Artificial Intelligence (AI) has revolutionised many industries, and the world of cryptocurrency is no exception. With the rise of digital currencies comes an increase in scams and fraudulent activities, posing a threat to the security of crypto investors and delaying crypto mass adoption.
We at VALEGA Chain Analytics use AI in several internal services, to validate and extract information from our data, but AI can be of great assistance in reducing the scam problem when applied to other areas and direct interaction with users.
What is Artificial Intelligence
AI is the simulation of human intelligence in machines designed to think and act like humans. Learning, problem-solving, pattern recognition, decision-making, and natural language processing are examples of such tasks. AI systems can be programmed to do anything from simple, repetitive tasks to complex, sophisticated tasks that would normally require human-level intelligence to complete.
A major advantage of AI is the ability to improve over time. The more data it is fed, the better it becomes at identifying patterns and making predictions. Furthermore, the AI system becomes more efficient and effective as researchers and developers create new and improved algorithms. Essentially, AI can “learn” and improve itself through experience and technological advancements.
Fraud detection and prevention
One of the primary ways AI is being used to combat cryptocurrency scams is by detecting and preventing fraud. AI algorithms can analyze large amounts of data in real time and detect patterns and anomalies that may indicate fraudulent activity.
AI can help to identify suspicious transactions and flag them for review, preventing fraudulent funds from being transferred. It can also be used to identify entities, for example, a new mixing service that is still unknown to a risk assessment system, but due to its data patterns, can be identified and set to review.
The ability to predict and enhance data is a game changer and enhances the overall security of the crypto world, reducing the risk of fraud and protecting investors.
The downside is that we can’t predict how a user will transfer funds, so there is always the chance that the used platform (or even the lack of one) does not accommodate a fraud detection system.
Phishing detection
Phishing can be conducted through email, messaging, social media and, most concerning, “fake” websites that mimic the looks and behaviour of the original one. This can easily trick people to provide sensible data, like wallet private keys or bank login credentials, and even transferring funds in order to capitalise on an amazing opportunity (if it is too good, always suspect that something is wrong).
I can remember a phishing case, where a “fake” Ethereum foundation website was promising users amazing investments. The website itself looked and feel better than the original one…
User education is fundamental to preventing scams. If the habit of using a system to check if a platform is authentic would prevent most crimes, but there are major problems:
- Users may not know that phishing exists
- Users may not know how to validate if a platform is real
- If a scam is too recent, traditional validation systems may not be aware
AI can be trained to detect phishing scams by analysing emails, messages and websites (content and properties, like the URL, etc.) and this way always be able to give an answer about the opportunity’s authenticity. It is not a perfect scenario, but at least we can mitigate one of the problems.
Market analysis
AI can be used to analyse market data and identify manipulation, a common tactic used by scammers to artificially inflate the price of a particular cryptocurrency. AI algorithms can analyze data in real time and detect anomalies, alerting investors and preventing them from falling victim to market manipulation scams.
User education is again fundamental:
- Users may not know that market manipulation is real
- Users may not know how to validate if the asset price is abnormal
- If an asset is too recent, it can be considered safe by traditional systems
AI chatbots to ease the validation process
We all know that people fear the unknown and even if a service/tool is easy to use, there is always some resistance. AI is proving to be an excellent facilitator by allowing users to use natural language to solve issues and get answers. The rise of ChatGPT is an excellent example, it is creating AI awareness in people from all sectors.
An AI-powered chatbot can be trained to help users to validate if what appears to be an opportunity is actually a scam. Instead of using a service that asks for a domain (where most common users probably don’t even know what a domain is), we can simply ask “can you tell me if the https://hugeethprofits.com is a safe investment?” and get a yes or no answer.