Will AI Break Crypto, or Make It Stronger?

Transcript

Well, thank you everybody for coming. Uh, excited for this panel. Um, obviously there is a massive tsunami coming uh in the technology field which is AI. Um, it kind of feels like crypto in some sense where it still feels very early but kind of unknown. Um and so great to have these esteemed guests uh join me. Maybe to start we can just do a quick round of intros and then jump into things. >> Sure. Hey everyone, my name is Cosmo. Uh I lead investment strategy at Panta Capital. Panta is a tech investment firm. We have early stage venture all the way through public markets practices. My name is Drake Evans. I'm the CTO and co-founder of Agora. Um

Agora provides a single and final entry point for internet native money. Uh we have a stable coin AUSD. We also do white label issuance. Um and in soon uh with the finalization of our bank charter, custody payments, US dollar bank accounts. Um we also do wallets. Really the one-stop shop. >> Awesome. Um hi, my name is Jonathan. I'm co-founder and CEO of Chain Analysis. We provide all of the intelligence uh for the industry and regulators and government agencies that want to be able to actually protect crypto and make it stronger.

>> Perfect. And I'm Logan. Uh I lead Frictionless Capital uh early stage venture fund. Um maybe starting with you, Jonathan. Uh kind of diving deep onto onchain. We were talking right before we walked on stage on the cryption side. Um it's a little bit of a cat mouse game. um between AI kind of trying to poke holes in code versus what we have with smart contracts. What's kind of your current read of the market? >> I think one of the things that we start to see is that you know AI is clearly being used in exploits that are being leveraged uh on you know attacking protocols and chains and you know even wallets. And I think that you know the

difficult thing that we have to do as defenders is that there is always going to be human in the loop currently on defense whereas there is not necessarily human in the loop on attack. And when you have that type of asymmetry, you have issues on like what speed you can operate at. And I think that this is where you start to see problems occurring um in in the in the sector. That being said, the biggest, you know, thefts of this year are still not like agent swarms hacking into people's stuff. It's actually just like getting the basic cyber security stuff right. And I think the you know

private key compromise and other things that we've seen you know are just traditional cyber security failures rather than you know completely brand new exploits. >> And Drake we were talking earlier again about Justin Drake's uh Twitter post uh if you have not seen it uh got fairly viral on Twitter and asks about kind of impending doom of AI on crypto markets and potentially breaking cryptography. And you also had some very interesting thoughts here. Yeah, I mean I think if you've been you know looking at Twitter the last 24 hours there's been a lot of discussion about the you know a bunch of old old math proofs uh or math problems being solved or you know these sort of

assumptions about the barriers or these asmmptotes being broken in you know what people are calling like in in an inelegant solution right I think humans have a tendency to find elegant solutions because of small context window and other Uh and so then the the thesis goes okay you know the the big labs have posted 100 uh math proofs that they broke in the last few months zero of them are related to cryptography that's a bit suspicious so you know if there's a nonzero chance that there is a inelegant solution to significantly shorten the cycle of breaking what I would consider most of the you know asymmetric cryptography algorithms as elegant you

know we should be preparing for that I think there's been a bit of a the counterargument of course is that AI will help us find better algorithms for the future [snorts] >> and Cosmo Panta has been one of the OG OG crypto funds. You guys have seen a lot of high highs, some low lows. What's kind of your current market take more from an investor standpoint about kind of maybe the shifting landscape as there's new paradigms? Uh maybe this is not the first because Panta's been around for so long, but how are you kind of thinking about it from the investor view?

>> Well, I think the biggest paradigm is clearly the impact that AI has on any industry. And so as uh as I think as any unique human, I'd encourage you to think about how you and your specific skill set or toolkit can be used to accelerate what is one of the biggest tsunamis as you describe Logan, which is, you know, the influx of AI innovation and its penetration of society. And so us as blockchain investors naturally then we are thinking about how does blockchain play a role in accelerating AI innovation or on the flip side how does AI impact blockchain adoption one of which is maybe breaking crypto but the other is accelerating crypto and you know I I think this is you know maybe a controversial take and I'm sure there's

