The risks of AI crypto projects: hype, deception and unnecessary tokens
The intersection of AI and crypto 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 projects claim that decentralised AI will be revolutionary, but the well-known blockchain developer André Cronje has dismissed this as marketing hype rather than a practical innovation in a post on X:
“Blockchain and AI are not complementary, and (for now) anyone that jumps on the ‘AI’ bandwagon is simply doing so for pump & dump reasons.”
Some tokens exist only to capitalise on hype
One of the biggest red flags in AI crypto 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 cryptocurrency 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, potentially mirroring the early gains seen with Bitcoin and Ethereum.
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 could unlock new 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.
