Can AI make crypto safer?

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That is the topic of my Bloomberg column, here is one excerpt:

To the extent crypto clearinghouses and exchanges have a future, they too will be regulated, and this is all the more certain after the FTX fiasco. Then the question becomes: How many of the (supposed) efficiencies of crypto would remain under such a regulated regime? After all, the original point of crypto was to lower the transaction costs associated with traditional financial institutions. Intermediary costs, reserve requirements and legal compliance costs could more than reverse those advantages.

Intermediaries nonetheless have proliferated in crypto, for some obvious reasons. Quite simply, most people do not want to have to deal with the trouble of running their own crypto wallet, safeguarding their password and figuring out how the system works. It is daunting, even for people sophisticated about finance or technology.

Now enter AI. New AI systems are getting very good at voice recognition, at executing commands, at understanding text, and even at writing their own computer programs. Is it such a stretch to imagine an AI that makes a crypto wallet easy to use?

You would still hold your crypto in your own wallet, and would not need to trust any intermediary, except of course for the AI itself. At will, you would give your AI desired commands. Open a wallet for me. Send 0.1 Bitcoin to my brother. Convert all my accounts into cash. And so on.

In essence, the AI would ease your interactions with the system, but without creating a separate corporate entity between you and your funds. If the AI company went bankrupt, your funds would still be in your wallet. Probably the AI program would manage your personal finances more broadly, not just your crypto wallet.

You might wonder whether you could trust the company supplying the AI. But that question is answered relatively easily with another: Do you trust your smartphone or computer to do online banking? For the vast majority of people, the answer is yes. But if those companies built software programs to intercept or redirect consumer funds flows for their own purposes, those attempts would not last a day and the companies would rapidly be out of business and in court.

There are some obvious specific causes behind the FTX debacle, but it also reflects some more general problems with the clearinghouse/exchange business model.

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