The fusion of artificial intelligence (AI) and blockchain technology is revolutionising the digital world by giving birth to the Web3 AI ecosystem. This powerful combination is powering the rise of decentralised AI applications on layer 1 blockchain platforms, marking the dawn of a new era characterised by significant technological progress and enhanced transparency. Decentralised AI aims to create intelligent systems that are not controlled by any single entity. This decentralisation is crucial for fostering innovation, ensuring transparency, and enhancing security. Layer 1 blockchains, the base layer of blockchain technology, act as the critical foundation for decentralised AI by providing several key functionalities. In a decentralised AI framework, data and computations are spread across multiple nodes, enhancing security and fostering trust among participants. In this article, we'll explore four ways that layer 1 blockchains play a key role in building the Web3 AI ecosystem and various challenges to be navigated to build a reliable Web3 AI and blockchain ecosystem.

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1. Secure and Transparent Data Storage

Decentralised AI relies on vast amounts of data to train and improve its algorithms. Layer 1 blockchains offer a secure and transparent way to store this data. Transactions on the blockchain are encrypted and distributed across a network of computers, making them tamper-proof and resistant to censorship. This ensures the integrity of the data used to train the AI, preventing bias or manipulation from any single source.

An example is the aelf blockchain, a cutting-edge AI blockchain that offers modular systems, parallel processing, cloud-native architecture, and multi-sidechain technology, ensuring unlimited scalability. aelf supports the creation, integration, and deployment of smart contracts and decentralised apps (dApps) through its native C# software development kit (SDK) and additional SDKs in languages such as Java, JS, Python, and Go. Their robust AI blockchain ecosystem nurtures a wide range of dApps, driving innovation and the advancement of Web3, blockchain, and AI technology. By leveraging aelf's advanced infrastructure, decentralised AI systems can securely store and access the vast amounts of data needed for sophisticated algorithm development, significantly enhancing the reliability and performance of AI applications.

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2. Decentralised Computing Power

Training complex AI models requires immense computational resources. Blockchains with AI capabilities can facilitate the creation of decentralised computing networks, where users can contribute their unused computing power to the network and earn rewards in return, usually in the form of cryptocurrency. This distributed approach provides the necessary processing power for training and running decentralised AI models without relying on centralised cloud providers.

Decentralised computing marketplaces like Golem allow companies to contribute their spare server capacity to the network. Golem functions as a marketplace, matching these companies with users who require that power for demanding tasks like training AI models. Through Golem, companies can rent out their unused server capacity for a fee, usually paid in Golem's cryptocurrency, GLM. This contributes valuable resources to the network while allowing companies to earn rewards for their idle hardware. This decentralised and Web3 approach offers a cost-effective and scalable way to tackle complex computing needs.

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3. Coordination and Collaboration

Decentralised AI projects often involve collaboration between stakeholders like developers and investors. Blockchains offer an avenue for collaboration through Decentralised Autonomous Organisations (DAOs) where smart contracts automate tasks and govern the interactions between different components of the AI system. This fosters trust and transparency between participants, ensuring that everyone involved adheres to the agreed-upon rules.

An example of this is Network DAO, deployed on TMRWDAO within the aelf AI blockchain ecosystem, which aims to achieve fully decentralised governance of the aelf blockchain. It allows communities to vote for Block Producers (BPs) and enables BPs to participate directly in decision-making processes. By leveraging smart contracts, Network DAO ensures transparency, security, and the trustless execution of tasks. It empowers community members to submit proposals, supports establishing and managing decentralised organisations, facilitates transparent elections for BPs, simplifies smart contract management, and enables the trading of resource tokens. This comprehensive approach enhances collaborative efforts within the Web3 AI and blockchain ecosystem, ensuring that decentralised AI projects can leverage the collective intelligence and resources of a global Web3 and crypto community.

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4. Tokenisation and Incentives

Blockchains enable the creation of tokens, digital units of value, that can represent various things in a decentralised AI and blockchain ecosystem. These tokens can be used to incentivise data contribution, participation in training processes, and access to AI services. This creates a self-sustaining economic model that drives the development and growth of decentralised AI.

*Screenshot from Ocean Protocol's Website*

For instance, Ocean Protocol uses tokens to incentivise data sharing and ensure that AI models have access to diverse and high-quality datasets. Data owners can tokenise their datasets through their platform, essentially creating access rights they can sell on the Ocean Market. This incentivises data sharing while allowing owners to retain control and ensure privacy through techniques like secure multi-party computation. By facilitating high-quality and diverse data access, Ocean Protocol fuels the development of powerful AI models in a decentralised way while fostering collaboration between data providers, AI developers, and researchers.

