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If crypto and Web3 were the tech buzzwords of 2022, then artificial intelligence (AI) and deepfakes certainly have this year in lockdown.
With the release of generative AI tools, the technology went public and is generating headlines every day. The internet has been flooded with fake images, of the Pope in a puffer jacket, and when it comes to urgent issues, everyone wants to know what ChatGPT thinks.
There is no doubt that some of this is driven by novelty. After all, ChatGPT doesn't really think for itself, at least not yet. It trains with existing data and reiterates the information it deems most appropriate.
However, on all social media, he is treated as a sentient being with his own moral and political views. Just like the people who tried to get rich with memecoins last year, there are now a large number trying to go viral with generative AI.
The funding landscape reveals a similar changing of the guard. In the first quarter of 2022, crypto venture capital (VC) investments hit an all-time high, but have been declining ever since. Following the market crash and the broader economic downturn, investors have become much more cautious when looking at crypto projects.
This air of caution has affected startups in other industries as well, with reduced overall investments at all stages of funding.
According Crunchbase researchAI remains one of the few bright spots, accounting for nearly 20 percent of funding in the first quarter of 2023. This is largely courtesy of OpenAI, which received $10 billion in investment from Microsoft this January.
Cryptographic Lessons: Hype vs. Utility
With the spotlight shining brightly, it stands to reason that AI is headed down the same path as cryptocurrencies, fueled by investments fueled by hype and internet memes.
Looking back at the initial coin offering (ICO) boom of 2017, when crypto projects raised money by issuing their own cryptocurrencies, there is a lot of money that could have been put to better use.
More than $4 billion was raised through ICOs that year, according to the Wall Street Journal. However, 80 percent of these ICOs turned out to be be scams and of those that were not, almost half failed within the first four months.
When it comes to AI, this doesn't seem so likely. While there is an element of hype involved, AI projects are much more utility driven.
There are apparent use cases for generative tools in fields like copywriting, branding, graphic design, and more. This was not the case for many crypto projects that had short-lived success.
NFTs and memecoins were often community driven, with members coming together to generate interest. The utility was an afterthought and a fair number of projects gambled on going viral via a tweet from Elon Musk or Shaquille O'Neal.
By contrast, AI companies have found institutional backing from the start. Major tech companies like Google and Microsoft are active in the space and have invested billions in startups. Where crypto was met with skepticism, AI is easily seen as an essential building block for the future of technology.
Today, the crypto industry is purging scams and money grabs in favor of ideas with a purpose. Investments are still being made in public services such as cross-border remittances and trade settlement despite the state of the market.
The AI, despite having captured the attention of the masses more recently, seems to be at a similar level of maturity. The industry has always been purpose driven and the recent surge in investment is better explained by technological advances than all the social media hype.
Is Cryptography Heading to the Grave?
Celebrities have given up their NFT profile pictures and Twitter is forgetting about Shiba Inu. Although bluechip currencies like Bitcoin and Ethereum have been rallying steadily, they are still well below their all-time highs. For everyday investors, especially those who joined during the bull market, it is not a stretch to think that cryptocurrencies are dying.
The reality might not be so dramatic. Cryptocurrencies may no longer deliver exponential increases in net worth, but blockchain technology still has very legitimate uses. For retail investors, this may be more apparent through tokenized investments.
With Project Guardian testing tokenized bonds and companies like OpenEden investigating tokenized Treasuries, investors may soon have easier access to traditional financial instruments. Transaction times abroad may also improve once banks start using blockchain for transaction settlement.
That said, it's not the same as Bitcoin's vision of a decentralized economy, where everyone took care of their own finances and institutions were left to collect dust. However, probably for good reason: while there are risks in storing money in a bank, crypto winters have made it clear that self-custody is no easy task either.
In 2022 alone, nearly $4 billion was lost to scams and hacks in the crypto space. There is a constant need to be cautious and if trouble does arise there is rarely anyone to turn to.
All things considered, cryptocurrencies are more likely to be headed for a makeover than the morgue; and once the winter is over, there will be a safer environment for investors to return.
Featured Image Credit: Reuters
