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Disruptive business models are often powered by alternative financing. In Part 1 of this series, I discussed how mobile is redefining money and banking and shared some of the dramatic transformations in the global remittance infrastructure.
In this article, we’ll discuss:
AI financial advisors and robo traders
Let’s dive right back in…
Decentralized Lending = Democratized Access to Finances
Peer-to-peer (P2P) lending is an age-old practice, traditionally with high risk and extreme locality. Now, the P2P funding model is being digitized and delocalized, bringing lending online and across borders.
Zopa, the first official crowdlending platform, arrived in the United Kingdom in 2004. Since then, the consumer crowdlending platform has facilitated lending of over 3 billion euros ($3.5 billion USD) of loans.
Person-to-business crowdlending took off, again in the U.K., in 2005 with Funding Circle, now with over 5 billion euros (~5.8 billion USD) of capital loaned to small businesses around the world.
Crowdlending next took off in the US in 2006, with platforms like Prosper and Lending Club. The US crowdlending industry has boomed to $21 billion in loans, across 515,000 loans.
Let’s take a step back… to a time before banks, when lending took place between trusted neighbors in small villages across the globe. Lending started as peer-to-peer transactions.
As villages turned into towns, towns turned into cities, and cities turned into sprawling metropolises, neighborly trust and the ability to communicate across urban landscapes broke down. That’s where banks and other financial institutions came into play—to add trust back into the lending equation.
With crowdlending, we are evidently returning to this pre-centralized-banking model of loans, and moving away from cumbersome intermediaries (e.g. high fees, regulations, and extra complexity).
Fueled by the permeation of the internet, P2P lending took on a new form as ‘crowdlending’ in the early 2000s. Now, as blockchain and artificial intelligence arrive on the digital scene, P2P lending platforms are being overhauled with transparency, accountability, reliability, and immutability.
Artificial Intelligence Micro Lending & Credit Scores
We are beginning to augment our quantitative decision-making with neural networks processing borrowers’ financial data to determine their financial ‘fate’ (or, as some call it, your credit score). Companies like Smart Finance Group (backed by Kai Fu Lee and Sinovation Ventures) are using artificial intelligence to minimize default rates for tens of millions of microloans.
Smart Finance is fueled by users’ personal data, particularly smartphone data and usage behavior. Users are required to give Smart Finance access to their smartphone data, so that Smart Finance’s artificial intelligence engine can generate a credit score from the personal information.
The benefits of this AI-powered lending platform do not stop at increased loan payback rates; there’s a massive speed increase as well. Smart Finance loans are frequently approved in under eight seconds. As we’ve seen with other artificial intelligence disruptions, data is the new gold.
Digitizing access to P2P loans paves the way for billions of people currently without access to banking to leapfrog the centralized banking system, just as Africa bypassed landline phones and went straight to mobile. Leapfrogging centralized banking and the credit system is exactly what Smart Finance has done for hundreds of millions of people in China.
As artificial intelligence accesses even the most mundane mobile browsing data to assign credit scores, blockchain technologies, particularly immutable ledgers and smart contracts, are massive disruptors to the archaic banking system, building additional trust and transparency on top of current P2P lending models.
Immutable ledgers provide the necessary transparency for accurate credit and loan defaulting history. Smart contracts executed on these immutable ledgers bring the critical ability to digitally replace cumbersome, expensive third parties (like banks), allowing individual borrowers or businesses to directly connect with willing lenders.
Two of the leading blockchain platforms for P2P lending are ETHLend and SALT Lending.
ETHLend is an Ethereum-based decentralized application aiming to bring transparency and trust to P2P lending through Ethereum network smart contracts.
Secure Automated Lending Technology (SALT) allows cryptocurrency asset holders to use their digital assets as collateral for cash loans, without the need to liquidate their holdings, giving rise to a digital-asset-backed lending market.
While blockchain poses a threat to many of the large, centralized banking institutions, some are taking advantage of the new technology to optimize their internal lending, credit scoring, and collateral operations.
In March 2018, ING and Credit Suisse successfully exchanged 25 million euros using HQLA-X, a blockchain-based collateral lending platform.