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Challenges and Considerations

While Layer 1 blockchains offer a powerful foundation, there are challenges to consider. Scalability is a significant issue; many Layer 1 blockchains struggle to handle a high volume of transactions, which can slow down processing and increase costs, posing a bottleneck for large-scale decentralised AI applications. Security is another concern. Although blockchains are secure overall, vulnerabilities in specific blockchains can be exploited to compromise the AI system. Interoperability is also a challenge, as different blockchains often have their own protocols and standards, making it difficult for decentralised AI systems on different blockchains to interact with each other.

Developers are constantly working on improving Layer 1 blockchains to address these challenges. New Layer 1 solutions are emerging that are specifically designed for scalability and interoperability. For example, Ethereum 2.0 aims to significantly increase transaction throughput and reduce fees, making it more suitable for AI blockchain applications. Similarly, projects like Polkadot and Cosmos focus on creating interoperable blockchain networks that can seamlessly interact.

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Unlocking AI's Full Potential in the Web3 and Blockchain Space

The synergy between decentralised AI and layer 1 blockchain platforms unlocks unprecedented opportunities within the Web3 ecosystem. Blockchain's inherent transparency, security, and decentralisation are making AI applications more reliable and trustworthy. As the AI and blockchain landscape continues to evolve, addressing emerging trends and challenges will be essential to harnessing the full power of this transformative technology. Embracing this evolution, aelf is pivoting to become a dedicated AI blockchain by actively integrating AI technology into our blockchain. To kickstart this, we will release a revamped version of our whitepaper soon. Stay tuned and join us on our journey to becoming a revolutionary AI blockchain.

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*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. aelf makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult with a qualified financial or legal advisor before making any investment decisions.

About aelf

aelf, the pioneer Layer 1 blockchain, features modular systems, parallel processing, cloud-native architecture, and multi-sidechain technology for unlimited scalability. Founded in 2017 with its global hub based in Singapore, aelf is the first in the industry to lead Asia in evolving blockchain with state-of-the-art AI integration, transforming blockchain into a smarter and self-evolving ecosystem.

aelf facilitates the building, integrating, and deploying of smart contracts and decentralised apps (dApps) on its Layer 1 blockchain with its native C# software development kit (SDK) and SDKs in other languages, including Java, JS, Python, and Go. aelf’s ecosystem also houses a range of dApps to support a flourishing blockchain network. aelf is committed to fostering innovation within its ecosystem and remains dedicated to driving the development of Web3, blockchain and the adoption of AI technology.

Find out more about aelf and stay connected with our community:

Website | X | Telegram | Discord

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Tool/Platform	What's it about
ChainGPT	An AI-powered assistant for the blockchain and crypto industry, specializing in content creation, language translation, smart contract coding, and more.
aelf	A high-performance, customisable multi-chain blockchain framework with AI-powered smart contracts and a developer-friendly environment.
Quick Intel	An AI-powered crypto security platform that helps investors avoid scams, rug pulls, and honeypots by analysing smart contracts, social sentiment, and on-chain data.
Cogwise AI News Aggregator	An AI-powered news aggregator that analyses real-time news and global trends to predict market movements in the crypto market.
OpenAI Codex	An AI system that transforms natural language into code, automating code creation for smart contracts, blockchain applications, and other development tasks.
QnA3	An AI-powered Web3 knowledge hub that provides real-time information and insights on cryptocurrencies, blockchain projects, and the broader Web3 ecosystem, with unique Solana Actions integrations.
Fetch.ai	A platform that combines AI and blockchain to create autonomous economic agents (AEAs) for various applications, including supply chain optimisation and smart city management.
Octavia	A decentralised digital identity (DID) platform for creating and managing self-sovereign digital identities, empowering users to control their data and online presence.
TensorFlow	A versatile open-source machine learning framework used for building AI models that can analyse blockchain data, enhance security, and predict market trends.
Alethea	A platform that creates 'Intelligent NFTs' (iNFTs) with unique personalities and the ability to engage in conversations, powered by AI and blockchain technology.

Tool/Platform

What's it about

ChainGPT

An AI-powered assistant for the blockchain and crypto industry, specializing in content creation, language translation, smart contract coding, and more.

aelf

A high-performance, customisable multi-chain blockchain framework with AI-powered smart contracts and a developer-friendly environment.

Quick Intel

An AI-powered crypto security platform that helps investors avoid scams, rug pulls, and honeypots by analysing smart contracts, social sentiment, and on-chain data.

