Crypto is a Bet On Humanity's Ceaseless Desire for Progress
On how AI can help crypto achieve mass adoption
Hello,
Last week, my sister asked me the one thing I absolutely dread in my line of work. ‘Can you teach me how to invest in crypto and become rich?’ On most occasions, I politely evade the topic. But since it was my sister, I conceded.
For the next couple of minutes, I explained to her about on-ramps, off-ramps, centralised and decentralised exchanges, switching, bridging, chains, and a few other concepts. I told her how these form the base for moving money between on- and off-chain financial worlds.
She thanked me, perhaps sarcastically, and told me she was content with moderate yields on equities and commodities. I got out of the predicament, but a thought lingered. This wasn’t the first time I’d seen someone feeling overwhelmed by trying to wrap their mind around how crypto works. Not that it is as difficult to understand, but the thought of having to trust a smart contract without any recourse to a centralised body, like a bank, to go back to, scares many.
I think this ‘trust problem’ is the single biggest reason to keep the masses away from adopting crypto. But I also feel crypto, for what it offers, can change the way the world moves money for the better. This is why the ‘trust problem’ needs to be addressed.
In today’s guest piece, SysLS writes about how the timing of AI-based primitives couldn’t have been better to help crypto change the world of finance for good.
You can follow his works on X and Substack here 👇🏾
Onto the story now,
Prathik
P.S.: This piece was first published on Systematic Long Short.
Betting on crypto has essentially become a bet that humanity will continue to seek acceleration in its processes. That seems like an easy bet.
I think the time is now because of the birth of meaningful artificial intelligence, which finally gives us the tools to drastically reshape how we interact with crypto.
This article explains why crypto will become a strategically important asset class.
Bottlenecked by Due Diligence
Humans have sought acceleration since the dawn of time. We measure success by efficiency and have consistently reduced friction in everything we do. Where it once took weeks to wire money across distances, it now takes seconds.
Today, most human processes are no longer bottlenecked by technology, but by the need for verification. Getting a job, opening a bank account, or raising funds still takes weeks. That’s not because the technology to complete these processes quickly doesn’t exist, but because humans must bear the cost of verification.
In an employment process, the employer needs to verify that you are not a lemon. It’s not that you have never been hired before, but it’s still worth doing independent verification because your previous employers will not take responsibility if you turn out to be a poor hire. Further, there is an argument that the best employees stay employed. Lastly, different environments and job scopes also imply that past performance may not be indicative of future performance.
So, employers pay the cost of due diligence by way of several rounds of interviews and take-home assignments. This process takes time and human effort — it is messy, unstructured, and non-deterministic; and also why hiring processes are as much a function of luck (did your interviewer have a good morning before meeting you? Or did they just have a massive argument with their spouse?) as a function of skill.
It is fairly trivial to reason that all costs in such processes are verification costs.
The actual act of officiating employment is quick and relatively painless — an email and a digital signature. This means that, in theory, suppose there was a magic scoring box that could output the absolute scores of a candidate employee across every dimension you could possibly care about, and you trusted this score with a high degree of confidence. Then, the time taken to hire someone would be reduced to the algorithmic time of filtering for and sorting the scores you care about, then sending over an employment contract and having them sign it.
Forming A Trust Daisy Chain
The reason you are able to hire someone near-instantly with the addition of a magic scoring box is that you have delegated the responsibility of verification to it, and you have learned to trust it.
In practice, this happens all the time.
Potential employers within the same industry borrow the due diligence of past employers — your resume is less likely to be binned if you have been to top-tier institutions and have done difficult things before.
Whenever possible, humans pass the cost of verification to a higher entity and trust that it has acted in their interest and done the prerequisite verification. For example, a vast majority of humans simply trust that the government’s banking oversight arm has done its job, rather than conducting lengthy, detailed, and expensive due diligence on a bank before opening an account with it.
If we trust the government sufficiently and its ability to uphold the law, then we can take its word that the bank is solvent and safe for our financial affairs.