HQLA-X runs on the R3 Corda blockchain, a platform designed specifically to help heritage financial and commerce institutions migrate away from their inefficient legacy financial infrastructure.
Blockchain and tokenization are going through their own fintech and regulation shakeup right now. In a future blog, I’ll discuss the various efforts to more readily assure smart contracts, and the disruptive business model of security tokens and the US Securities and Exchange Commission.
Parallels to the Global Abundance of Capital
The abundance of capital being created by the advent of P2P loans closely relates to the unprecedented global abundance of capital.
Initial coin offerings (ICOs) and crowdfunding are taking a strong stand in disrupting the $164 billion venture capital market. The total amount invested in ICOs has risen from $6.6 billion in 2017 to $7.15 billion USD in the first half of 2018. Crowdfunding helped projects raise more than $34 billion in 2017, with experts projecting that global crowdfunding investments will reach $300 billion by 2025.
In the last year alone, using ICOs, over a dozen projects have raised hundreds of millions of dollars in mere hours. Take Filecoin, for example, which raised $257 million in only 30 days; its first $135 million was raised in the first hour. Similarly, the Dragon Coin project (which itself is revolutionizing remittance in high-stakes casinos around the world) raised $320 million in its 30-day public ICO.
Some Important Takeaways…
Technology-backed fundraising and financial services are disrupting the world’s largest financial institutions. Anyone, anywhere, at anytime will be able to access the capital they need to pursue their idea.
The speed at which we can go from “I’ve got an idea” to “I run a billion-dollar company” is moving faster than ever.
Following Ray Kurzweil’s Law of Accelerating Returns, the rapid decrease in time to access capital is intimately linked (and greatly dependent on) a financial infrastructure (technology, institutions, platforms, and policies) that can adapt and evolve just as rapidly.
This new abundance of capital requires financial decision-making with ever-higher market prediction precision. That’s exactly where artificial intelligence is already playing a massive role.
Artificial Intelligence, Robo Traders, and Financial Advisors
On May 6, 2010, the Dow Jones Industrial Average suddenly collapsed by 998.5 points (equal to 8 percent, or $1 trillion). The crash lasted over 35 minutes and is now known as the ‘Flash Crash’. While no one knows the specific reason for this 2010 stock market anomaly, experts widely agree that the Flash Crash had to do with algorithmic trading.
With the ability to have instant, trillion-dollar market impacts, algorithmic trading and artificial intelligence are undoubtedly ingrained in how financial markets operate.
In 2017, CNBC.com estimated that 90 percent of daily trading volume in stock trading is done by machine algorithms, and only 10 percent is carried out directly by humans.
Artificial intelligence and financial management algorithms are not only available to top Wall Street players.
Robo-advisor financial management apps, like Wealthfront and Betterment, are rapidly permeating the global market. Wealthfront currently has $9.5 billion in assets under management, and Betterment has $10 billion.
Artificial intelligent financial agents are already helping financial institutions protect your money and fight fraud. A prime application for machine learning is in detecting anomalies in your spending and transaction habits, and flagging potentially fraudulent transactions.
As artificial intelligence continues to exponentially increase in power and capabilities, increasingly powerful trading and financial management bots will come online, finding massive new and previously lost streams of wealth.
How else are artificial intelligence and automation transforming finance?
Disruptive Remittance and Seamless Transactions
When was the last time you paid in cash at a toll booth? How about for a taxi ride?
EZ-Pass, the electronic tolling company implemented extensively on the East Coast, has done wonders to reduce traffic congestion and increase traffic flow.
Driving down I-95 on the East Coast of the United States, drivers rarely notice their financial transaction with the state’s tolling agencies. The transactions are seamless.
The Uber app enables me to travel without my wallet. I can forget about payment on my trip, free up my mental bandwidth and time for higher-priority tasks. The entire process is digitized and, by extension, automated and integrated into Uber’s platform (Note: This incredible convenience many times causes me to accidentally walk out of taxi cabs without paying!).
In January 2018, we saw the success of the first cutting-edge, AI-powered Amazon Go store open in Seattle, Washington. The store marked a new era in remittance and transactions. Gone are the days of carrying credit cards and cash, and gone are the cash registers. And now, on the heals of these early ‘beta-tests’, Amazon is considering opening as many as 3,000 of these cashierless stores by 2023.
