We are happy to announce MarketStore is now open source! MarketStore is a database server optimized for financial timeseries data written in pure Go, designed and developed by Alpaca. You can think of it as an extensible DataFrame service that is accessible from anywhere in your system, at higher scalability.Read More
Working for an AI centered algorithmic trading company has allowed me to gain insight on the two most disruptive industries of modern day: AI and finance. This precise positioning in the middle of so many up and coming industries has given me a unique perspective regarding the future of artificial intelligence and crypto trading.
What Is the Hype Cycle?
Great picture explaining the hype cycle from Wikipedia
To begin to understand the opportunities associated with these two technologies, we first must comprehend the hype behind them. Gartner, a prominent IT research firm, spearheaded the hype cycle concept, outlining 5 key phases that a trend goes through. This theory has been proven to work, as there are many examples of trends that have fallen into this established pattern. Not everything is the same, of course, but you can use the patterns this cycle to predict where a particular trend will go. A fascinating part of this trend is that in order to join the mainstream hype, a technology needs to experience both an upward peak and a downward trend of disillusionment, exhibiting an oscillating volatile nature.
The Hype Cycle In Action: The DotCom Bubble a.k.a. Internet
One of the best parts of living in Silicon Valley is that you can hear the real, raw stories about the historical moments that have taken place in technology. I have several friends who experienced the notorious DotCom bubble hype.
The crazy uptrend started in the 90’s where people, especially in the tech space, started to claim there would be the new type of economy within the digital world, one characterized not by tangible products and profit rather an idea of a new way of doing business. Some people compare it with today’s ICO hype, as many of the current ICO projects don’t have real products yet manage to raise considerable amounts of money.
It took roughly 20 years for the Nasdaq index to reach its previous peak in 2017. During that time period, companies like Google, Apple, Amazon and Facebook grew and flourished, and our entire lifestyle was transformed by the Internet. Let me emphasize this again. It took a full 20 years for the original vision of the internet to come to fruition, even with super-smart, hard-working innovators.
How did Crypto Start?
Now let’s turn to crypto. 2017 was a great year for the crypto space, as bitcoin prices not only soared 1,000%, but more importantly, the philosophy behind the bitcoin and blockchain technology traveled into the mainstream hype. Even my mom has now heard about it.
It is easy to mistakenly think that crypto is a quite recent trend, but the Bitcoin paper by Satoshi Nakamoto was actually first published in 2008. It took almost ten years for this trend to enter people’s daily lives and affect the common person. Over the last decade, so many risk-takers have put in enormous efforts to push this once naive technology to such a level, applicable to a wide range of things, from easy-to-use wallet systems to merchant spending infra. If you haven’t checked out the documentary video Banking on Bitcoin by Christopher Cannucciari, which offers a fantastic overview of the origins and path of Bitcoin, I strongly recommend watching it.
And Where Is Crypto Today?
If you are not too young, you might remember the prominent event in the bitcoin history about Mt. Gox case. It was 2011 when the firm suffered a security breach and lost almost all of their customer assets. By 2013, I was starting my own startup and had couple of friends in the bitcoin startup community, but I was completely out of the loop regarding the growing mainstream bitcoin hype. I never imagined bitcoin would be something my mom would talk about in 5 years. Note that this 2011–2013 time horizon was a full 5 years after the publishing of the Bitcoin paper, and even bitcoin connoisseurs like me never fathomed the recent crypto craze would occur.
With this being said, I still have no clue what the future that the crypto will be making in the next 10 years. Who could have imagined you would be able to connect with your high school friends through Facebook, and Amazon would start something called cloud business leveraging their online bookstore infrastructure, 20 years back? I’ll be humble and admit I probably don’t know how crypto technology will change the world exactly. People are excited about the opportunity behind this technology as well as how it can change the economy, and some anarchists go as far as to say that our entire sense of governments will be disrupted. The only thing I can say at this point is that this crypto trend just passed the peak of excitement, and will probably see a huge depression over the next few years, as the hype cycle predicts, but will see bigger impact over the next 10–20 years.
When Current AI Boom Started?
It is a very well known fact that the current AI trend is actually the third one in the AI history. The first one started right after the modern computer was born in 60’s-70’s, and the second one arose in the 90’s, when new theories arose. These two AI booms were significant but never reached full fruition, as the computing power was just not enough to accomplish what was aimed by them.
