How Artificial Intelligence can support blockchain applications like Telcoin
In recent years, Artificial Intelligence (AI) researchers have finally cracked problems that they have worked on for decades, from the ancient game of Go to human-level speech recognition. A key piece was the ability to gather and learn from mountains of data, which pulled error rates past the success line.
AI is now applied to almost every possible domain, ranging from healthcare to robotics. However, there’s one domain where AI has not made a significant breakthrough yet. With the recent interest in cryptocurrencies, the blockchain has emerged as a possible alternative to the existing banking system. AI has been used successfully in finance up to now. So why not combine AI with cryptocurrencies, such as Telcoin, and add value for end users?
Blockchain technology by itself is just a big decentralized and immutable distributed ledger. This shared control architecture encourages data sharing. Indeed, every user can access and read the records of this public ledger. If many transactions are processed by the network, data will accumulate over time. This means big data. And if we have big data, AI can kick in.
For the case of Telcoin, we listed at least four applications where AI can add value. Keep in mind that there are probably a lot more. Here they are:
- Deal with anti money laundering and fraud management
- Mitigate the forex risk for Telcoin, as a liquidity provider
- Manage volatility in a cryptocurrency world
- Automatically tune the remittance threshold for which customers have to go through to complete the transfer
Deal with anti money laundering and fraud management
Let’s consider a malicious trader doing price manipulation by sending a lot of resting orders in the order book, then canceling all of them when the market shifts. By pulling the market down, he can buy coins at a better price than other people. This is reported as market abuse and is severely prosecuted in most countries. AI is great at pattern detection and this trader can be easily detected with advanced AI systems. Let’s consider another case where an unlucky customer has lost his phone while traveling abroad. A malicious character finds it and starts transferring coins. Because blockchain is here, we have access to large amounts of data and AI can understand the standard behaviors of the customers which can therefore detect anomalies. For example, this is the first time that money is sent at night from another country.
Mitigate the forex risk for Telcoin, as a liquidity provider
In the case when a mobile operator decides to buy or sell coins to/from Telcoin, an appropriate basic hedging forex strategy has to be undertaken in order to provide liquidity. Because of the inherent risk, Telcoin has to increase the spread between the bid and the ask in order to slightly mitigate this risk. With the recent advances of AI in quantitative finance, efficient hedging strategies have been proposed and successfully applied to the forex market. One direct advantage of using AI is a lower forex risk and a lower spread, benefiting directly the mobile operators willing to buy and sell Telcoins.
Manage Cryptocurrency Volatility
Cryptocurrency is a very young and promising area. People using cryptocurrencies can be referred as the pioneers of this new and disrupting technology. Cryptocurrencies are still in their infancy and suffer from price volatility. We all know that any currency needs to be stable in order to be used as a trusted medium of exchange. The more prices fluctuate, the more ordinary people will shy away from using the coins for everyday transactions.
We also know that, with a truly stable currency, on the other hand, you can have currency conversion, remittance, ATM withdrawals, and other financial services with lower fees than fiat systems. In other words, it can be used as intended — as money. At Telcoin, we are committed to build a trusted environment around the coins we are going to issue. We are aware that our users will be concerned by the volatility of the prices. Patience is a virtue and we are utterly sure that cryptocurrency volatility will be dramatically reduced as blockchain gets more popular. However, sometimes technology can help. As a matter of fact, AI can actually help reduce the inherent volatility of cryptocurrencies. Some papers related to stock volatility modeling have been published recently. AI was shown to perform much better than traditional models, when massive data sets were available. Cryptocurrencies have been around for quite a while now and such data sets are at hand.
By analyzing prices, volumes and news on different exchanges, AI can price future contracts fairly. The purpose of those contracts is to freeze the price of the currency for a fixed amount of a time. Users are proposed to buy this contract to cancel the volatility of the currency for a certain period of time, for a small premium.
Automatically tune the remittance threshold
Lastly, let’s consider the case when a customer A wants to send a large amount of money. Is authentication required? Traditional systems are based on rules and are therefore static by definition. For example, if this customer A wants to initiate a wire, equal to 200 percent of the average amount he usually sends without authentication, then additional checks are required. Those rules are of course easy to understand but can sometimes lead to undesired behaviors, such as having to authenticate when transferring only one dollar. To this archaic system, we propose the dynamic threshold idea based on the fact that every person is different and should be treated differently. Telco operators know their customers better than their bankers, though KYC compliance. Coupled with telecom service usage patterns, AI can greatly enhance the user experience while maintaining a very high level of safety.
Because Telcoin is based on the Ethereum blockchain, most of the AI services exposed here will require an Oracle. In the context of blockchains and smart contracts, an Oracle is an agent that finds and verifies real-world occurrences and submits this information to a blockchain to be used by smart contracts. In our AI context, the oracle can provide external data feeds like price volatility forecasts, dynamic remittance thresholds per customer.
Throughout this blog post, we have described how AI can help cryptocurrency, especially Telcoin. We are convinced that the combination of AI and blockchain is explosive and both domains can really take advantage of one another. Coupling those two high profile technologies with telecom data can help realize the long-standing promise of a global cryptocurrency that is both usable and safe.
Telcoin website: http://www.telco.in/
Lee, Yan Nee. “This company wants to grow A.I. by using blockchain.” CNBC. Sept. 17, 2017. https://www.cnbc.com/2017/09/17/hanson-robotics-singularitynet-integrate-blockchain-and-artificial-intelligence.html
McConaghy, Trent. “Blockchains for Artificial Intelligence.” BigchainDB. Jan 3, 2017. https://blog.bigchaindb.com/blockchains-for-artificial-intelligence-ec63b0284984