Amazon Go stores use AI algorithms that watch various video feeds (from advanced cameras) throughout the store to identify who picks up groceries, exactly what products they select, and how much to charge that person when they walk out of the store. It’s a grab and go experience.
Let’s extrapolate the notion of seamless, integrated payment systems from Amazon Go and Uber’s removal of post-ride payment to the rest of our day-to-day experience.
Imagine this near future:
As you near the front door of your home, your AI assistant summons a self-driving Uber that takes you to the Hyperloop station (after all, you work in L.A. but live in San Francisco).
At the station, you board your pod, without noticing that your ticket purchase was settled via a wireless payment checkpoint.
After work, you stop at the Amazon Go and pick up dinner. Your virtual AI assistant passes your Amazon account information to the store’s payment checkpoint, as the store’s cameras and sensors track you, your cart and charge you auto-magically.
At home, unbeknownst to you, your AI has already restocked your fridge and pantry with whatever items you failed to pick up at the Amazon Go.
Once we remove the actively transacting aspect of finance, what else becomes possible?
Extraordinary transformations are happening in the finance world. We’ve only scratched the surface of the fintech revolution. All of these transformative financial technologies require high-fidelity assurance, robust insurance, and a mechanism for storing value.
I’ll dive into each of these other facets of financial services in future articles.
For now, thanks to coming global communication networks being deployed on 5G, Alphabet’s LUNE, SpaceX’s Starlink and OneWeb, by 2024, nearly all 8 billion people on Earth will be online.
Once connected, these new minds, entrepreneurs, and customers need access to money and financial services to meaningfully participate in the world economy.
By connecting lenders and borrowers around the globe, decentralized lending drives down global interest rates, increases global financial market participation, and enables economic opportunity to the billions of people who are about to come online.
We’re living in the most abundant time in human history, and fintech is just getting started.
Abundance Digital Online Community: I have created a Digital/Online community of bold, abundance-minded entrepreneurs called Abundance Digital. This is my ‘onramp’ for exponential entrepreneurs – those who want to get involved and play at a higher level. Click here to learn more.
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China Wants to Shape the Global Future of Artificial Intelligence
Will Knight | MIT Technology Review
“China’s booming AI industry and massive government investment in the technology have raised fears in the US and elsewhere that the nation will overtake international rivals in a fundamentally important technology. In truth, it may be possible for both the US and the Chinese economies to benefit from AI. But there may be more rivalry when it comes to influencing the spread of the technology worldwide. ‘I think this is the first technology area where China has a real chance to set the rules of the game,’ says Ding.”
Astronaut’s Gene Expression No Longer Same as His Identical Twin, NASA Finds
Susan Scutti | CNN
“Preliminary results from NASA’s Twins Study reveal that 7% of astronaut Scott Kelly’s genetic expression—how his genes function within cells—did not return to baseline after his return to Earth two years ago. The study looks at what happened to Kelly before, during and after he spent one year aboard the International Space Station through an extensive comparison with his identical twin, Mark, who remained on Earth.”
This Cheap 3D-Printed Home Is a Start for the 1 Billion Who Lack Shelter
Tamara Warren | The Verge
“ICON has developed a method for printing a single-story 650-square-foot house out of cement in only 12 to 24 hours, a fraction of the time it takes for new construction. If all goes according to plan, a community made up of about 100 homes will be constructed for residents in El Salvador next year. The company has partnered with New Story, a nonprofit that is vested in international housing solutions. ‘We have been building homes for communities in Haiti, El Salvador, and Bolivia,’ Alexandria Lafci, co-founder of New Story, tells The Verge.”
Our Microbiomes Are Making Scientists Question What It Means to Be Human
Rebecca Flowers | Motherboard
“Studies in genetics and Watson and Crick’s discovery of DNA gave more credence to the idea of individuality. But as scientists learn more about the microbiome, the idea of humans as a singular organism is being reconsidered: ‘There is now overwhelming evidence that normal development as well as the maintenance of the organism depend on the microorganisms…that we harbor,’ they state (others have taken this position, too).”
