Is AI more dangerous than nukes?

Elon Musk says AI (artificial intelligence) is far more dangerous than nuclear weapons, but then he is known for making controversial statements that take us all by surprise. But in what ways might AI be dangerous and what should we be aware of?

Glenn Gow, an expert consultant on AI Strategy for businesses, says that firms can use AI to reduce risk to “business partners, employees and customers,” before regulatory bodies step in to force them to take specific steps. As he says, most firms “have regulations to govern how we manage risks to ensure safety,” yet there are very few regulations around the use of AI regarding safety, although there are regulations about its use in relation to privacy. Therefore, there is a need to find ways to manage the risk presented by AI systems.

For example, Singapore has created a Model AI Governance Framework that is a good starting place to understand the risks in relation to two key issues: 1. The level of human involvement in AI;

2. The potential harm caused by AI.

The level of human involvement

Where are the dangers here? First, we have to remember that sometimes AI works alone, and at other times it requires human input. When there is no human involvement, the AI runs on its own and a human can’t override the AI. When a human is involved, the AI only offers suggestions, such as in medical diagnostics and treatment. The third type of interaction is the AI that is designed to “let the human intercede if the human disagrees or determines the AI has failed.” AI-based traffic prediction systems are an example of this.

In the case of the third example, which Gow calls ‘human-over-the-loop’, the risk of harm is low, but the severity of harm is high.

In a ‘human-in-the-loop’ situation, the risk of both probability and severity of harm is high. Gow gives the following example: “Your corporate development team uses AI to identify potential acquisition targets for the company. Also, they use AI to conduct financial due diligence on the various targets. Both the probability and severity of harm are high in this decision.”

When humans are not involved at all, the probability of harm is high, but the severity of harm is low.

As Gow suggests, The Modern AI Governance Framework gives boards and management a starting place to manage risk with AI projects. Whilst AI could be dangerous in several scenarios, by managing when and how humans will be in control, we can greatly reduce a company’s risk factors, and ensure AI is safer than nukes.

Persistence makes Staking easier for asset managers

A significant number of institutional investors are still getting to grips with investing in bitcoin, in crypto-friendly Switzerland, asset managers are already looking at staking in new generation blockchain networks.

Last week, Tavis Digital, a firm based in Zurich, announced its partnership with Singapore-based Persistance to provide an opportunity for traditional firms to explore token staking and DeFi. Tavis Digital is a spin-off of Tavis Capital, an asset manager regulated by the Swiss Financial Market Supervisory Authority (FINMA), which has some $1.07 billion in managed assets. Once again, agile countries, such as Switzerland and Singapore, are ahead of the pack in offering investors opportunities in cryptocurrencies and related apps.

Using white label

To assist clients, they are being offered white label products. Tushar Aggarwal, CEO and co-founder of Persistence explained why they are doing this: “We white-label our services to institutional clients and stakeholders who do not know how to run a validator node both on the software side as well as on the hardware side. It’s not a trivial thing to run a validator node, you need almost close to 100% uptime otherwise you get slashed.”

Interest with Proof-of-Stake (PoS) networks

Staking rewards are a new thing for institutional investors, and are much like interest on other investments. By using Persistence, investors can access proof-of-stake (PoS) networks such as Cosmos, Polygon (formerly Matic), NEAR, SKALE, Terra and others. The partnership with Tavis, indicates that traditional funds are now looking beyond bitcoin (BTC) as the ‘only’ crypto asset class.

What is PoS?

A PoS system “proposes to solve the “nothing at stake” problem by apportioning some skin in the game,” as Coindesk says. It resolves the intense energy use of bitcoin transactions and the ‘nothing at stake’ problem. Essentially, when you stake, you purchase and hold onto a blockchain network’s tokens, that then gain you rewards for validating the network’s transactions. However, if a validating node goes offline or is unresponsive, then those who have staked may experience losses. This is known as ‘slashing’.

Participating in staking networks is complex, which is why support is needed. Persistence provides a complete handholding service for firms that don’t want to set up dedicated blockchain teams. Presently, the staking hosting service has some $260 million in assets under delegation, mostly on Cosmos. 

Aggarwal commented, “With a backdrop of most parts of western Europe now at 0% interest rates, or negative interest rates in certain jurisdictions, there is an increased demand from institutional folks to generate fixed income yields,” and staking is looking like the way to achieve better rewards.

Should you buy bitcoin mining stocks?

According to Fundstrat, Bitcoin mining stocks have generated far greater returns than bitcoin cryptocurrency, even though its recent bull market has shown considerable gains.

However, even as bitcoin miners rush to share in these riches, the gains in the mining market could still be “the most high-risk bitcoin bet of all,” according to Leeor Shimron, Fundstrat’s vice president of digital asset strategy.

