Crypto and AI: revolutionary technology or market hype?

What is AI crypto?

AI crypto refers to blockchain-based projects that integrate artificial intelligence (AI) to enhance decentralised applications (DApps), data sharing and automation. These projects aim to bring AI-powered functionalities to Web3, offering services like AI-driven trading, decentralised machine learning and autonomous agents.

To power these ecosystems, many projects issue their own tokens, which serve as a way to access AI services, incentivise participation or facilitate transactions within the network.

AI tokens play a key role by:

• Facilitating AI-driven DApps: They provide access to AI-powered tools, such as automated trading, predictive analytics and smart contract optimisation.

• Monetising AI models: Developers can sell or license AI models on blockchain-based marketplaces, creating new revenue opportunities.

• Democratising AI: By decentralising AI services, these tokens help reduce reliance on major tech companies, making AI more accessible.

• Securing and verifying AI-generated data: Blockchain’s transparency and immutability enhance trust in AI-generated outputs by ensuring data integrity.

This combination of AI and cryptocurrencies aims to create a decentralised AI economy. However, not all projects deliver on these promises, meaning it’s crucial to evaluate their real-world use cases:

Prominent AI crypto projects

Several AI-focused blockchain projects have recently gained growing attention, notably Fetch.ai (FET), SingularityNET (AGIX) and Ocean Protocol (OCEAN). These platforms aim to integrate AI within the blockchain space, enhancing decentralised applications and data sharing. In a major move, these three projects have united to form the Artificial Superintelligence Alliance (ASI), creating an open-source AI ecosystem.

Let’s take a closer look at their individual components: 

Fetch.ai (FET)

Fetch.ai is a platform that utilises autonomous economic agents – AI-driven entities capable of executing tasks such as data retrieval and transactions. These agents operate on a decentralised network, aiming to optimise various industries, including supply chain management and finance.

• Use case: The platform's native token, FET, is essential for accessing services within the Fetch.ai ecosystem. As the adoption of autonomous agents grows the demand for FET is expected to increase.

SingularityNET (AGIX)

SingularityNET, founded by AI researcher Ben Goertzel, is a decentralised marketplace for AI services. It enables developers to publish, share and monetise their AI algorithms, encouraging collaboration in the community.

• Use case: The AGIX token facilitates transactions within the marketplace. As more developers and businesses utilise SingularityNET for AI solutions, the utility and demand for AGIX may rise.

Ocean Protocol (OCEAN)

Ocean Protocol is designed to unlock data for AI consumption by creating a decentralised data exchange. It allows data owners to share and monetise their data securely, providing AI developers with access to valuable datasets.

• Use case: The OCEAN token is used for buying and selling data within the platform. As the demand for quality data in AI development increases, the usage of OCEAN tokens is anticipated to grow.

Artificial Superintelligence Alliance (ASI)

In a strategic merger completed in June 2024, Fetch.ai, SingularityNET and Ocean Protocol combined their technologies and communities to form the Artificial Superintelligence Alliance (ASI). This alliance aims to create a decentralised AI infrastructure, focusing on ethical and accessible AI solutions independent of traditional tech monopolies.

The risks of AI cryptoprojects: hype, deception and unnecessary tokens

The intersection of AI and cryptocurrencies has led to exciting innovations but has also given rise to questionable projects. Some claim to revolutionise AI with blockchain, but their actual technology tells a different story. Others launch tokens with little utility or real purpose, exploiting market hype for short-term gains. 

You can categorise the risks of AI crypto projects into four main categories:

Some projects aren't even AI-focused

Many so-called AI crypto projects have little to do with artificial intelligence. Instead, they focus on data exchange, automation or blockchain infrastructure that supports AI-related industries rather than developing AI models themselves. These types of projects include:

• Data marketplaces: Some platforms provide decentralised data storage and sharing, allowing AI developers to access datasets. While useful for AI training, these platforms themselves do not process or generate AI models.

• Automation tools: Certain projects use blockchain for automated decision-making, such as smart contracts that execute based on predefined conditions. These are rule-based systems rather than AI-driven solutions.

• Infrastructure for AI integration: Blockchain can help with AI transparency and verifiability, but this does not mean the project itself is AI-driven.

Some commentators argue that even well-known AI crypto projects fall into this category. For example, critics point out that Fetch.ai, despite being marketed as AI-driven, primarily focuses on data exchange and autonomous agents rather than true AI decision-making. Similarly, Ocean Protocol is seen as a data marketplace enabling AI models to access datasets, yet the protocol itself does not utilise AI.

AI and blockchain don't (always) work well together

While blockchain excels at decentralisation and transparency, AI thrives on speed, efficiency and massive data processing. The two technologies often conflict rather than complement each other.

• AI requires high-speed computation: Blockchain networks are relatively slow, making them inefficient for AI model training and real-time processing.

• Decentralised AI is unrealistic: AI development typically benefits from centralised, high-performance computing, which blockchains do not provide.

