Artificial Intelligence and Cryptocurrencies: Regulatory Frenemies in the Making

Both at the forefront of technological innovation of investor interest, crypto and artificial intelligence (AI) are forming something of a love-hate relationship. 

Aaron Brown – former head of financial market research at AQR Capital Management – argued in a recent opinion piece that both industries represent competing areas of venture capital interest, as well as dueling sources of fear for regulators. 

“The collapse of crypto exchange FTX in November 2022… combined with the demo release of ChatGPT the same month, sent venture capital money fleeing from crypto and into AI,” wrote Brown in a Bloomberg article on Thursday. 

The crypto investor isn’t alone in his analysis: Startup investor and Shark Tank star Kevin O’Leary noted in February that venture investors are moving on from crypto to the next “big thing”, which is AI. “Aftermarket trading for existing projects is at massive discounts,” he said at the time. 

While crypto has still raked in billions of dollars of investor capital this year, a litany of enforcement actions from the U.S. Securities and Exchange Commission (SEC) against the industry has investors shrinking their crypto exposure wherever the agency rears its head. 

BNB, for example – the native token for crypto exchange giant Binance – has fallen ~20% in value since the SEC alleged it was a security in its lawsuit against the company earlier this month. That said, AI may have its own regulatory concerns on its hands – but for different reasons. 

Decentralized Crypto VS Centralized AI

As Brown describes, crypto is largely feared for enabling some degree of anarchy, bypassing centralized financial institutions from which governments can collect taxes, and regulate problematic behaviors. On the other hand, AI “threatens individual human agency and privacy” with the potential to regulate human behavior in a “totalitarian nightmare regime.”

In fact, both industries can support one another by adjusting for the excesses of decentralization and centralization respectively. AI, for instance, can help the smart contract coding process when attempting to build complex structures out of many decentralized parts, while also correcting for human error. 

Meanwhile, crypto’s encryption tech can let entities controlling information today freely provide that information when building AI tools, without actually having the tool’s creators access its underlying information. 

“Now that we’re building the algorithms that already run much of the world and soon may run all of it, choosing the right mix of centralization and decentralization may be the most important social issue of the times,” concluded Brown. 

Some in the crypto space are already building ChatGPT-like educational resources for crypto content – including a new tool that evokes the opinions of Satoshi Nakamoto.