The third era emerged from the memorable 2012 ImageNet competition when the Deep Learning approach by the Toronto team outperformed any other previous techniques by far and approached the human recognition level. Some later research identified the use of GPU realized the theoretic idea with realistic cost. GPU, of course, is only one of many hardware approaches like FPGA, but it did prove that computation power had caught up to theory to some extent.
Since then, the chip maker nVIDIA has jumped into the space, turning itself from a game company to an AI business. Google established the Google Brain project, hiring many top-notch brains from academia, competing with companies like Baidu in self-driving car space, as well as beating human champion of Go by AlphaGo, backed by so many trials and errors with acq-hired startups. Around 2014–2015, we also saw the nativity of many Deep Learning startups that either don’t exist anymore or acquired by big players, around us Alpaca.
And Where Is AI Today?
It’s 2018 and it’s been only less than 6 years from the ImageNet shock. If you compare the bitcoin space, it is around the time Mt. Gox was in trouble and I had no clue what they were talking about. I can now see that AI may have some trouble soon; we are already starting to see technologies in this space fall short of what we expect, such as un performing chatbots self-driving cars, but we will just have to wait and see exactly how the AI trend as a whole plays out.
The best time to invest in AI is right now, based on the lessons learned from crypto. If you compare this trend with the internet boom, it’s either even before the bubble, or in another angle it is only around 2003–2004 where things like Google came out to the mainstream. I sometimes see that people think AI means Deep Learning, but that is not true; it is also not just playing Go or self driving cars. Artificial intelligence possesses a myriad of opportunities and applications, and has the potential to change every aspect of the human life, including finance; we have no idea the potential impact of this monumental technology. There are many leaders who offer specific insights and arguments regarding the future of AI technology, such as Elon Musk or Mark Zuckerberg. They predict it could kill people or there will be singularity. The only thing I can say for sure is that we are underestimating the impact of this trend, and we can only surely determine its effects 20 years from now. Today, however, Alpaca can take pride in the fact that we are the ones that are pushing the boundaries into this undefined space of innovation, paving the way for a new world full of possibility and innovation.
“There is only a “one in billions”chance that we’re not living in a computer simulation. Our lives are almost certainly being conducted within an artificial world powered by AI and highly-powered computers, like in The Matrix” — Elon Musk
Over the last ten years, technology has rapidly changed in two major and distinct ways: it has become more interconnected and more personal.
These technological transformations have seeped into the personal finance service industry, changing the way we invest and trade. Here at Alpaca, we understand the changing nature of trading and how this impacts what consumers want and need in their investing tools. Our data needs to be updated in real time, easy to interpret, and personalized based on our unique interests, investing strategies, and portfolios. This desire for a more personalized technological experience coupled with the interconnected nature of technology has cultivated the perfect atmosphere for artificial intelligence to thrive.
The Last Decade: From Desktop to Mobile
The trend first began with the smartphone, when Steve Jobs announced the first version of iPhone on his stage at WWDC 2007. BlackBerries and PDAs had existed by that time, but most thought that you couldn’t do much with these handheld devices and computer abilities were reserved for desktops.
Then came the debut of the iPhone, with its huge touch display and minimalistic home button, unlike any other previous handheld devices that tried to conglomerate keyboards and other desktop elements into one device. Originally, we were astounded by the multi-functionality of the smartphone. Never before had we been able to take notes, receive real time news alerts, talk to friends, and scroll through social media all on one device; our tasks became aggregated into one small, incredibly valuable piece of technology. The moment I held my first iPhone, I felt a sense of power and access like never before; the entire Internet was resting in my hands. It was not a mini-version of Desktop computer. It was something different.
Since then, everyone has rushed into the rising mobile app space, finessing to win over consumers with products that provide immersive, distinct experiences. For the first half of this decade, many of those involved in Desktop computing laughed at the smartphone, claiming it was merely a toy.
A decade later, these critics are almost laughable; the smartphone is so much more than a toy. Every generation, from children to seniors use smartphones in daily life, and Desktops are only used in offices. We have also seen immense growth in digital products and services, as commerce and marketing has moved to the mobile scene.