Stephen Hawking, Who Awed Both Scientists and the Public, Dies
Joe Palca | NPR
“Hawking was probably the best-known scientist in the world. He was a theoretical physicist whose early work on black holes transformed how scientists think about the nature of the universe. But his fame wasn’t just a result of his research. Hawking, who had a debilitating neurological disease that made it impossible for him to move his limbs or speak, was also a popular public figure and best-selling author. There was even a biopic about his life, The Theory of Everything, that won an Oscar for the actor, Eddie Redmayne, who portrayed Hawking.”
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“We cannot be conscious of what we are not conscious of.” – Julian Jaynes, The Origin of Consciousness in the Breakdown of the Bicameral Mind
Unlike the director leads you to believe, the protagonist of Ex Machina, Andrew Garland’s 2015 masterpiece, isn’t Caleb, a young programmer tasked with evaluating machine consciousness. Rather, it’s his target Ava, a breathtaking humanoid AI with a seemingly child-like naïveté and an enigmatic mind.
Like most cerebral movies, Ex Machina leaves the conclusion up to the viewer: was Ava actually conscious? In doing so, it also cleverly avoids a thorny question that has challenged most AI-centric movies to date: what is consciousness, and can machines have it?
Hollywood producers aren’t the only people stumped. As machine intelligence barrels forward at breakneck speed—not only exceeding human performance on games such as DOTA and Go, but doing so without the need for human expertise—the question has once more entered the scientific mainstream.
Are machines on the verge of consciousness?
This week, in a review published in the prestigious journal Science, cognitive scientists Drs. Stanislas Dehaene, Hakwan Lau and Sid Kouider of the Collège de France, University of California, Los Angeles and PSL Research University, respectively, argue: not yet, but there is a clear path forward.
The reason? Consciousness is “resolutely computational,” the authors say, in that it results from specific types of information processing, made possible by the hardware of the brain.
There is no magic juice, no extra spark—in fact, an experiential component (“what is it like to be conscious?”) isn’t even necessary to implement consciousness.
If consciousness results purely from the computations within our three-pound organ, then endowing machines with a similar quality is just a matter of translating biology to code.
Much like the way current powerful machine learning techniques heavily borrow from neurobiology, the authors write, we may be able to achieve artificial consciousness by studying the structures in our own brains that generate consciousness and implementing those insights as computer algorithms.
From Brain to Bot
Without doubt, the field of AI has greatly benefited from insights into our own minds, both in form and function.
For example, deep neural networks, the architecture of algorithms that underlie AlphaGo’s breathtaking sweep against its human competitors, are loosely based on the multi-layered biological neural networks that our brain cells self-organize into.
Reinforcement learning, a type of “training” that teaches AIs to learn from millions of examples, has roots in a centuries-old technique familiar to anyone with a dog: if it moves toward the right response (or result), give a reward; otherwise ask it to try again.
In this sense, translating the architecture of human consciousness to machines seems like a no-brainer towards artificial consciousness. There’s just one big problem.
“Nobody in AI is working on building conscious machines because we just have nothing to go on. We just don’t have a clue about what to do,” said Dr. Stuart Russell, the author of Artificial Intelligence: A Modern Approach in a 2015 interview with Science.
The hard part, long before we can consider coding machine consciousness, is figuring out what consciousness actually is.
To Dehaene and colleagues, consciousness is a multilayered construct with two “dimensions:” C1, the information readily in mind, and C2, the ability to obtain and monitor information about oneself. Both are essential to consciousness, but one can exist without the other.
Say you’re driving a car and the low fuel light comes on. Here, the perception of the fuel-tank light is C1—a mental representation that we can play with: we notice it, act upon it (refill the gas tank) and recall and speak about it at a later date (“I ran out of gas in the boonies!”).
“The first meaning we want to separate (from consciousness) is the notion of global availability,” explains Dehaene in an interview with Science. When you’re conscious of a word, your whole brain is aware of it, in a sense that you can use the information across modalities, he adds.
But C1 is not just a “mental sketchpad.” It represents an entire architecture that allows the brain to draw multiple modalities of information from our senses or from memories of related events, for example.