Some tokens exist only to capitalise on hype

One of the biggest red flags in AI crypto projects is the launch of unnecessary tokens. There are some companies with a legitimate AI background in areas like image generation or machine learning, but they introduce a token that serves no genuine function other than speculation.

Major warning signs:

• The AI works without the token: If the AI service can function just as well without blockchain, the token is likely unnecessary.

• No clear token utility: Strong crypto projects have a defined role for their tokens, such as governance, staking or transaction fees. If a project cannot explain why its AI needs a token you should be sceptical. 

• Hype-driven launches: Many AI tokens appear during AI market booms, suggesting they exist more for fundraising efforts rather than technological development.

Some AI crypto projects are outright scams

Many AI crypto projects adopt the same deceptive tactics seen in past crypto scams, such as popular meme coins that fell victim to rug pulls, where hype is manufactured to drive up prices before insiders cash out:

• Pump and dump tactics: Developers and insiders accumulate tokens, artificially inflate the price through marketing, and then sell their holdings, leaving retail investors with losses.

• Locked token scams: Some projects code their smart contracts to prevent investors from selling their tokens, ensuring only insiders profit.

• Overpromising and underdelivering: Many projects raise funds with AI claims but fail to deliver any working technology.

What if AI crypto takes off?

The fusion of AI and cryptocurrencies has sparked diverse opinions within the investment community. Some view AI-driven crypto projects as mere hype, lacking substantial value and posing significant risks. Conversely, others believe these projects could offer historic profit opportunities, and may see growth similar to early crypto trends.

If AI and blockchain technology develop practical and meaningful applications together, these projects could see rapid adoption and considerable price increases. Supporters argue that AI-driven crypto may support new blockchain applications and reshape industries. However, the reality is still uncertain.

Like all speculative assets, AI crypto is highly volatile and influenced by market trends, regulation and broader economic factors.. Prices can rise quickly on hype but fall just as fast. The U.S. Federal Reserve's decisions on money supply, for example, have historically affected market liquidity and investor sentiment.  While there is potential, there are no guarantees. Investors should stay cautious, take profits when possible and avoid over-committing to unproven projects.

Strategic investment approaches

Given the uncertainty surrounding AI crypto projects, an investment strategy is essential. One approach is to trade these assets similarly to highly volatile meme coins: 

• Set clear profit targets: Use orders to lock in gains at predefined price levels, ensuring you secure profits during favourable market conditions.

• Avoid emotional attachment: Remain objective and be prepared to exit positions if the project's outlook diminishes.

• Stay informed: Continuously monitor project developments, market trends and regulatory news to make informed decisions.

This strategy emphasises agility and responsiveness, recognising that while AI crypto projects hold promise, they also come with heightened risk.

How to identify strong AI crypto projects

You now know that not all AI crypto tokens have real value – some are built on hype rather than substance. Here’s how to separate the promising projects from the over-hyped ones:

Does the project solve a real problem?

The most promising projects address real-world issues rather than just adding "AI" to their marketing. Ask yourself:

• Does the AI component make sense? Some projects claim to use AI but have no actual integration.

• Is the AI needed, or is it just a buzzword? A strong project should have a clear reason for using AI within blockchain technology.

• Does it provide a real service? AI can be used for automated trading, data sharing and smart contract optimisation, but some projects lack a concrete application.

Who is behind the project?

A project’s credibility starts with its team. A strong project has:

• A transparent team with AI or blockchain expertise: Reputable developers and AI researchers should be publicly listed.

• Strong partnerships: Collaborations with major AI or blockchain companies suggest real-world adoption.

• Reputable investors: Venture capital backing from firms like Andreessen Horowitz or established cryptocurrency funds adds legitimacy.

Does the project have a working product?

Many AI crypto tokens launch without a real product, relying on promises of future development. Look for:

• A working demo or live platform: A project with a functional AI-powered service is more credible than one with just a whitepaper.

• Roadmap and milestones: A strong project should have achievable goals and a history of meeting them.

If a project has been around for years without delivering anything usable, it may not be worth your investment.

Is the token actually necessary?

Some projects create tokens that have little to no real function. Before investing, consider:

• Does the token enable AI services? Strong projects use their token for AI-related activities like data access or machine learning computations.

• Would the project work without the token? If the AI service can function without the token, its long-term value may be questionable.

• Is there a demand for the token? If the token has no real utility, it might only be valuable during hype cycles.

How has the token performed over time?

Market performance can reveal a lot about a project’s stability. Consider:

• Consistent trading volume: A healthy market has steady liquidity rather than sudden spikes.

• Exchange listings: Being listed on major exchanges suggests credibility, while low-quality exchanges may indicate risk.

• Insider trading or market manipulation: If price movements seem artificial, be cautious. 

Final tip: DYOR (Do Your Own Research)

Before investing, ask yourself:

• Is the project solving a real problem?

• Does the AI component make sense within blockchain?

• Are the team and partnerships strong?

• Is the token necessary for the ecosystem?

If a project meets these criteria, it may be worth exploring. If not, it could be riding the AI hype wave.