Ethereum Could Transform Into an AI Powerhouse. But Is It a Buy?
When most people think about the convergence of artificial intelligence (AI) and crypto, they typically think of popular AI crypto tokens such as Render (CRYPTO: RNDR) or Akash Network (CRYPTO: AKT). But don't sleep on Ethereum (CRYPTO: ETH). Currently the world's second-largest cryptocurrency by market cap, Ethereum is a potential AI powerhouse.
Over the past decade, Ethereum has helped to pioneer every major new niche that has emerged in the blockchain world, from non-fungible tokens (NFTs) to decentralized finance (DeFi). Why should it be any different this time around, when it comes to artificial intelligence?
Vitalik Buterin's thoughts on AI
A good starting point for understanding how this might happen is Vitalik Buterin, co-founder of Ethereum. In 2022, a Time magazine cover story dubbed him the "prince of crypto," so he's definitely a voice worth listening to.
At the start of this year, Buterin outlined the promise and challenge of bringing AI to the Ethereum blockchain. As Buterin acknowledged, many of the ideas from within the Ethereum developer ecosystem initially focused on synergies at a very superficial level. Basically, what can blockchain help AI do better, and what can AI help blockchain do better?
A good example here is the idea of AI-based code audits. In short, AI could be used to audit the software code used to build the Ethereum blockchain, and therefore prevent some of the hacks and scams associated with crypto. Given that crypto users lose a reported $2 billion per year to hacks and scams, this is a practical idea, and one that could have an immediate economic impact, even if it's not very sexy.
Image source: Getty Images.
There are many other potential AI synergies for Ethereum, says Buterin. For example, AI-powered arbitrage bots (i.e., bots that take advantage of mispricings across different financial markets) could be deployed on Ethereum's decentralized crypto exchanges to provide greater liquidity, transparency, and price efficiency. This could be particularly valuable for Ethereum, which is responsible for a whopping 60% of all DeFi activity in the blockchain world.
And, says Buterin, AI bots could play an important role in blockchain-based prediction markets. One good example here is Polymarket, which is built on top of the Ethereum blockchain. This prediction market has been generating a good amount of buzz lately, primarily due to all the twists and turns of the 2024 U.S. presidential election. This prediction market might be made even better if all-knowing AI bots were allowed to play a role.
Ethereum's blockchain ecosystem
At the start of 2024, Cathie Wood of Ark Invest released her annual "Big Ideas" report. One of the key themes was the intersection of AI and other technologies, and how the combination of AI and blockchain could lead to massive value creation. This is exactly what I think could happen with Ethereum. As soon as you start sprinkling AI into areas where Ethereum is already dominant -- such as DeFi -- it could unlock a tremendous amount of value.
For now, the smart money has to be with Vitalik Buterin and the sprawling Ethereum ecosystem. Ethereum has the highest number of developers of any blockchain, and it's not even close. At the end of 2023, 1 in 6 of all blockchain developers in the world were working on Ethereum projects. As a result, I'm leaning into the idea of Ethereum becoming the first blockchain network to figure out the intersection of AI and crypto.
But is Ethereum a buy?
Just remember -- Ethereum is a completely decentralized blockchain network. While Buterin may be able to lay out the big picture vision for Ethereum, he's not the CEO of a centralized company. He can't direct a team to start up a new AI business unit, or craft a new AI strategy. It has to happen organically, from the bottom up. So if the right incentives are not there for developers, then it simply is not going to happen.
Currently, I'm keeping my eye out for new uses of AI on Ethereum. I'm especially looking for a showcase project that shows me that Ethereum really gets AI. Until that happens, I'm not quite ready to anoint Ethereum as a new AI powerhouse. So, for now, keep your future valuation estimates for Ethereum in check.
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Dominic Basulto has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum and Render Token. The Motley Fool recommends Akash Network. The Motley Fool has a disclosure policy.