holes with this but I do believe we're nearing the end of smart contract hacks like the era of smart contract hacks I think will be over in the next 3 to 6 months because anything that can be hacked will have been hacked by then and that anything going forward will have been you know fully penetration tested before it's been released and so you know the optimist is that we're almost done with DeFi hacks now that doesn't stop anything Jonathan said about human hacks right which is really the core of the problem um but like cryp yeah yeah so crypto's >> maybe not the problem in the future it's really humans remain the problem >> I think that's absolutely right especially you know if you look at sort of traditional software versus smart contracts surface area for smart contracts is just generally significantly lower. And I'm, you know,

very optimistic that the defensive tools are getting better and better to the point that you can have as close as 100% certainty a smart contract secure. Um, traditional software is a bit harder one because it's constantly changing and there's typically a lot more complexity and and uh service area. >> I'll take the other side. Okay. I mean, I think um no, I think that like there is no such thing as like secure like completely secure software. And I think that we're at this point where not all of those languages are necessarily sec like able to produce uh secure smart contracts. And I think that at the end of the day, you know, whether it's agents writing them or whether it's humans writing them, there's there's

going to be failure modes inside of that. I think that the problem may change and I think you're both right the defense against these things has got a lot better. It you know the operations in projects is getting a lot more sophisticated. Um and yes like lots of things that were going to get hacked have been hacked. But I think that you know fundamentally I don't I don't think we can live in a world where we think that there are going to be fundamentally secure systems that everyone can just rely on. So assuming that maybe we aren't at the end of finding all the bugs and that there is still going to be some potential hacks or bugs that are

are exploited with AI over time. What's the best way to try to protect about that? Is it formal verification? Is it kind of AI defense? Where do you think that kind of leads us? Yeah, I think that maybe one of the things that I think you know will be necessary, I think there will be more formal verification methods uh in general and I think that AI actually will lower the barrier to entry for some of those programming languages that have historically been very difficult to get people to adopt in even in the crypto industry. Um, but actually I think that the biggest challenge that we're going to have as an industry is actually not in the smart contract vulnerability landscape, much more in like fishing and

scams. Like this is this is something that I I don't think is even like a crypto problem. Like this is just a global problem. Everyone here has like experienced unbelievably good video, audio, textbased AI that is so believable that will morph someone's ability to understand whether they're being scammed or not. Uh, and I think that the best form of defense to the question is actually offense. And I think that you can't think that we're going to train humans to detect AI scamming them from things. You're going to have to go meet scammers at scale using agents

pretending to be victims to be able to actually uncover the financial infrastructure that they're running on in order to best actually address this problem. And this is what we've been doing at Ch analysis for the last two years is like we've been building agents forms effectively to go actually and talk to scammers at scale to be able to solicit all of their infrastructure that they're running on. And that's like the only way that you can get like real preventative, you know, care against these types of threats.

Dossing scammers. >> Not just DDoS, but actually like I think that this is the thing is like it used to be the case that you could like waste a scammer's time and then they wouldn't be able to call Cosmo, but like now like they've got infinite capacity. So what you have to go and get is their like financial infrastructure that they're relying on which is scarce as a resource. Mhm. >> Cosmo from again maybe more the investor lens, DeFi was really one of the core primitives and continues to be one of the core primitives within blockchains and kind of these capital markets that we're building. Does it change kind of your view on the investibility of any of

these assets or again do you think all these DeFi bugs just get solved within the next 6 to 12 months? I would say it definitely gives us some pause about how we should be allocating capital in today's world. Um the there there's no doubt that that a lot of this stuff is you know in not fully secure as as has been described. I think there's a you know there's a risk tolerance that we're okay with and there's by the way like a lot of things can survive hacks. Um I mean almost all of the centralized entities have survived tax, right? And so there's a little bit of like the market kind of sees through it. Uh because at the end of the day a business is more than just

like hasn't been secure 100% of the time. It's more that doesn't provide a consistent reliable experience than like 59s maybe. Um and so you know there is risk. There's definitely increased risk and we're definitely more uh just more more cautious more curious around like net new protocols or things that haven't been as battle tested. Uh but you know there's always stuff to do and you can't be can't be scatter your own shadow. And Drake, we were also talking about kind of the lendiness of some protocols is really like you can stress test them as much as you want, but really you just kind of need time in the market, but there's also kind of this like third factor that people have been talking about on the timeline, which is quantum. And kind of you not

only do you have AI, but potentially you have quantum coming up. And what are your kind of thoughts about quantum as well? I I think it's probably very related to what we were talking about earlier and just that AI and and this is like I think a general thing that will affect crypto and all industries is AI is going to accelerate a lot of existing trends. I think it will accelerate tokenization. It'll also accelerate our path to breaking quantum which I think most people had accepted as something that would happen in the next decade or two um even conservatively. And so, you know, I think it's funny, Vitalic posted today about kind of like how all of the plans they've been implementing over the last few years like play into this kind

