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| By Bruce Ng |
I’m glad my colleague Beth Canova doled out a crypto crash course for you last week. Especially her explanation of decentralized finance and how it works.
That’s because it serves as an excellent foundation to what I want to explore today: the crossover between crypto and AI.
With the launch of new tools like ChatGPT, Grok and Midjourney, AI is poised to revolutionize human civilization.
That’s because these tools are already so close to mimicking the human performance of tasks that most previously thought could only be accomplished by a person.
Accordingly, it’s no surprise that interest and investment in AI is soaring. According to Statista, the AI market will grow at a compound annual growth rate of 17.3%, from $242 billion in 2023 to $585 billion by 2028.
At that rate, that means experts anticipate the AI sector will double in size every year until then.
AI Market Size by Year
I’ll nerd out about the technological reasons to be excited about AI coming into the crypto space in just a bit.
That stuff is cool to me because I love the tech side of crypto.
But as an investor, you should be excited because of the growth opportunities.
See, with AI being such a hot topic, a lot of pundits and investment advisors are keen on stocks like Nvidia (NVDA), Alphabet (GOOGL) and Microsoft (MSFT) to gain exposure to the AI sector.
I call those traditional AI investments.
And while there’s nothing wrong with targeting traditional AI, that strategy won’t give you the sort of returns that I believe can come from the intersection of AI and decentralized crypto.
That’s because those traditional firms are already so big, there’s little room to grow.
Sure, there are startups in the traditional AI field, but it’s not easy to get on board. That’s because early stage investment for startups is generally limited to venture capitalists, institutional investors and privileged insiders.
And even if you find your way into a promising, early stage project, traditional AI startups are usually centralized, technological silos. Which means to succeed, they must compete against AI behemoths like Google, OpenAI and Microsoft.
Which, of course, is a tough row to hoe.
But crypto AI projects raise funds via tokens and require users to pay in tokens for services in the AI ecosystem. This opens the door for average investors to participate in the early days as well as in later stages.
That means it is easier for you to get in on crypto AI projects early, when prices are cheaper, and hold on for the wild ride higher.
And crypto AI projects have decentralization as a core ethos. That means no single party can have majority control of the AI tech.
Because of these differences, I think crypto AI will surpass the growth rate of traditional AI in Figure 1 by a large margin.
That’s because the AI technology we’re seeing is already starting to compensate for some of DeFi’s biggest detriments.
And now I get to geek out.
As Beth explained last week, decentralized finance, or DeFi, aims to cut the middleman out of your financial experience. The goal is for you, and only you, to have complete control over your finances at all times.
This is made possible by smart contracts — pieces of code that facilitate the swaps, staking and lending on decentralized platforms.
Uniswap (UNI, “B”), Aave (AAVE, “B”), Compound (COMP, “D-”) and every other DeFi platform operates using smart contracts.
But versatile as they are, smart contracts also have three key limitations:
- They exist in an information vacuum. From the price of Bitcoin (BTC, “A-”) to the temperature in Seattle, to which teams won Sunday’s football games ... all real-world data must first be input into smart contracts (via various means).
- They can’t run continuously. Someone has to enact the smart contract to get it to run. This places limitations on how automated they can be.
- They are limited to a single-transaction payment model. Every time you swap a coin on Uniswap, for instance, you pay a fee in ETH. This is because smart contracts operate only on a single payment-per-transaction basis.
That’s where AI tech comes in.
Specifically, AI agents.
These are essentially robots on the blockchain. And they’re programed to compensate for the shortcomings of smart contracts.
As such, they can:
- Scoop up information from the internet or another real-world source using tools like ChatGPT and input that into a smart contract.
- Interact with a smart contract 24/7, continuously.
- Perform operations in an autonomous way off-chain, using the smart contract only when needed to minimize blockchain transaction costs.
In other words, AI agents can source information outside their blockchain, take actions autonomously to achieve goals and can improve performance by learning or acquiring knowledge.
In the always-on, never-resting world of cryptocurrencies, this boost in capability and efficiency for the backbone of DeFi is essential to supporting further growth.
Smart contract blockchains that adopt AI agents are likely to find themselves at the front of the pack as the bull market is set to increase demands as user numbers and DeFi activity rises.
Savvy investors looking for big growth opportunities should consider researching which blockchains are considering or even already utilizing AI agents.
You should also consider marking next Tuesday, Jan. 9 at 2 p.m. Eastern on your calendar.
That’s when my colleague Juan Villaverde will be hosting an urgent briefing he’s calling Crypto Convergence.
In it, he’ll break down the three massive events that he expects will go off one after another … sending Bitcoin to new highs. Then, Juan will reveal the three altcoins he believes are likely to do even better.
Just sign up to save your seat, then join him next week to learn more.
Best,
Dr. Bruce Ng
