On May 24, the European Blockchain Observatory and Forum (EUBOF), an initiative backed by the European Commission, issued a report urging the European Union (EU) to prepare for the fusion of blockchain technology and artificial intelligence (AI). This proactive stance is aimed at safeguarding users’ data.
Compiled by the Directorate-General for Communications Networks, Content, and Technology, the EU blockchain report delves into the promising prospects of combining blockchain technology with AI. It highlights the robust data storage and management features of blockchain, especially in critical sectors such as healthcare and finance.
EU Blockchain Report Highlights DeFi as Emerging Trends
The report delved into the notion of decentralized AI networks, which have the potential to disrupt the prevailing centralized model controlled by major corporations and governments. Through harnessing the decentralized nature of blockchain, these networks could foster collaboration and creativity across a wider spectrum of contributors.
Additionally, the EU blockchain report examined emerging trends in web3, including decentralized finance (DeFi) and advancements in smart contracts.
DeFi offers financial services sans conventional intermediaries like banks, yet it is regarded as a sector requiring well-defined regulatory frameworks to safeguard consumer interests and maintain financial stability.
The document also touched upon smart contracts, which are self-executing agreements recorded on a blockchain. It underscored the necessity for advancements in smart contract functionalities to fully unlock their potential across various applications.
The European Commission’s proactive stance towards the integration of blockchain and AI is deemed strategic, especially in light of recent security breaches in the cryptocurrency realm.
For instance, the DeFi lending platform Sonne Finance experienced a significant security breach on May 14, resulting in a loss of approximately $20 million.
Similarly, Hundred Finance encountered a comparable issue in 2023. In the Hundred Finance exploit, the hacker leveraged a vulnerability by manipulating the exchange rate, inflating the value of collateral, and subsequently depleting the lending pools with only a minimal amount of tokens.
Philosopher Cautions the Unrestrained Integration of AI in Finance
Experts and regulatory bodies have voiced mounting concerns regarding the unchecked integration of AI technology in finance.
Renowned philosopher Yuval Noah Harari delivered a cautionary address at the Bank for International Settlements (BIS) Innovation Summit on May 7, highlighting the risks associated with the unbridled deployment of AI in the financial sector. He underscored the grave potential for AI to spiral out of control, leading to severe consequences, and advocated for effective regulation to curb misuse and mitigate adverse events.
In January 2024, the US Securities and Exchange Commission (SEC) Office of Investor Education and Advocacy, alongside the North American Securities Administrators Association and the Financial Industry Regulatory Authority, issued a joint alert to investors, warning them about the proliferation of investment frauds involving AI and other emerging technologies.
Earlier that same month, SEC Chair Gary Gensler expressed apprehensions regarding the potential impact of AI on financial systems. He cautioned against “AI washing” and algorithmic bias, among other concerns.
Experts anticipate that various global authorities will persist in their endeavors to mitigate AI-related risks. This entails ensuring that companies accurately portray their AI capabilities and the role of AI in their operations.