of roadmap. And I think um you know, teams who have that forward-looking kind of mindset and and organizations that sort of operate on the assumption that things will move faster than they expected will do very well. Um if you look at even just AI over the last year um you've seen this just like what feels like an exponential growth in capability but there were people in 2023 saying this is you know you've seen that the meme graph right where uh it feels like it's just it's like the intelligence of an insect and then a dog and then a baby and in a blink of an eye it'll be you know better than a human. And so I think we're seeing that play out and and making the bet that timelines will compress, innovation will will go faster

is is the only way to stay ahead of it. >> So this panel has been a little bit doom and gloom uh in the sense that AI can really kind of throw a wrench in things. But maybe an open question to the panel is what are the things that are getting you guys excited now? Um crypto markets have matured. Uh we've run a lot of experimentations. Obviously, you guys each are still in the industry. I'm assuming because there is some optimism. What are the things that currently excite you? >> I I think it's it's really just the acceleration of all of these existing trends. I think that AI will accelerate tokenization. And I think the big thing is AI is you know with there's a lot of uncertainty but it's definitely lowering the barriers to doing more stuff broadly

whether that's starting a new business uh you know in some cases attacking software but like in general like people are going to be doing more stuff that means more innovation that means more creativity that means uh you know we're going to see really cool stuff I think over the next few years. I think that like from from our perspective firstly like we're using AI now at scale to like you know tackle some of the big threats to the industry and like it's actually helped us get ahead of some of those threats you know particularly on the scam side but also you know the various different you know types of elicit activity that we that we track at chain analysis like we're able to leverage it to be able to protect the industry at greater scale. I think the next chapter

of this is actually helping all of our customers leverage AI to be able to perform investigations to do compliance more efficiently to really you know save on you know the time and expense that goes into you know running you know operations uh at different uh businesses so that people can be focused on like growing their business and and doing uh better for their customers. I think that you know AI will shorten the latency time for response for customers. is it's going to increase you know how accessible crypto products are in general for everyone. I think that the things that we're seeing that are exciting at chain analysis is you know coming to this region there is just so much more happening on payments in uh

APAC than you know in other parts of the world. There's lots of stuff happening for the real goods and services that are moving uh based on stable coin rails. There is also like a a large intersection of you know AI and crypto in you know the inference market and uh seeing you know inference being paid for uh using crypto is is something that we start to see a lot of at chain analysis and you know I would say that you know it's it's a great moment for people to innovate on new types of financial services based on stablecoin banks that we heard from the previous panel. I think like this is something that you know has exploded over the last you know

year since Genius uh in the states and I think that you know that's only something that we'll we'll continue to accelerate. Um so I think that I'm like very bullish on you know the ways in which we're now tapping into real economic activity running on blockchain rails. Um it's what you know excites us the most at chain analysis is is seeing those flows. Um and actually like I think that you know it's it's an awesome moment to be a builder. Like it's an awesome moment to uh be able to experiment and like that experimentation is what crypto is actually fundamentally all about.

>> I think the riskreward for investing in blockchain protocols today is the best that it has been in many many years. And and the reason I say that is precisely because I think AI is going to be such a huge accelerator of onchain activity. If you think and largely because of agentic activity when you think about like what agents are agents will want to be able to transact with each other. They they want to uh and when they transact with each other you know they'll have to find some sort of transaction rails and they they have option A option B. Option A is walk into a physical branch, open, present two forms of ID, wait a few days to get a bank account, and then have the privilege of sending money 5 days a

week, 8 hours a day, or spin a blockchain wallet that's 24/7, global, cheap, fraction of a penny anywhere instantly, they're obviously going to choose option B. And so as we see to the extent you believe at all in the growth of AI in the growth of the agentic economy in the growth of agentic intermediate econ commerce like it's obviously going to accelerate everything across blockchain and that is such a massive tailwind and at the same time you know you see there's plenty of ways to invest in AI we see all in AI stocks and AI related things go up a ton definitely not saying they are necessarily overvalued by any means but they've gone up a lot relative to blockchain which is down 40 50% from the highs.

