In FinTech, there is a loud buzz around the potential for artificial intelligence (AI) and blockchain technology to transform Wall Street. The integration of roboadvisors, chatbots, programmatic asset allocation and trading and other AI innovations are resulting in increased efficiency and greater profits for the world’s largest financial services firms. Blockchain technology is also pressuring old models, disrupting traditional corporate and consumer finance with faster transaction speeds, reduced transaction costs, and more secure, auditable books and records.
While most people have a vague understanding of artificial intelligence, at least science fiction level, there is a great deal of confusion about blockchain technology. Blockchain is much bigger than Bitcoin. A blockchain is a continuously growing list of records, called “blocks,” which are linked and secured using cryptography. By design, blockchains are resistant to modification of data. A blockchain can serve as an open, publicly-distributed ledger that records transactions between multiple parties efficiently and in a verifiable and permanent way. Made possible by the public blockchain or distributed ledger technology, smart contracts allow the performance of transactions between anonymous parties, without the intervention of an intermediary or any geographic limitation, in a way that is traceable, transparent and irreversible.
While the use of “smart contracts” has previously been limited to those with advanced programming expertise and the world of cryptocurrency, that may be changing.
According to a recent article in Quartz magazine, “[w]hen combined with natural language processing (NLP) — the ability for a computer to recognize and process human language data — blockchain is particularly potent. With NLP, information can be written and interpreted without a human. The combination of blockchain and NLP has widespread implications for the future of legal agreements. Self-writing smart contracts will make exchanges of money, property, shares — anything of value, really — seamless, safe, and more cost-effective.”
At this very moment, there is a race to integrate AI technology with blockchain technology, as the combination has incredible potential, especially in the financial services space where the size, scale, speed and security of complex transactions are critical.
Smart contracts can match and verify counterparties and conduct complex transactions in a much more effective manner than ever before. It can also open the door to companies in emerging economies where currency risk, government regulation, asset security and legal uncertainty have slowed or stalled innovation and access to capital.
MATRIX AI Network, a Hong Kong-based global open-source, public, intelligent blockchain-based distributed computing platform and operating system that combines artificial intelligence (AI) and blockchain is working to make smart contracts accessible to anyone – especially the 99.9% of potential global users who do not have a programming or engineering background. “With MATRIX, no programming expertise is needed anymore for designing smart contracts. The unique code generation technique allows automatic conversion of an abstract description of a smart contract into an executable program,” explains Dr. Steve Deng, Chief AI Scientist for MATRIX AI Network, “the system only requires users to input the core elements (e.g. input, output, and transaction conditions) of a contract with a scripting language. Then a code generator based on a deep neural network is able to automatically convert the script into an equivalent program,” says Dr. Deng.
This is just one example of a variety of new approaches to solve the challenge of expanding adoption of blockchain technology and artificial intelligence in the financial services space. SIX Securities Services, a unit of the group that operates Switzerland’s stock exchange, is working on a blockchain project with Nasdaq and Australia’s stock exchange ASX Ltd to help replace its registry, settlement and clearing system, with a blockchain alternative. Vakt, a consortium of oil companies including BP, Royal Dutch Shell and others, is launching a blockchain-based platform to trade oil and reduce trade and settlement inefficiencies, improve transparency and reduce the risk of fraud. A new Fannie Mae survey of mortgage lenders found that 40% of mortgage banks are using artificial intelligence to automate the mortgage application process, uncover fraud, and assess a borrower’s likelihood of default. Charles Schwab is using AI to automate asset allocation and portfolio rebalancing.
“AI and blockchain are the two buzzwords people talk a lot about recently, but actually these two concepts are fundamentally and inherently connected,” says Dr. Deng, “Together they give us the ability to adapt to changes. Moreover, trustworthy data is the life-blood of artificial intelligence, while the blockchain is designed to maintain trustworthy data.” In the financial services industry, where trust, security, transaction speed, scale, and multicurrency interoperability are powerful competitive advantages, we will continue to see more innovation in the FinTech space and more banks, broker-dealers, advisory firms and insurance companies adapting and adopting these technologies.
