Hackernoon logoAI and Cryptocurrency Interactions You May Not Know About by@nealtaylor

AI and Cryptocurrency Interactions You May Not Know About

Neal Taylor Hacker Noon profile picture

@nealtaylorNeal Taylor

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You often hear AI thrown into a sentence with Bitcoin or blockchain technology. Often this generates more interest in cryptocurrencies as AI has been the “next big thing” for quite some time now.

But those who don’t understand blockchain technology fear that AI advancement would render this technology useless. After all, what can it do if artificial intelligence could solve those “hard” algorithms at lightning speeds?

To anyone fearful of AI involvement or implementation in the crypto sphere, know that AI is already here. It’s just not doing the things you think it is.

AI as a Trading Tool

AI is already used a lot in traditional financial markets. Many hedge funds rely on artificial intelligence in order to get better returns on their trades. It makes sense really since the stock market is nothing if not an endless supply of empirical data.

AI and Cryptocurrency Interactions You May Not Know About

Any project that involves machine learning needs lots of empirical data, hence the perfect match with the stock market. So it should come as no surprise that AI is making a splash in the crypto sphere as well. Yet not to the same degree.

The crypto stock market doesn’t need as much empirical data as traditional stock markets. But while AI’s progress or impact is slower in the crypto sector, it’s inevitable for this to be the go-to solution for trades.

Algorithmic trading has a major advantage. It doesn’t take into account human bias. Its reactions are based solely on clear instructions, trends, and signals.

High-Frequency Trading

HFT has become increasingly popular in the crypto sphere. And this is definitely one area in which AI can be a game-changer. HFT involves analysing specific technical indicators over multiple exchange platforms. The end goal is to respond to trades faster and to take advantage of price spikes across trading platforms like bitcoin wallets.

One thing that AI is most useful for here is that it has a lot to learn, given the high influx of empirical data. It can then also be used as an automation trading tool to take advantage of various APIs from the world’s leading crypto exchanges.

Using AI trading tools, individual traders can customise the software’s decision-making. This is possible with the selection of unique indicators, setting timeframes, price thresholds, and so on. Over time, the decision-making will become better and there will be less need for direct human involvement when refining sets of parameters.

For the time being, it’s just a useful tool that’s becoming more and more involved, given its proof-of-concept in the traditional stock market.

AI Is Not Used for Solving Blocks Faster, Yet

AI or machine learning isn’t something used to mine cryptocurrencies. It’s a common misconception, but in reality, solving blockchain algorithms requires hardware computing power. AI isn’t used for this kind of work, at least not now anyway.

What’s more plausible is using AI to manage a Bitcoin farm, by programming and managing robots to plugin, service, and configure ASIC miners.AI can be used to redirect computing power to specific applications.

In the future, and after enough data assimilation, AI can clearly optimise the mining process and figure out a way to mine more efficiently. Either by redirecting computing power or figuring out a better approach than the current brute-force method for solving blocks.

But if that computing power doesn’t exist, one can’t say that AI is going to be a game-changer in how fast cryptocurrencies are mined. Not to mention the fact that AI needs plenty of computing power on its own.

Its involvement so far is strict as a trading tool, granted one that can have a huge impact on user’s fortunes somewhere down the line.

An Interesting Similarity

What you probably know by now is how power-hungry cryptocurrency mining really is. It requires a lot of energy to power those mining rigs. As a result, it creates a lot of heat. Or better yet, it transforms that energy into heat, not just solved blocks on the blockchain.

What you may not realise is that in a similar fashion, AI technology is also great for converting energy into heat. The processing power required for advanced machine learning algorithms will eventually go beyond the requirements of crypto miners.

It will be interesting to see if sometime in the future, both blockchain technology and AI can be used for highly efficient electricity to heat conversion applications. For the time being, both algorithms use similar chip technologies. Yet the energy demands of AI applications grow exponentially.

Are AI and Blockchain Destined to Go Together?

From a trading standpoint alone, AI can be considered a blessing for investors. Why shouldn’t the crypto market enjoy the same benefits as traditional financial markets? And what better way to deal with the well-known volatility than using machine learning algorithms that can take in and understand terabytes of data?

Whether or not both technologies will go hand-in-hand in other areas, remains to be seen. Once the energy demands become easier to handle and AI becomes truly more advanced, it may have a more noticeable impact in the digital currency sphere.


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