The Convergence of Blockchain and AI Is Poised to Revolutionize Financial Markets
Finance is not immune to technology. And as innovation evolves, so does the finance industry. Over the past several years, the financial landscape has changed immensely due to the influence of different tech trends, particularly AI and blockchain. Blockchain and AI have made significant impacts on different sectors individually. But, combined, we start seeing immense possibilities for the financial market. Here is a review of what the convergence of these two technologies could mean for finance.
Current Collaborations
Blockchain’s top selling points – immutable data, fast transactions, security, and privacy – make it an excellent technology to combine with AI. AI is the king of data-driven technology. AI algorithms and AI-trained systems process data sets so large they would have been unimaginable a decade ago. They also optimize digital processes and conduct predictive analysis, among other technical marvels.
IoT
The two technologies are so powerful on their own that it is natural to imagine how they would work together – and several sectors have. In IoT, blockchain and AI applications are used to store and process device data, respectively. IoT devices produce large amounts of data every time they are used. This data is processed through AI and saved on the chain for posterity and future analysis.
An example of this is automated cryptocurrency payments. Secure device connections currently allow people and businesses to transact across e-commerce sites, crypto wallets, and digital bank accounts. By including AI in the process, IoT stakeholders are looking to make these payments autonomous.
AI systems will gather information about IoT device users and create profiles that predict spending habits. If the device user has a crypto or digital wallet, the system may then initiate payment autonomously. The transaction will then be recorded on a blockchain to create an immutable receipt.
The Moody’s Report
Considering these collaborations, finance market stakeholders now believe combining AI and blockchain could benefit the financial industry. And several studies agree. According to a report by Moody's Investors Service, the intersection of AI and blockchain-underpinned crypto could help financial instrument issuers reduce financing costs and improve their liquidity in the next half-decade.
The report focuses on tokenized and digital bonds, which it argues could reduce transaction costs and increase the accessibility of capital markets by eliminating banks and other intermediaries. In Hong Kong, the central bank found similar results after successfully issuing a tokenized bond of $100 million.
New Opportunities
The benefits of the convergence of DLT and AI are more than anecdotal, however. Stakeholders posit that combining the two technologies could produce the following benefits:
Increased Speed and Efficiency
Combining AI and blockchain will increase transaction speeds. Traditional payments tend to take time and cost a lot because they involve intermediaries – a situation blockchain technology transcends. With AI, lending institutions could also streamline transactions to make them more efficient. AI systems can allow stakeholders to automatically regulate service parameters, process financial requests, set and enforce validity periods, and more. They can also simplify loan acceptance algorithms.
Enhanced Security
Security is crucial to the finance market because, in addition to handling money, it collects and stores personal and financial client data. Blockchain systems use cryptography to maintain the integrity of data and make it immutable and unchangeable by unauthorized parties. Meanwhile, AI systems continuously monitor user behavior for potential threats and anomalies. Combining the two can provide a level of security unachievable in any other way.
Unsurprisingly, this could further increase interest in crypto payments which could in turn result in the increased popularity of businesses that take this form of payment. Casino sites not on Gamstop, for example, have sparked the interest of those looking to bypass Gamstop restrictions. Still, their popularity can soar even further now considering many also offer generous crypto bonuses, which might not be the norm with other casinos alike.
Increased Transparency
Financial stakeholders can use AI to analyze data, including within the blockchain, to gain real-time transaction trend insights. This can allow them to become more transparent and make better-informed decisions. Blockchain can then ensure that both the stakeholder and client are receiving and using the data in a similar way. This is because on-chain data is publicly accessible and unchangeable. The overall result is increased transparency and trust between financial institutions and their clients.
Financial Inclusion
AI and blockchain can extend the reach of the financial market, allowing it to serve underbanked and unbanked populations. AI systems can help lenders assess borrowers’ creditworthiness without involving the bank, such as through spending history. Blockchain-based systems can then deliver financial services directly to remote populations.
Should the Finance Market Embrace the Blockchain-AI Convergence?
Incorporating AI and blockchain into a business's operations could include significant initial costs. But, per the Moody report, this investment, while substantial at first, could actually reduce operating costs over time. The convergence of AI and blockchain could make financial transactions faster, more secure, transparent, efficient, and accessible. That said, Moody's warns that both technologies should be cautiously implemented and regulated properly. Lacking this, AI poses the risk of human labor elimination, and blockchain could encourage tax evasion and challenge sovereign authority.
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