorithms based on the state of the chain. Adding or reducing the number of validations required to process a transaction based on network congestion, or even more advanced practices such as updating the consensus algorithm entirely, once enough on-chain data has been analyzed in order to make a decision.

Predictive Maintentance

In a blockchain network, various components such as nodes, consensus algorithms, and data storage systems need to be maintained and monitored to ensure their smooth functioning. This maintenance can be time-consuming and requires significant resources, leading to downtime and slower transaction speeds. Some blockchains (Solana) are particularly bad at this, with multiple offline maintenances recorded in the past 2 years.

AI can be used to predict potential issues before they occur, allowing the network to proactively address them. For example, our neural network can monitor the performance of nodes and predict when they may fail, allowing the network to take action before the failure occurs.

These predictions can also apply to the consensus layer as well as the transaction layer discussed above. Predictive maintenance not only reduces downtime, but it also helps to improve the overall efficiency of the network, freeing up resources that can be used to process transactions faster. In addition, it helps to reduce the costs associated with maintenance and repairs, making the network more sustainable in the long run.

Closing thoughts

The more autonomy the AI has, the more efficient the chain will become, that’s why it all circles back to the blockchain being aware and capable of acting in its own best interest, based of course on the parameters that are given to it. From that perspective, this represents a true paradigm shift from the current validator-controlled networks, to a new breed of self-aware, self-regulating network. This, of course brings into discussion decentralization and its scope.

Here are some questions to consider, let me know what you think in the comments —

Should the validator nodes be able to influence the AI’s decision making?

If so, how do we ensure that the validators themselves are competent enough to fiddle with the AI’s logic? Is decentralization even relevant anymore in such a paradigm?

Comments

All Comments

Recommended for you

  • Gaming platform Param Labs completes $7 million financing, led by Animoca Brands

    Gaming platform Param Labs has completed a $7 million financing round, led by Animoca Brands with participation from Delphi Ventures and Cypher Capital. Param Labs aims to establish a gaming ecosystem managed by its native PARAM token, which is set to launch soon. The company's first game, "Kiraverse," is a multiplayer shooting game that allows players to earn money while playing.

  • Blockchain SaaS solution AfriDex completes $5 million Pre-Seed round of financing, led by Endeavor Ventures

    AfriDex, a blockchain software-as-a-service solution based in London, UK, announced the completion of a $5 million Pre-Seed round of financing with Endeavor Ventures leading the investment and African Crops Limited, Oldenburg Vineyards, and Hank Oberoi participating. AfriDex is currently focused on the agricultural market, providing comprehensive on-chain solutions to support and protect supply chain participants, utilizing blockchain technology to achieve traceability, frictionless payments, anti-fraud transactions, verified authentication, simplified tax and subsidy management. (finsmes)

  • Rugpull occurs on Ethereum with fake NOT tokens

    PeckShield has monitored that the fake token Notcoin (NOT) on Ethereum has dropped 100%. An address starting with 0xE0eB sold 1,645,040,633,338,481.95 NOT and exchanged it for 93.5 WETH (valued at $281,000 USD). Note: Rugpull tokens have the same name as legitimate tokens.

  • U.S. senators propose spending $32 billion to develop AI and build safeguards around it

    A bipartisan group of four senators led by Chuck Schumer, the leader of the majority party in the United States, has proposed that Congress spend at least $32 billion over the next three years to develop artificial intelligence (AI) and establish safeguards around it.

  • Swiss Federal Council Plans to Implement Crypto Asset Reporting Framework to Improve Tax Transparency

    The Swiss Federal Council (consisting of seven members jointly leading the Swiss government) plans to implement a Cryptocurrency Asset Reporting Framework (CARF) to increase tax transparency.On the 15th, the Federal Council issued a consultation document to investigate public opinion on joining the Automatic Exchange of Information (AEOI) to combat tax evasion and avoidance in cooperation with international tax authorities. Currently, Switzerland's joining of AEOI is scheduled for January 1, 2026. It is reported that the Organisation for Economic Co-operation and Development (OECD) established AEOI and other initiatives for the Group of Twenty (G20) countries, which later expanded to include other countries.Switzerland previously adopted the Common Reporting Standard (CRS) of the OECD in 2014, but did not include CARF regulating cryptocurrency assets and their providers.

  • Morgan Stanley disclosed that it invested nearly $270 million in Grayscale GBTC, becoming one of the largest holders

    On May 16th, Morgan Stanley disclosed in its Q1 13F filing with the SEC that it had invested $269.9 million in the Grayscale Bitcoin Trust (GBTC) to gain exposure to physical bitcoin ETFs. According to Fintel's data, this investment made it one of the largest holders of GBTC, after Susquehanna International Group (which invested $1 billion). Morgan Stanley is also one of many global systemically important banks (G-SIBs) that have disclosed investments in physical bitcoin ETFs, including Royal Bank of Canada, JPMorgan Chase, Wells Fargo, BNP Paribas, and UBS Group.

  • Coinbase Plans to Target Australia's Self-Managed Pensions Sector with New Service

    Coinbase is developing a service that will target Australia's self-managed pensions sector, according to the exchange's Asia-Pacific Managing Director John O'Loghlen. The move comes as self-managed funds in Australia have increasingly held crypto, with nearly A$1 billion ($664 million) allocated to crypto as of the latest data from the Australian Taxation Office. O'Loghlen stated that Coinbase's offering will aim to service these clients on a one-off basis and retain their business. The interest in crypto within the self-managed pensions sector may be driven by the recent momentum gained after spot-ETF approvals in the U.S. and the possibility of similar approvals in Australia this year.

  • The Hashgraph Association and QFC launch $50 million digital asset venture studio in Qatar

    The Hashgraph Association (THA) has announced a strategic partnership with the Qatar Financial Centre (QFC) to establish a $50 million digital asset venture studio called Digital Assets Venture Studio, which will support the development of decentralized finance (DeFi) solutions that comply with regulations and digital assets based on the Hedera distributed ledger technology (DLT) network. They will also invest in Web3 startups and DeFi projects supported by Hedera.

  • US lawmaker: SEC should repeal crypto accounting policy before Senate vote

    US legislator Wiley Nickel wrote a letter to Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), on May 15th, stating that the SEC should repeal the cryptocurrency accounting policy (SAB 121) before the Senate vote. Protecting investors is the mission of the US Securities and Exchange Commission, but SAB 121 does the opposite by preventing heavily regulated US banks from mass custody of digital assets. In addition, Wiley Nickel criticized the SEC for bypassing the rule-making process when issuing SAB 121, believing that the purpose of the cryptocurrency accounting policy is to clarify existing policies, not to create new ones.

  • Blockchain Asset Management announces launch of a dedicated blockchain fund for accredited investors

    Blockchain Asset Management, a cryptocurrency fund with a scale of $100 million, announced the launch of an exclusive blockchain fund for qualified investors. The specific amount of funds raised by the fund has not been disclosed yet, but it is said to have reached "eight figures", which means it is in the tens of millions of dollars. In addition, the investment threshold for the new fund is $100,000, and all investors are required to meet the approved standards (annual income exceeding $200,000, net assets exceeding $1 million).