Blockchain + AI : Cheap Financial Rails
How AI products can leverage blockchain's cheap financial rails
I know this statement will anger a few cypherpunks and Bitcoiners, but blockchain’s first use case (and biggest use case today) was as a financial rail. It’s in the title of the Bitcoin Whitepaper… “A peer-to-peer electronic cash system” and while other blockchain projects existed before Bitcoin, they didn’t leave a lasting mark.
It’s important to highlight the competitive advantage that blockchain has over the traditional electronic cash systems:
Transactions are final… there’s no reversing a transaction
Transactions can execute in a second or two (relative to the multi-day settlement in the traditional financial rails)
Transactions can execute for a fraction of a cent (relative to fees that are typically greater than 20 cents)
Transactions aren’t denominated on local currencies, making cross-border transactions more seamless
Don’t get me wrong… the current credit card-based system works pretty well for consumer purchases. I like the fact that I can challenge any fraudulent credit charges (although, one could argue why fraudulent charges is something we accept within the system). For the most part, purchasing online and in retail stores is pretty efficient with the current credit card system. But anyone who has needed to send money in one of the following ways can attest to the limitations of the current system:
Sending money across borders can take a visit to a local bank and funds can take days to arrive
Sending money from one account to another (for example, Coinbase to Robinhood) can take a week or more.
Sending small amounts of money is challenging as fees tend to wipe out the benefit
Reversibility in transactions can introduce trust assumptions that require extra inefficiency
So what does any of this have to do with AI? Well, below I’ll argue that it’s highly likely we will want AI conducting transactions on our behalf, and if that comes to fruition it’s highly likely that those transactions will need to:
Be cheap to make it cost efficient to process thousands or millions of transactions a day
Be global
Be highly integrated into our various aspects of life
Settle in seconds to make it possible for those funds to be used elsewhere
Blockchain is the obvious choice for AI when it comes to payments and financial rails.
So what type of reasons might AI perform transactions? That’s hard to predict today because we are still early in both AI and blockchain tech. Let me tell a story to illustrate this point. I’m old enough to remember the very early days of eBay. Back then it was inconceivable that anyone would use a credit card for payments online and most people assumed that all financial transactions would be offline. In the early days of eBay, a buyer would mail a physical check to the seller, which would take days to arrive and the seller would ship the item once the check cleared (many more days). Can you imagine doing that today? And, despite the early trepidation for online payments, today much of the global economic activity happens online. That’s where we are today with AI and blockchain… it’s hard to fully predict what AI may use financial rails for in the future, but we can take a few guesses.
Service/goods payments - Imagine having an AI help you plan your next vacation (I did this recently). It makes sense that we might want the AI to then proceed to make all the purchases on our behalf, right?
IP pass throughs - Depending on how courts rule in the coming years, various intellectual property that was used in AI training or prompting may be owed a royalty for their use. An efficient system would be for an AI service to automatically pay that royalty at the time of data ingestion or output. This could be controlled using royalty smart contracts.
Pay-per-use AI - Many predict AIs will interact with each other, with highly-specialized AI. Those highly-specialized AI may want to be compensated, perhaps at a micro-transaction layer. Having AIs that can consume other AI services could justify creating financial rails between AI environments.
Financial markets - It seems like a no-brainer that AI will be able to execute financial trades. These trades may require near-instant settlement for efficient capital and asset flows.
These are a few ways in which AI may use blockchain as a financial rail. I’d be interested in your ideas… drop them in the comments below. Next article I’ll explore how blockchain’s ability to provide digital ownership could be leveraged by AI apps.
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