New Delhi: If you thought crypto trading was the new thing in town, think again! There is something even more exciting and cutting-edge: the combination of artificial intelligence (AI) and cryptocurrencies. Many users in India and abroad are making use of AI-driven programmes to automate their crypto trades and beat the market as often as possible.
However, industry players warn that, while AI might make it easier to make money on crypto trades, it is not infallible. Mistakes happen. Also, just as you might use AI to increase the security and effectiveness of your trading algorithms, a hacker can use the same tools to exploit them.
Of late, there has been a profusion of articles, videos, reels, and posts on X (formerly Twitter) about the “best” crypto trading AI bots that can completely “change your life”. Of course, most of this is just over-the-top sensationalist marketing, but, behind the hyperbole, AI is actually driving a real revolution in the crypto world.
“By combining AI with crypto, we can strive for a more equitable and inclusive financial system,” said Rajagopal Menon, vice-president at WazirX — one of India’s largest cryptocurrency exchanges.
“AI algorithms can analyse vast amounts of data, identify patterns, and make informed decisions. This technology has the capability to create transparent and fair protocols that ensures everyone benefits from the advancements in crypto,” Menon told ThePrint.
Basically, what AI can do is create advanced crypto trading ‘bots’ or programmes that can analyse large amounts of data instantaneously and generate infinite Monte Carlo simulations — which are simulations of past trading activity with random changes introduced to see how the outcome changes. These bots allow traders to predict to a very large degree of accuracy what the outcome of any particular future eventuality would be.
These traders can then also automate their bots to carry out the crypto trades for them, faster and more accurately than they themselves might have managed.
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Levelling the playing field
“This technology is currently available only to the biggest fund managers, but AI could level the playing field, making it easier for traders to make informed decisions and generate returns on their investments,” Menon explained.
The thing with trading — whether in stocks or in cryptocurrencies — is that it requires making decisions without letting any emotions or subjectivity to interfere. That is, the “irrational” human element of decision-making largely needs to take a back seat.
“But keeping emotions and human judgment out of play is almost impossible even for the most-seasoned traders,” said Kumar Gaurav, Founder and CEO of Cashaa, a banking platform dedicated to the crypto industry.
“This led to the evolution of algo-based trading. Now, the next chapter in the history of constant evolution that trading has seen since the days when it used to happen on the floor of the stock exchanges will be written by AI,” Gaurav told ThePrint.
According to Deepika Loganathan, co-founder and CEO of Haive.tech, a company that helps others integrate AI into their systems, this basic difference between AI and humans doesn’t just help in keeping emotions out of crypto trading. Although, she added, this element was an important advantage.
“AI bots are indeed becoming a game-changer in crypto trading,” she said. “They can analyse market trends, execute trades at lightning speed, and operate 24/7, providing a significant advantage over human traders.”
Now, one might ask why this is different from the conventional algorithmic trading that was happening so far. There, too, the computer was “in charge” of making the trading decisions. Cashaa’s Gaurav, however, explained that the difference lies in the dynamism that AI can bring.
“Instead of ‘blindly’ following algorithmic rules to buy and sell crypto, AI can learn new patterns and address market inefficiencies and find arbitrage opportunities as it evolves,” he explained.
Making smart contracts smarter
One of the most useful innovations made possible by blockchain technology is the smart contract. This allows two or more parties to enter into a transparent and binding contract with totally customisable parameters. Now, AI can make these smart contracts more secure, effective and efficient in terms of the underlying code.
“AI can also help with crypto smart contracts by providing advanced analysis and verification capabilities, enabling the identification of potential vulnerabilities, improving code quality, and enhancing contract security,” said Punit Agarwal, Founder of KoinX, a crypto taxation platform.
“Additionally, AI can assist in automating the testing and auditing processes, reducing human errors and ensuring the reliability of smart contract implementations,” he told ThePrint.
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Enhanced security, but with caveats
If you ask most experts on crypto and AI, they will say that one of the biggest advantages of the joining of the two technologies is enhanced security and fraud prevention. At a time when India’s digital transformation has been gaining pace, due to the combined effect of affordable smartphones and relatively cheap internet, the risk of fraud has become quite high.
In fact, the Ministry of Finance informed the Lok Sabha on 7 August that the Enforcement Directorate had so attached, seized, and frozen Rs 1,147.5 crore worth of funds associated with crypto frauds and other crypto-related crimes.
According to Gaurav Dahake, co-founder and CEO of Bitbns, a cryptocurrency exchange operating in India, harnessing the power of AI is pivotal in fostering a secure crypto landscape.
“With sophisticated algorithms and predictive analytics, AI brings in an unprecedented level of security to thwart fraudulent transactions and hacking attempts while ensuring the integrity of the decentralised crypto ecosystem,” he told ThePrint.
However, there are caveats that come with this advantage that AI provides — hackers can use AI too.
“Hackers can use AI to carry out more sophisticated and tailor-made attacks on the security systems and layers protecting our crypto in our wallets,” Cashaa’s Gaurav said. “AI can be used to identify patterns and target well-known crypto custodians using widely available data on social media platforms.”
The other danger, of course, is a blind and total reliance on AI, with Dahake saying that “even as technology advances, it is still important to DYOR (do your own research) before taking any steps in any kind of financial markets” and Agarwal reiterating that AI “is not flawless”.
(Edited by Richa Mishra)
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