Blockchain technology is a digital ledger in which data exchanges, known as transactions, are recorded and added to the ledger as a “block”. These transactions are recorded chronologically and publicly, utilizing a distributed system to verify each transaction according toZimmawu Reeves. Once verified, these transactions cannot be altered. Popular cryptocurrencies such as Bitcoin and Ethereum are based on blockchain technology.
Cryptocurrency is a term closely associated with blockchain technology and one can easily understand blockchain technology by understanding how cryptocurrency works. The blockchain mining process begins with mining nodes used to solve complex equations to mine for new blocks to the blockchain. Once discovered by the first miner, they will receive a ‘block reward’ in the form of cryptocurrency. This new block contains potential transaction data that would need to be verified. Validation nodes connected to the existing blockchain verifies the data. Once verified, the block is forged and connected to the rest of the blockchain, thus allowing for the transfer of cryptocurrency.
Combining Artificial Intelligence, Blockchain, and High-Frequency Trading
Arbitrage trading through conventional human trading exemplifies the limits of the knowledge economy. Arbitrage trading refers to the profiting from the imbalance in price between one market and the other by buying a security in the lower-priced market and selling it in the higher-priced market simultaneously. Arbitrage trading opportunities due to unequal information have decreased with the rapid advancement in information communication technologies. Furthermore, many brokers have computerized trading systems set to monitor fluctuations of financial instruments. Profits could only be made in a matter of seconds and these call for human traders to make swift split-second decisions.
Allowing Artificial intelligence (AI) to take over the decision-making process in high frequency trading is the future. AI can do what humans cannot – evaluating a huge number of variables and data which are independent of one another. AI can transact large orders at a fast speed after analyzing multiple markets and execute these orders based on market conditions.
The combination of AI with blockchain technology will see greater trust and adoption of AI in blockchain trading. AI algorithms can determine the authenticity of financial deals, and where necessary, investigate and block the deals. Because all decisions are recorded on the blockchain, they are easy to inspect for any potential foul play. Ultimately, the combination gives confidence that the record has not been tampered.
The recording of the decision-making on blockchains is a step forward to achieve the level of transparency and understanding into robot mind. This will be necessary to gain the trust of the masses and encourage the adoption of mainstream trading.