This small, handheld device has immense power over our society, as all of our tasks have been aggregated to the smartphone. Young people have stopped reading physical books, insisting on utilizing mobile apps on their smartphones instead. People write novels and take notes on mobile devices, and are able to make power point presentations and art sketches from the tips of their fingers. The mobile phone has become the center of urban human life, despite lots of reluctant critiques at the beginning. The book Innovation’s Dilemma shares an anecdote from the 80’s demonstrating this fascinating progression of technology. It delves into how computers were started off as huge machines located in the basements of buildings. The typical desk worker had no idea what is was or how it worked. All the tech giants laughed at the premiere of Desktop computers, claiming nobody would use such humungous, confusing technology. As we can all attest to today, these tech giants were quite wrong.
The advent of this multi purpose masterpiece changed our society in ways we are still only beginning to understand. The smartphone not only effectuated great societal change, but additionally has engendered further innovation in the device industry, spawning the creation of other multi functional devices. In addition to your iPhone, you can also extensively track your steps and heart rate on your Apple Watch, play music with your Amazon Alexa, read on your Kindle, and do work on the go on your tablet. The crazy thing about these new devices is that they are all connected virtually to the Internet and share intelligence in cloud. In a sense, every device you have shares a brain, and can remember you and your preferences no matter if you are on your Apple Watch or your Google Home.
One can think of IoT not as the internet of things, but rather the Internet of Humans; built specifically for us and all of our needs, crafting an intricate web across our worlds. The IoT market is teeming with opportunity and diversity; we are seeing the introduction of this interconnected technology in several industries. In the smart speaker industry, Google, Amazon, Sony, and Apple are just a few of the players fighting to set their intelligent, products apart from the others. Automobile wise, high end cars are now equipped with some sort of intelligence connected to the internet, improving the infotainment system in the car.
From these examples, we can see how the nativity of these interconnected, cloud utilizing devices has presented customers with something we previously did not have: a choice. We used to just have our smartphone and maybe our computer, but now we have a plethora of multifunctional devices to work on, socialize with, and use. Our device of choice depends on our preferences; but the key benefit of the IoT is that no matter what device we choose to use, it will remember who we are and provide a personalized experience.
The New Wave of Applications for the IOT Age
The IOT age has bread a new wave of applications built to assist on multiple platforms, most notably the introduction of Chatbots. Some of the top-running bots are already available on many devices, such as Desktop computers, smartphones, and slack. Some are reluctant to trust the capability of these bots and their future integration into our lives, but I urge you to maintain an open mind. Just as the computer and smartphone became integrated into our culture, soon too the chatbot will be just another part of our society and technological experience. We will see another paradigm shift: from the current mobile movement to a new age dominated by AI.
In this new age, people enjoy the plethora of device options, using them interchangeably . You may ask for a reminder from your watch and get a notification on your Desktop while in the office. There is one particular challenge, though, from the product standpoint; the user interface. We only have a few choices to provide the same experience, that can equally work in big screens, mobile, watch and voice-oriented systems. That is language-based approach and that’s why AI is going to be important.
Evolution of AI and Personalization
Personalization could mean lots of things. With personalization comes the certain challenges, as each device is designed differently and boasts specific functions. Some may possess high quality visual aspects, and some may only have voice output. We must be aware of the limitations and advantages of each device in order to fully optimize and distinguish each experience. Brand new devices struggle to easily enter the societal norm, because with a technology comes an idea of the user experience. Although the idea of wearing a computerized watch was weird at first, people got used to it and now not having a watch that can tell you the weather and notify you of a snapchat is strange. Similarly, the idea and experience of virtual reality will soon become accepted by society, as people get used to the Facebook Oculus and Google Dream experiences.
In order for us to build a personal finance service that thrives in this IoT atmosphere, we must incorporate artificial intelligence so we can understand each user and personalize information correctly. Artificial intelligence allows us to incorporate the growing demand for a personalized and interconnected experience. Here at Alpaca, our AI centered product satisfies these two demands, as we have created a virtual personal finance assistant that works on several devices and uniquely caters to the demands of each user. For an automated service to personally work with users, AI is the only way.
We have intensively researched many Initial Coin Offering (ICO) projects to develop a complete understanding of the cryptocurrency movement. Central to this movement are its enthusiasts and critics. Some people claim cryptocurrencies are transforming the world, and every single payment in 2050 will be done with Bitcoin. Alright. Others rattle on about the novelty of blockchain and how it will disrupt the traditional distributed system software world. Maybe. An almost palpable level of uncertainty surrounds the crypto bubble, making it impossible to accurately predict what will happen in the next ten to twenty years. The one thing we can count on, however, is that finance will grow to influence our lives even more than it currently does. In other words, finance will “eat everything.”
