TechLaw.Fest navigates the legal landscape of AI, Blockchain in digital assets

The intersection of artificial intelligence (AI) and blockchain technology is rapidly reshaping the landscape of digital assets. As these two powerful technologies converge, they unlock new possibilities for innovation, efficiency and security, said panelists at the TechLaw.Fest’s digital asset panel, titled “Nature of Digital Assets in the Age of Artificial Intelligence.”

The conference, organized by the Singapore Academy of Law and Singapore’s Ministry of Law, delved into the specific applications of AI within the legal profession.

Discussions focused on how AI can be used to streamline legal research, automate document review and improve contract analysis. Panelists over the two days explored the potential benefits of AI in improving legal services, such as increasing efficiency, reducing costs and improving accuracy. However, they also acknowledged the challenges and ethical considerations associated with AI, such as the risk of bias in AI algorithms and the potential impact on legitimate jobs.

For digital assets specifically, the convergence of AI and blockchain technology has created a new paradigm for digital assets. As this technology continues to evolve, it is essential for businesses and individuals to understand the legal framework that governs its use.

Current State of AI and Blockchain Integration

Shaun Leong (equity partner, Withers) provided a foundational understanding of the technologies. He explained that AI, while not new, has evolved significantly from its origins in the 1950s to the recent advances in generative AI. He described AI as “technology that will enable machines and computers to simulate human behavior, problem solving, understanding and decision making.”

In contrast, blockchain is a more recent innovation that emerged in the 1990s. Leong characterized blockchain as “a decentralized ledger, powered by computing nodes worldwide, that transparently and securely records transactions.” He emphasized that while blockchain’s potential for decentralization and data integrity is significant, it is still slower compared to traditional systems such as Visa’s transaction processing.

The panelists began by discussing the current integration of AI and blockchain technologies and their potential applications.

Moderator William Hallatt (Partner and Co-Chair of Global Financial Regulatory Practice, Gibson Dunn & Crutcher LLP) introduced the topic by referencing a high-profile case where the Australian Stock Exchange (ASX) sought to integrate AI and blockchain into its trading system. Despite significant investment and years of development, the project was halted due to practical challenges and incompatibility with the existing market infrastructure, underscoring the need for careful consideration and thorough testing of AI systems in high-stakes environments, highlighting the risks and limitations which may accompany, illustrate. such innovations.

Monin Ung (Managing Partner, MUNG Blockchain Law Firm) also shared several real-world applications where AI and blockchain intersect, including decentralized science, investment DAOs, agricultural innovations and intellectual property.

AI: Machines of Loving Grace, or Our Robot Overlords?

AI experts at SuperAI discussed the mind-blowing possibilities of AI, from acting as a powerful economic engine to creating its own form of money. Ultimately, they remained optimistic about AI’s potential to co-exist with humanity and even improve our lives.

Legal and regulatory challenges

The discussion then shifted to the legal and regulatory challenges associated with AI and blockchain technology. Addressing the regulatory landscape, Ezra Tay (Chief Legal and Compliance Officer, Travala.com) noted that while AI has made strides in financial markets, regulatory frameworks are struggling to keep up. He noted: “Regulators are currently a key block … The challenge is that there needs to be accountability for AI, which is difficult to impose in the same way as for humans.”

Yam Wern-Jhien (Director, Setia Law LLC) added to this by highlighting concerns about data reliability and misinformation. He said: “One downside of the convergence of AI and Web 3.0 is the spread of misinformation. With the growing role of AI in generating and verifying data, ensuring the accuracy and authenticity of information remains a challenge. “

In the litigation space, Yam shared insights from his experience in litigation related to AI and blockchain. He highlighted ongoing legal challenges, including the allocation of liability and the complexity of suing in a decentralized and anonymous environment.