Unlike subconscious processing, which often relies on specific “modules” competent at a defined set of tasks, C1 is a global workspace that allows the brain to integrate information, decide on an action, and follow through until the end.
Like The Hunger Games, what we call “conscious” is whatever representation, at one point in time, wins the competition to access this mental workspace. The winners are shared among different brain computation circuits and are kept in the spotlight for the duration of decision-making to guide behavior.
Because of these features, C1 consciousness is highly stable and global—all related brain circuits are triggered, the authors explain.
For a complex machine such as an intelligent car, C1 is a first step towards addressing an impending problem, such as a low fuel light. In this example, the light itself is a type of subconscious signal: when it flashes, all of the other processes in the machine remain uninformed, and the car—even if equipped with state-of-the-art visual processing networks—passes by gas stations without hesitation.
With C1 in place, the fuel tank would alert the car computer (allowing the light to enter the car’s “conscious mind”), which in turn checks the built-in GPS to search for the next gas station.
“We think in a machine this would translate into a system that takes information out of whatever processing module it’s encapsulated in, and make it available to any of the other processing modules so they can use the information,” says Dehaene. “It’s a first sense of consciousness.”
In a way, C1 reflects the mind’s capacity to access outside information. C2 goes introspective.
The authors define the second facet of consciousness, C2, as “meta-cognition:” reflecting on whether you know or perceive something, or whether you just made an error (“I think I may have filled my tank at the last gas station, but I forgot to keep a receipt to make sure”). This dimension reflects the link between consciousness and sense of self.
C2 is the level of consciousness that allows you to feel more or less confident about a decision when making a choice. In computational terms, it’s an algorithm that spews out the probability that a decision (or computation) is correct, even if it’s often experienced as a “gut feeling.”
C2 also has its claws in memory and curiosity. These self-monitoring algorithms allow us to know what we know or don’t know—so-called “meta-memory,” responsible for that feeling of having something at the tip of your tongue. Monitoring what we know (or don’t know) is particularly important for children, says Dehaene.
“Young children absolutely need to monitor what they know in order to…inquire and become curious and learn more,” he explains.
The two aspects of consciousness synergize to our benefit: C1 pulls relevant information into our mental workspace (while discarding other “probable” ideas or solutions), while C2 helps with long-term reflection on whether the conscious thought led to a helpful response.
Going back to the low fuel light example, C1 allows the car to solve the problem in the moment—these algorithms globalize the information, so that the car becomes aware of the problem.
But to solve the problem, the car would need a “catalog of its cognitive abilities”—a self-awareness of what resources it has readily available, for example, a GPS map of gas stations.
“A car with this sort of self-knowledge is what we call having C2,” says Dehaene. Because the signal is globally available and because it’s being monitored in a way that the machine is looking at itself, the car would care about the low gas light and behave like humans do—lower fuel consumption and find a gas station.
“Most present-day machine learning systems are devoid of any self-monitoring,” the authors note.
But their theory seems to be on the right track. The few examples whereby a self-monitoring system was implemented—either within the structure of the algorithm or as a separate network—the AI has generated “internal models that are meta-cognitive in nature, making it possible for an agent to develop a (limited, implicit, practical) understanding of itself.”
Towards conscious machines
Would a machine endowed with C1 and C2 behave as if it were conscious? Very likely: a smartcar would “know” that it’s seeing something, express confidence in it, report it to others, and find the best solutions for problems. If its self-monitoring mechanisms break down, it may also suffer “hallucinations” or even experience visual illusions similar to humans.
Thanks to C1 it would be able to use the information it has and use it flexibly, and because of C2 it would know the limit of what it knows, says Dehaene. “I think (the machine) would be conscious,” and not just merely appearing so to humans.
If you’re left with a feeling that consciousness is far more than global information sharing and self-monitoring, you’re not alone.
“Such a purely functional definition of consciousness may leave some readers unsatisfied,” the authors acknowledge.
“But we’re trying to take a radical stance, maybe simplifying the problem. Consciousness is a functional property, and when we keep adding functions to machines, at some point these properties will characterize what we mean by consciousness,” Dehaene concludes.
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