even though they're riding along the same secular tailwinds. And so to me that seems like an incredible incredible riskreward. >> Maybe back to you Cosmo. And I think right now there's a lot of people probably in the audience are trying to learn about what is the best way to express going long crypto, going long AI, the possible intersection. Is it on the agent side? Um how do you kind of see that? Well, this is where like you have to drop down from generalisms to actual ideas that are interesting because there are a lot plenty of ideas that are interesting, but there it's execute name of the game is an execution. I mean the guys at ch analysis and agor have done an excellent job in execution. You should check out both their products. um not a plug and uh I I'd say like within within

blockchain protocols some of the protocols we find most exciting are anything across uh you know deepin protocols I think are going to be very interesting in a world of AI it's very clear that some of the bottlenecks to to AI you know adoption are energy compute data there are plenty of deep networks across energy compute data right there's grass doing amazing things across data there's glow and others doing amazing things across energy compute. There's all sorts of ways that people are thinking about distributed inference and distributed training. Distributed training may be tougher, but distributed inference. And so that's like super exciting. Or whether across identity we just led around in uh in Worldcoin, which is, you know, been this thing that's sort of been kind of a

crazy dream and a crazy promise for a long time. But this concept of proof of human is actually really relevant today. The idea that you and I are going to do more online and that when we're in the digital world, the desire to know who is truly human will only increase over time and that identifier will become very valuable over time is is massive. >> And Drake, how are you guys incorporating kind of AI within Agora? >> I mean, I think I think there's sort of two ways to think about it. The first is how are we using AI internally and then the second is what do we believe about what AI will do to our customer base.

Um, I think, you know, on the customer-based side, we believe that you're going to have to compete. You know, consumers are no longer sticky in in the same sense, right? There's been a lot of talk about this with bank deposits, but but it's really you're going to have to have the best product and the best economics and have the aggregation and lower that friction. Um, you know, we were just talking about how, you know, choosing a wallet over a bank is so easy partially because the friction to value is so fast, right? There's so little friction to get the value. I think so that's going to change how people think about consuming products. And so we're focused very much on how do we lower the friction to first sort of value and then how do we provide those base building blocks because that's the other piece that is going to

change is that people are going to start building they want access to the metal sooner and sooner and the deeper infrastructure because now you know this whole middle ground where you paid a SAS product to kind of combine a bunch of stuff for you. um you can do the combinations yourself and so now you want the Legos and then on the internal side I think you know we view every single human decision as an opportunity right anytime that a human needs to do something and is a process like that's an opportunity to build a custom harness to help them with their workflow that over time you know starts off providing recommendations then you know at high confidence is automating things and so you know the first place we really pushed on this is in our onboarding

where you know when when uh our onboarding team wakes up in the morning they have you know a brief of everyone who's applied what potential next steps might be what things that might flag that and then they can sort of rate those those um uh and then you collect that data that becomes training data eventually it's large enough you can do post- training so really and and that's true for security compliance for legal like everyone in our company wants a custom harness that wraps their workflow that becomes a structured input but for what they're doing that can then automate it.

>> And Jonathan, you you talked earlier about the agent swarm. I I think it's a very interesting idea just picturing it in my mind as you have these giant agent battles going back and forth and you you're putting up your 10,000 agents defending the wall and making sure smart contracts don't get exploited. maybe like dive slightly deeper into that because I do think it's a very interesting kind of mental model of defending the smart contracts and you guys are really very close to the metal at what you're doing. >> Yeah, I mean maybe um to give you a sense of like what we look at on a daily basis. I mean we look at not just smart contracts but we also look at like every website that's registered in the world every day and you know at a scale where we're trying to map out you know what

are the transactions that are targeting you know these different smart contracts or you know how are these websites targeting you know investors or or people to you know try and get you know scams off the ground and all of that is like how do you respond to that instantaneously? How do you how do you capture evidence that someone can then rely on? And I think that AI is there to, you know, capture what humans were doing before and you can store it as evidence and serve it to people as facts. And I think that this is where, you know, we get away from some of the probabilistic stochastic models out there and you still can like use it as a tool in the

toolkit but produce like really reliable evidence. And I think that this is where um you know the future of defenders really happens is like translating you know all of this like agentic work which is probabilistic in nature to like hardcore facts that you can act on. And that's that's a lot of what we've been spending the last couple of years thinking deeply about. >> Awesome. Well, I think we're at time so please uh help me in giving all these gentlemen a round of applause.