Yam noted, “One of the significant challenges in AI litigation is determining liability when decisions are made by an AI system. In previous cases, such as the algorithmic trading case in Singapore, courts have struggled with how to determine intent and responsibility attributable to AI-driven actions.” He further emphasized how difficult it is to determine where to file lawsuits, especially when dealing with global and decentralized technologies. “When data is stored on servers worldwide or when the actors involved are anonymous, jurisdictional issues become complex.”

Jurisdictional issues were also a topic of concern. The global and virtual nature of AI and blockchain technologies complicates determining the appropriate venue for disputes. As Yam pointed out, “When we’re dealing with virtual and global technology, do we sue in the place where data is stored, or in cases where it’s nearly impossible to identify human actors?”

The discussion touched on the limitations of AI in crisis management. Leong cited cases where AI systems were unable to adapt to unforeseen events due to their lack of human intuition and judgment. He explained, “AI systems are not good at dealing with crisis situations. They lack the human intuition and decision-making abilities needed to navigate complex and unpredictable scenarios. For example, during the collapse of major financial institutions or market disruption, AI’s rigid responses sometimes made the situation worse.”

The panel also discussed the collapse of the TerraUSD (UST) stablecoin and its impact on the blockchain market. Leong mentioned, “The TerraUSD crash, which wiped out $45 billion in a week, was partly due to AI systems not distinguishing between the original token and new tokens created in response to the crisis.”

Generative AI and its impact

In the final segment of the panel discussion, the focus shifted to the practical implications and future prospects for AI and blockchain technologies. The discussion covered the challenges, potential solutions and the role of regulators in adapting to these rapidly evolving technologies.

The conversation explored the role of generative AI models such as ChatGPT and Google’s Gemini in providing insights and predictions. Travala.com’s Tay emphasized the dual nature of these tools: they are powerful, but have limitations. “Generative AI can provide predictions based on historical data and patterns, but it cannot foresee Black Swan events or unprecedented market changes. For example, while generative AI can estimate Bitcoin’s value based on past trends, it cannot account for sudden market shifts or geopolitical events,” Tay explained.

Panelists emphasized the importance of understanding the context and limitations of AI-generated predictions. While AI can be a valuable tool, its outputs should be interpreted with caution, especially when used for financial forecasting or strategic decision-making, they said.

Future directions and industry insights

Looking to the future, the panel highlighted the rapid evolution of AI and blockchain technologies. While these technologies hold significant potential to transform industries, their practical applications are still being refined. Panelists commented on the rapid development of this segment, and that the accelerating pace of technological change underscores the need for constant adaptation and innovation.

Travala.com’s Tay highlighted a growing trend where AI scripts from the dark web are being used for financial trading, leading to legal and operational challenges. He noted: “We are seeing an increase in the use of AI scripts purchased from the dark web, which pose significant risks to financial firms. These scripts are often used without proper oversight, leading to compliance and security issues .”

The panel discussed the need for updated contractual provisions to address these new challenges. “Businesses should review their standard terms and conditions to account for the risks associated with AI use, including licensing and security issues,” suggested Tay.

The discussion then turned to regulatory considerations. There was consensus on the need for a robust regulatory framework to address the complexities introduced by AI and blockchain technologies. Panelists suggested that regulators should focus on establishing clear guidelines that promote ethical use while addressing specific risks.

Foxwood LLC’s Mike Chaim concluded: “To make regulators more comfortable with AI and blockchain, there needs to be a balanced approach. This may involve creating frameworks that emphasize ethical considerations rather than just strict legislation. An alliance or code of conduct for ethical AI use could be a step in the right direction.”

The Hong Kong SFC and the HK government’s efforts to develop guidelines for AI in financial markets have been cited as a positive example of proactive regulatory engagement.

AI and blockchain technology offer transformative possibilities for the digital asset industry, but also present significant challenges, particularly in terms of regulation, ethics and legal implications. As Chiam summarized, “The law, as well as regulations, will continue to be tested and evolve with the emergence of new technology.”

As the regulatory landscape evolves and technological advances continue, we can expect to see even more exciting developments in the world of digital assets.