This “trust daisy chain” happens everywhere, all the time, in things - big and small. A start-up has no brand equity and therefore commands no inherent trust, but a large, reputable, and successful Venture Capital (VC) firm can lend the start-up brand equity by simply investing in it. The public, though unfamiliar with the start-up, trusts it if they trust the VC, since they are delegating verification to the VC’s due diligence process.
The Problem With Crypto
Crypto has traditionally offered no “higher entity” to which we can pass on the cost of verification. Having no higher entity to arbitrate honest mistakes, like swapping $50 million USDC for $5,000 worth of tokens or even sending it to the wrong address, implies that the cost of verification falls squarely on the user.
This is genuinely difficult because smart contracts are not designed to be parsed by humans in under a second. This is essentially why most crypto has remained relatively niche. Where there has been widespread adoption of crypto products by the retail masses, it has mostly come in the form of large, centralised institutions that abstract away the complexity of smart contracts (e.g., Binance and Coinbase).
These retail users may not understand how Aave smart contracts work, but they have learned to trust Binance; therefore, Binance can build a business out of abstracting the complexities of the smart contract from the user and wrapping it in a simple interface.
This means that, technically, light users really only have two options when it comes to crypto: wait for a centralised entity like Binance to offer an abstracted version with some fees, or interact directly with the protocols and risk catastrophe.
Despite crypto’s relative maturity, it is still extremely high-friction to work with and fundamentally scary to approve transactions, mostly because you know there is no recourse if you mess up. So you diligently verify, but it is not trivial to read and parse through every transaction you do on-chain, let alone deeply understand the smart contracts you are interacting with.
For those who understand software and its infinite composability, the allure of crypto has always been an ecosystem of modular components that can interact with each other in a trustless manner upheld by algorithmic law. The headwind on the way to that potential utopia is that bad actors and poorly designed edge cases require humans to pay the cost and friction of verifying each modular component.
Where Does AI Help Crypto?
The rise of meaningful artificial intelligence allows us, for the first time, to delegate verification to a higher entity. This drastically changes our mode of interaction with smart contracts. We will no longer need to personally verify the design and behaviour of smart contracts, or even necessarily understand the details of our transactions.
Instead, we learn to trust a single entity — our agents. This is already showing great promise, as agents demonstrate considerable expertise in understanding and reasoning about code. They can tirelessly parse and check transactions and understand the algorithmic law that each smart contract upholds within seconds.
This implies that for the first time, through our agents, we can realise the potential of crypto. Need to interact with nine smart contracts in one atomic transaction to get what you want most efficiently? Have your agent verify that the transaction achieves the outcome you want and that no foul play is involved. Done.
With each successive generation of agents, they will only get better at this.
Implications of Algorithmic Verification
If we can resolve the problem of verifying smart contracts and the transactions they generate, then we move toward the utopia of having all kinds of interactions available to us while remaining permissionless, trustless, and upheld by algorithmic law. If the cost of verifying a smart contract goes to zero, then we gain the benefits of all the verification and guarantees the smart contract brings for free.
The major consequence is that all processes that remain within this paradigm now move at the speed of compute. For a civilisation determined to move faster, remove friction from processes, and become more efficient, it is hard to imagine us straying from this paradigm.
It only makes sense that more and more goods and services will have smart contract interfaces that determine exactly what you will get and what you will need to exchange to get it. It is also a paradigm that compounds on itself — every successful product would create a composable piece that can play into another product later on. For example, suppose a decentralised exchange created a reputation system for trading proficiency. People looking to hire traders using a trustless employment protocol might filter based on the reputation contract of an unrelated decentralised exchange. A lending protocol might use that as one dimension of credit scoring.
Such a paradigm would not only be extremely efficient — all processes and transactions moving at the speed of compute — but boundless, growing more powerful and unlocking more possibilities as a function of participation and time. It is a positively compounding paradigm.
So, if you believe that humans will continue moving in the direction of least resistance and seeking out solutions that allow us to move faster, be more efficient, and do more, it seems the time for crypto is now.
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Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.