Unpacking the AI Crypto Investor Narrative

The AI sector of crypto seems poised to rip this cycle, but why?
Dec 14, 20235 min read

A new crypto bull run has begun, and the burgeoning AI sector of the crypto economy seems poised to rip this cycle as well. But why?

AI is potentially an epoch-defining technology innovation that can advance every field. It's not surprising, therefore, that there’s tremendous excitement in investing narratives around this tech.

There’s a growing wing in the crypto economy that’s extremely optimistic about the crossroads of AI and blockchain because of perceived alignments, and they’re putting bets and work in here accordingly. Many of today's projects may appear rudimentary or hype-exploiting, but today, we're dialing on the actual opportunities, highlighting four key "Crypto + AI" categories you should be watching right now👇

💸 AI Money Agents

Crypto has always had bots. With the advent of AI, these bots are poised to evolve from simple task managers to autonomous money agents capable of executing complex financial maneuvers onchain on their own accord

via Variant

Of course, AI agents can work with money outside of crypto, but the mainstream financial system is fragmented and inefficient. Conversely, a blockchain like Ethereum is always-on, borderless, and brimming with composable, totally ownable “money legos,” so an AI agent’s efforts can go much further onchain. 

This scene is still super early, but we’ve already begun to see some experiments that are pointing toward the future. For example, the experimental Rocky AI trading bot created last year relied on zero-knowledge cryptography to prove its offchain operations onchain, and it was profitable while active.  

This experiment is just a taste of what’s to come, but it’s already clear that the combo of AI’s analytical power and blockchain’s immutable infra could lead to an explosion of innovative financial applications that can reshape the way we think about and interact with money.

While crypto may become the go-to transaction for layer AIs, computationally heavy AI algorithms and blockchain gas constraints do not mix well! Calculations required by AI-enabled crypto applications will need to be performed offchain.

Crypto companies like Modulus, the developer behind the Rocky AI trading bot, are using zero-knowledge technology to verify these offchain computations, preserving the trustless nature of cryptography where it intersects with AI.

🧩 Decentralized AI compute

Creating AI models, particularly advanced models like GPT-4, requires huge amounts of GPU (Graphics Processing Unit) computation.

Decentralized marketplaces like Akash Network and Render Network are helping to democratize access to compute to make the creation of AI models accessible to anyone! Instead of having to launch your own massive GPU farm to do so, you can simply pay to tap into Akash and Render’s already-existing networks of compute.

With these networks, individual devs and smaller organizations gain the ability to engage in high-level AI model creation, fostering a more inclusive and diverse development environment. And as demand for specialized AI proliferation grows, decentralized compute networks stand to metaphorically sell shovels amid a new gold rush of sorts. 

AI compute marketplaces have demonstrated success in making markets for a wide variety of GPU types. Decentralized marketplaces allow anyone to supply any amount of compute at any price, meaning Akash and Render can offer the newest chips not yet available through centralized providers to users. It's still tough for these networks to gain adoption among the most resource-rich customers who are squeezing every bit out of today's top chips.

Native tokens are used to incentivize compute providers. This distribution of tokens helps make the pricing of decentralized networks competitive with centralized alternatives and aligns the incentives of compute suppliers with those of the network.

📤 AI Output Marketplaces

While monolithic venture-backed startups like OpenAI are making waves with their large language models (LLMs) and being chased by tech's biggest centralized giants, there are a handful of crypto projects out there focused on training up their own models in a decentralized capacity.

While blockchains like Ethereum and Bitcoin sell immutable blockspace, projects like Bittensor are focused instead on creating a market for decentralized intelligence, aiming to tap a network of nodes to collectively train a decentralized, incentivized language model that improves over time.

Again, the bull case for this sort of project is that it can democratize and open up demand for AI services over time while utilizing its token to incentivize a flight of resources toward its own model.

OpenAI is already years ahead of its tech titan competitors, so the question is whether a decentralized option even has a shot in what many believe could be a winner-take-all market.

The market is certainly bullish with Bittensor's TAO token currently sporting an $8.1 billion FDV, but how much this is an indicator of future promise versus investor hype is impossible to know, but it's an ambitious product in a hot sector, something crypto investors are keen to reward.

👾 Smart entertainment

It’s far from all work and no play when it comes to the synergies of crypto and AI. Another sector primed for innovation here is AI + entertainment. When this interplay happens atop blockchain rails, I call it the foundation of the Smart Open Metaverse

As mainstream titles like Grand Theft Auto VI balloon in complexity and expense, it's likely that the world's largest game publishers will themselves begin bankrolling AI-driven environment creation. Web3 developers who put these experiences on crypto rails will be able to tap a decentralized network to curate and enact quality controls.

This fusion can and will facilitate new levels of interactivity and personalization in recreational virtual spaces. These are evolving into places where AI can create autonomous, dynamic, and responsive characters and environments, offering unique experiences for each user. Parallel Colony, a new type of “1.5-player game,” comes to mind here.

The move to AI-powered characters signifies a major shift in entertainment from static, pre-designed virtual worlds to ones that are ever-changing and intelligent, filled with memories and emotions. This transformative approach paves the way for more immersive and engaging virtual experiences. 

🎥 The big picture

As we venture deeper into the AI-driven crypto economy in the years ahead, the confluence of AI and crypto is not just a novelty but a potential harbinger of systemic transformation.

This is a departure from the centralized, top-heavy dynamics of mainstream tech, heralding a more democratized, decentralized future around AI. This fusion is set to redefine industries, from finance to entertainment, challenging traditional paradigms and empowering individuals and smaller entities.

Incentivizing transparency and decentralized control over the technology reshaping our world is worth betting on for plenty of reasons.

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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