Cogwise AI News Aggregator

An AI-powered news aggregator that analyses real-time news and global trends to predict market movements in the crypto market.

OpenAI Codex

An AI system that transforms natural language into code, automating code creation for smart contracts, blockchain applications, and other development tasks.

QnA3

An AI-powered Web3 knowledge hub that provides real-time information and insights on cryptocurrencies, blockchain projects, and the broader Web3 ecosystem, with unique Solana Actions integrations.

Fetch.ai

A platform that combines AI and blockchain to create autonomous economic agents (AEAs) for various applications, including supply chain optimisation and smart city management.

Octavia

A decentralised digital identity (DID) platform for creating and managing self-sovereign digital identities, empowering users to control their data and online presence.

TensorFlow

A versatile open-source machine learning framework used for building AI models that can analyse blockchain data, enhance security, and predict market trends.

Alethea

A platform that creates 'Intelligent NFTs' (iNFTs) with unique personalities and the ability to engage in conversations, powered by AI and blockchain technology.

Chain	URL	Explorer
AELF	https://aelf-test-node.aelf.io/	https://explorer-test.aelf.io/
tDVW	https://tdvw-test-node.aelf.io/	https://explorer-test-side02.aelf.io/

Chain

URL

Explorer

AELF

https://aelf-test-node.aelf.io/

https://explorer-test.aelf.io/

tDVW

https://tdvw-test-node.aelf.io/

https://explorer-test-side02.aelf.io/

Feature	Description
Inheritance	ERC-404 inherits from the interfaces IERC-404, IERC721 Receiver, and IERC165, implementing functions specified in these interfaces, behaving as both ERC20 and ERC721.
Data Structures	Mappings track balances, allowances, approvals, and ownership of tokens. Double-ended queue stores ERC721 token IDs. Data for managing ownership and indices of ERC721 tokens.
Constructor	Initialises token name, symbol, decimals, and other necessary variables for ERC20 and ERC721 tokens.
Token Minting and Burning	_mintERC20 function for minting ERC20 tokens. _retrieveOrMintERC721 function for minting ERC721 tokens and retrieving from a bank. _withdrawAndStoreERC721 function for depositing ERC721 tokens into the bank.
Transfers	Functions for transferring ERC20 and ERC271 tokens between addresses. Distinguishes between token types based on ID. _transferERC20WithERC721 function handles transfers involving both types.
ERC20 and ERC721 Interactions	Approve function handles approvals for both token types. Functions like transferFrom, safeTransferFrom, and permit handle transfers and approvals.
EIP-2612 Support	Supports EIP-2612 permit functionality for ERC20 tokens.
Interface Compatibility	Implements necessary functions for ERC-404 and ERC165 interfaces, indicating compatibility with ERC20 and ERC721 standards.

Feature

Description

Inheritance

ERC-404 inherits from the interfaces IERC-404, IERC721 Receiver, and IERC165, implementing functions specified in these interfaces, behaving as both ERC20 and ERC721.

Data Structures

Mappings track balances, allowances, approvals, and ownership of tokens. Double-ended queue stores ERC721 token IDs. Data for managing ownership and indices of ERC721 tokens.

Constructor

Initialises token name, symbol, decimals, and other necessary variables for ERC20 and ERC721 tokens.

Token Minting and Burning

_mintERC20 function for minting ERC20 tokens. _retrieveOrMintERC721 function for minting ERC721 tokens and retrieving from a bank. _withdrawAndStoreERC721 function for depositing ERC721 tokens into the bank.

Transfers

Functions for transferring ERC20 and ERC271 tokens between addresses. Distinguishes between token types based on ID. _transferERC20WithERC721 function handles transfers involving both types.

ERC20 and ERC721 Interactions

Approve function handles approvals for both token types. Functions like transferFrom, safeTransferFrom, and permit handle transfers and approvals.

EIP-2612 Support

Supports EIP-2612 permit functionality for ERC20 tokens.

Interface Compatibility

Implements necessary functions for ERC-404 and ERC165 interfaces, indicating compatibility with ERC20 and ERC721 standards.

Role	Max Number
BP	2N+1, N starts from 8 in 2022
Candidate node	5*(2N+1)
Voter	No limit

Role

Max Number

2N+1, N starts from 8 in 2022

Candidate node

5*(2N+1)

Voter

No limit

Benefits	Description
Makes smart contracts 'smarter'	AI-driven smart contracts can autonomously modify terms based on predefined conditions and real-time data input, ensuring that the contracts are not just automated but also intelligent and self-improving over time.
Levelled up data analysis	Data is the new oil, and AI is the machinery that refines it. It is possible for AI to reduce large-volume blockchain data analysis time by up to 90%.
Boosts security	Through machine learning models, AI can prevent frauds and detect security threats in real time. It can identify potential breaches, predict future threats, and adapt to evolving security measures.
Lowers carbon footprint	AI algorithms help optimise energy consumption in blockchain operations, given the flak drawn by activities like Bitcoin mining.