Most mining companies are fairly young and “lack track records.” They have also been operating at a loss, Shimron says, yet have still reached over $1 billion in market cap, mostly because during the downturn in BTC’s price, they invested in the hardware and facilities that helped them to “strike it big” in the current bitcoin bull market cycle.

Shimron told investors enquiring about the mining stocks that whilst the stocks were surging, they remain a “high beta play”, given that BTC is up 900% in this last bull run, but the average return among the biggest publicly traded miners was 5,000%, according to his analysis.

We all know that mining bitcoin burns up electricity. To cover this expense, miners sell the mined bitcoin, holding onto some of the BTC on their corporate balance sheet. For example, the North American mining company, Marathon Digital Holdings, recently announced it had purchased an additional $150 million worth of BTC to hold on its balance sheet.

Shimron’s analysis of the largest publicly listed mining companies, including Marathon, showed that the beta these bitcoin mining companies exhibit generates a return of 2.5% for every 1% move in the cryptocurrency. He also said that the miners’ performance is clearly tied to the price of bitcoin, and that as its price increases, “miners spin up new rigs or upgrade their hardware with more powerful and efficient machines.” This is why they have been able to attract investor interest in places such as the WallStreetBets message board on Reddit, which fuelled the mania in shares of GameStop.

Shimron said in a CNBC interview: “For investors looking to gain exposure to miners, that beta makes it a great opportunity during the middle of a roaring bull market. …There are fits and starts and pullbacks, but we still have lots of room to grow here.”

All this interest has been encouraged by bitcoin’s own bull market, which Shimron believes will continue in 2021. Inflation fears are driving the BTC price and whilst yield pressure from the 10-year Treasury could cause a downturn, Shimron says “it is clear from Fed signalling that the central bank wants to keep its dovish policies in place until 2023,” which will help bitcoin. Younger investors are also playing a role. “You see younger people gravitate to bitcoin and other digital currencies as opposed to gold and commodities and it speaks to a demographic shift. … To them it’s not crazy to interact with money in a purely digital way,” Shimron said.

But here is his final advice on investing in bitcoin miners: he said he is “inclined to trade the bitcoin miners in a bull market run, rather than see them as investments to hold for the long-term.” Bitcoin on the other hand is for him a long-term investment.

AI can lead financial services to more inclusive lending

Upstart, an AI-powered fintech lender that launched in 2012 has received a ‘blockbuster’ earnings report that has made a new billionaire of Dave Girouard, the firm’s cofounder and CEO.

While there have been concerns about sky-high valuations, Upstart’s stock “ended the day up a staggering 89%, lifting the fortune of 54-year-old Girouard, who cofounded Upstart in 2012 and owns about 14% of shares, to an estimated $1.3 billion,” according to Forbes.

Based in California, Upstart “reported fourth-quarter earnings that nearly tripled average analyst expectations and posted full-year 2020 revenue of $233 million, 42% higher than in 2019.” Girouard said, “Last quarter was monumental for us as we took the company public in the midst of a historically complex and challenging time for the world.” Moreover, Upstart forecasts its revenue will more than double this year to $500 million.

Wall Street is so happy with the figures that Bank of America and JMP Securities upgraded Upstart’s stock on Thursday, and the future promises even grater things as Upstart moves into the auto lending sector. To facilitate this, it has acquired San Francisco-based Prodigy Software, a cloud-based platform that lets customers buy cars online. Girouard said, “While Amazon and Shopify have modernized the online shopping experience, the auto industry has been left behind. Auto retail is among the largest buy-now-pay-later opportunities, and together with Prodigy, we aim to help dealers create a seamless and inclusive experience worthy of 2021.” He added, “We see at least as much inefficiency in auto lending as we have seen in personal lending. Millions of people spend far too much for car loans.”

Upstart makes loans of $1,000 to $50,000 at interest rates ranging from 7% to 36%–but it is different to some of the other main players in the way it assesses borrower risk. It uses Artificial Intelligence (AI) and other data, such as education and employment history to assess a person’s creditworthiness. This is something that Girouard believes is the future of lending: “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”

This is not a new idea. In 2020 the Harvard Business Review published an article by Sian Townson, ‘AI can make bank loans more fair’. This examines the problem with bias in AI, as Townson says, “Lenders often find that artificial-intelligence-based engines exhibit many of the same biases as humans.” The reason for this is that the AI has been fed a “diet of biased credit decision data,” according to Townson, adding that this data has been “drawn from decades of inequities in housing and lending markets. Left unchecked, they threaten to perpetuate prejudice in financial decisions and extend the world’s wealth gaps.”

Townson believes that there is a way that AI can encourage a more inclusive economy: “The key lies in building AI-driven systems designed to encourage less historic accuracy but greater equity. That means training and testing them not merely on the loans or mortgages issued in the past, but instead on how the money should have been lent in a more equitable world.”