Benefits

Description

Makes smart contracts 'smarter'

AI-driven smart contracts can autonomously modify terms based on predefined conditions and real-time data input, ensuring that the contracts are not just automated but also intelligent and self-improving over time.

Levelled up data analysis

Data is the new oil, and AI is the machinery that refines it. It is possible for AI to reduce large-volume blockchain data analysis time by up to 90%.

Boosts security

Through machine learning models, AI can prevent frauds and detect security threats in real time. It can identify potential breaches, predict future threats, and adapt to evolving security measures.

Lowers carbon footprint

AI algorithms help optimise energy consumption in blockchain operations, given the flak drawn by activities like Bitcoin mining.

Fund house	Known for	Description
Grayscale Investments	Market leader, extensive experience	Known for pioneering cryptocurrency ETFs
Ark Invest	Innovative approach, tech-forward	Led by renowned investor Cathie Wood
Fidelity Investments	Established trust, large client base	Strong presence in both traditional finance and crypto
VanEck	Diversification, Risk management	Pioneers in commodity-linked ETFs
Invesco	Strong research, broad market reach	Expertise in global ETF offerings
Bitwise Asset Management	Crypto-focused, deep sector knowledge	Early entrant into crypto index funds
WisdomTree	Strategic asset management, innovative solutions	Notable for integrating crypto assets into traditional portfolios
ProShares	ETF expertise, market adaptability	Launched the first Bitcoin-linked ETF in the U.S

Fund house

Known for

Description

Grayscale Investments

Market leader, extensive experience

Known for pioneering cryptocurrency ETFs

Ark Invest

Innovative approach, tech-forward

Led by renowned investor Cathie Wood

Fidelity Investments

Established trust, large client base

Strong presence in both traditional finance and crypto

VanEck

Diversification, Risk management

Pioneers in commodity-linked ETFs

Invesco

Strong research, broad market reach

Expertise in global ETF offerings

Bitwise Asset Management

Crypto-focused, deep sector knowledge

Early entrant into crypto index funds

WisdomTree

Strategic asset management, innovative solutions

Notable for integrating crypto assets into traditional portfolios

ProShares

ETF expertise, market adaptability

Launched the first Bitcoin-linked ETF in the U.S

Pros	Cons
Enhanced Efficiency and Automation	Security and Reliability Concerns
Advanced Analytics and Predictive Modelling	Ethical and Regulatory Dilemmas
New Financial Products and Services	Centralisation Paradox: Power is concentrated in the hands of a few

Pros

Cons

Enhanced Efficiency and Automation

Security and Reliability Concerns

Advanced Analytics and Predictive Modelling

Ethical and Regulatory Dilemmas

New Financial Products and Services

Centralisation Paradox: Power is concentrated in the hands of a few

	Layer 1	Layer 2	Layer 3
Function	Core blockchain operations (consensus, security)	Scaling and efficiency improvements	Application layer (dApps, smart contracts)
Examples	Bitcoin, Ethereum	Lightning Network, Plasma	Decentralised exchanges, NFT marketplaces
Scalability	Limited by design	Enhanced through off-chain processing	Dependent on underlying layers
Security	High, due to decentralisation	Relies on Layer 1 for finality and security	Inherits security from Layer 1 and 2
Primary Role	Foundation of the blockchain network	Alleviates congestion, speeds up transactions	User interaction and functionality

Layer 1

Layer 2

Layer 3

Function

Core blockchain operations (consensus, security)

Scaling and efficiency improvements

Application layer (dApps, smart contracts)

Examples

Bitcoin, Ethereum

Lightning Network, Plasma

Decentralised exchanges, NFT marketplaces

Scalability

Limited by design

Enhanced through off-chain processing

Dependent on underlying layers

Security

High, due to decentralisation

Relies on Layer 1 for finality and security

Inherits security from Layer 1 and 2

Primary Role

Foundation of the blockchain network

Alleviates congestion, speeds up transactions

User interaction and functionality

AI Crypto Project	Category
Fetch.ai (FET)	Decentralised AI
SingularityNET (AGIX)	Decentralised AI Marketplace
Ocean Protocol (OCEAN)	Data Sharing and Monetisation
The Graph (GRT)	Blockchain Data Indexing
Numerai (NMR)	Crowdsourced Machine Learning
Cortex (CTXC)	AI Execution on Blockchain
Golem (GLM)	Decentralised Cloud Computing
NEAR Protocol (NEAR)	Scalable Blockchain Platform
Akash Network (AKT)	Decentralised Cloud Computing
Render Token (RNDR)	Distributed GPU Rendering

AI Crypto Project

Feature	Parallel Execution Scheduling	Sharding
Strategy	Concurrent execution of non-conflicting transactions within a single blockchain	Partitioning the blockchain into multiple shards, each processing a subset of transactions
Advantages	Increased transaction throughput, faster confirmation times, reduced fees	Enhanced scalability, improved network capacity, potential for increased decentralisation
Challenges	Complexity of dependency analysis, potential for security vulnerabilities	Complexity of cross-shard communication, potential for increased centralisation
Suitability	Suitable for blockchains with relatively low transaction volumes or those where maintaining a single, unified state is crucial	Suitable for blockchains with high transaction volumes or those where scalability is a primary concern

DEX	Best For
Uniswap	Largest DEX, high liquidity, popular for trading ERC-20 tokens on Ethereum
AwakenSwap	Multi-chain DEX, user-friendly interface, good for beginners
SushiSwap	Similar to Uniswap, offers yield farming opportunities and staking rewards
PancakeSwap	Leading DEX on Binance Smart Chain, lower fees, good for BEP-20 token trading
Curve Finance	Stablecoin trading and low slippage, ideal for large trades with minimal price impact
Balancer	Automated portfolio management and customisable liquidity pools
1inch	DEX aggregator, finds best prices across multiple DEXs, saves on gas fees
Kyber Network	Instant token swaps and high liquidity, suitable for quick trades
Bancor	Automated market making and single-sided liquidity provision, reduces impermanent loss risk
ZKSwap	Layer-2 DEX on ZK-Rollups, offers faster and cheaper transactions with improved scalability
dYdX	Decentralised derivatives exchange, offering perpetual contracts and margin trading

Feature	Description
Accuracy	High accuracy in data analysis and trade execution is crucial for minimising errors and maximising profit potential
Real-time Analysis	Ability to perform real-time market analysis to seize opportunities as they arise
Backtesting Capabilities	Essential for testing strategies against historical data to ensure reliability and effectiveness
Customisation	Offers flexibility to tailor trading strategies according to your specific needs and market conditions
Security	Strong security measures to protect against hacking and unauthorised access
User-Friendly Interface	Easy-to-navigate interface, allowing even beginners to deploy and manage trades effortlessly
Technical Support	Reliable customer support to assist with any technical issues or questions
Compatibility	Integration with various platforms and brokers for a seamless trading experience
Performance Metrics	Ability to provide transparent and accurate info on historical performance, and key metrics like moving averages. Low latency arbitrage strategies give insights into trading performance and decision-making accuracy.
Cost	The cost of using AI trading bots can vary depending on fee model (i.e. monthly subscription vs commission)

Feature	Decentralised Exchanges (DEXs)	Centralised Exchanges (CEXs)
Security	Higher security due to no central point of failure	Lower security, prone to large-scale hacks
Control Over Assets	Full control over private keys and assets	Users must trust the exchange with their private keys
Regulation	Less regulated, offering more freedom	Heavily regulated, leading to restrictions
Liquidity	Rising liquidity without significantly impacting market price	Higher liquidity, with more users and trading pairs
Ease of Use	More complex, requiring knowledge of wallets and keys	User-friendly interfaces, suitable for beginners

Benefit	Description
Expands smart contract capabilities	AI oracles enable smart contracts to access and process real-world data, significantly broadening their potential use cases beyond simple on-chain transactions
Automation and efficiency	By automating data retrieval and validation, AI oracles streamline processes, reduce manual intervention, and improve efficiency across various industries
Trust and transparency	AI oracles, especially decentralised ones, enhance trust and transparency by providing verifiable and tamper-proof data sources for smart contracts
Innovation and new possibilities	The combination of AI and blockchain through oracles opens up new avenues for innovation, enabling the creation of decentralised applications that were previously unimaginable

Building the Web3 AI Ecosystem: The Role of Layer 1 Blockchains

1. Secure and Transparent Data Storage

2. Decentralised Computing Power

3. Coordination and Collaboration

4. Tokenisation and Incentives

Challenges and Considerations

Unlocking AI's Full Potential in the Web3 and Blockchain Space

About aelf

Best Tools and Platforms for Creating AI NFTs: Step-by-Step Guide

A Guide to How AI Oracles Work in Blockchain