Software Ate Everything
Why is finance a hungry beast that will soon take over every aspect of our lives? Let’s step back a bit in time to 2011, when Mark Andreessen, hailing from the top Venture Capital firm Andreessen Horowitz, published his insightful piece “Why Software Is Eating Everything.” In this article, he claims that the software industry will transform every industry, effectively turning every company into a software company in some respect. At that time, Amazon was a simple book store built on software, and Apple and Spotify were just beginning to changing the music industry through software and internet services. Seven years later, almost every company in any industry utilizes software. Take Walmart, for example. This manufacturing giant has invested millions in software and data processing, simultaneously expanding their online business. GE is building what they call ‘Predix’ to automate and improve decision making through predictive analytics in the IoT. The automobile industry has participated in this software boom by incorporating high tech censoring and auto-pilot systems into cars. The Biotech scene has jumped on board the software craze, taking advantage of novel data analytic tools to link human behavior to certain genetic characteristics. Even from a few examples, we can easily see that he was right: software ate and is still eating everything.
Finance Will Eat Everything
Fast-forward to today. People theorize about scam ICO projects lacking real products, and question whether the SEC will end up regulating it just to please such theorists. Others look at it from a crazed, profit hungry perspective, speculating how to gain 100% profit from alt-coins before the bubble bursts. I strongly believe that these misguided focuses are not the point of this movement. The true value of the ICO movement lies in how it has simplified incentive systems with micropayment and decentralized all networks.
What does this even mean? Say, for example, you are the owner of a video sharing site where people contribute small amounts of daily content available for subscribers to watch. As the owner of said business, you face a complex problem regarding customer generation: you need to have interesting content to attract new users, but in order to obtain this content you need to have users to produce it. Additionally, this business highlights the complexities that come with an online business, mainly the trouble tied to universal payments and incentive systems. Now, with tokenization, we can simultaneously safely charge subscribers, or content consumers, and reward content producers with a trusted, universal payment system. This creates incentive for content producers, and makes it easy for content consumers to pay. Using fiat currency, such as USD or JPY, complicates this process for a few reasons.
First of all, as a global, online business, it is hard to choose one currency over another. The US dollar is not the only currency used in the world, and it also becomes hard to tie a value to content when you have several different currencies. Even if the network grows, you as a business owner will struggle to understand such growth, and more importantly content consumers and producers will suffer from this lack of uniformity. Using a token places a value on content that everyone can understand, and also avoids relying on a central authority. With decentralized incentive system backed by blockchain technology, essentially, anyone can build a marketplace with products whose values are fairly traded and defined; payment to producers and payment by consumers is streamlined, no matter the size of said network, something that used to be impossible with traditional tools. Just as software took over every business and industry, this decentralized incentive system will permeate into virtually every business.
Financial services is no longer a separate industry; rather, all businesses will embed some degree of financial services into them through these decentralized payment systems.
Some may say that the traditional financial services industry is becoming less relevant and important, as the inception of decentralized payment systems will decrease it’s importance and relevance. On the other hand though, this transformation of the financial services industry makes every business a financial business. Just as software is intrinsically incorporated into all businesses, financial services will soon be at the heart of every business.
As someone who used to work for an investment bank, this is shocking. At the same time though, it’s also super exciting that we are living in such a thrilling age full of innovation and change. This movement is so much more than just a volatile and exciting game of alt-coins fluctuating on the daily; it is an ICO and tokenization revolution. Finance will eat everything.
I watched the movie The Big Short to learn more about the financial industry. For those who are unfamiliar with the movie, it’s a non-fiction depiction of the 2008 subprime shock from different people’s standpoints, ranging from a garage-size hedge fund to the elite figures dominating Wall Street banks. Even if you aren’t involved in the finance industry, it’s quite crazy to see the crisis from the insider perspectives. I connected with this movie on a deep level, as this crisis was my reality as a guy who used to work on securitization for Lehman Brothers.
Lehman was my first full time career in the financial industry. As a young twenty something employee, I was pretty naive and somewhat clueless about the true repercussions of my job. Not only my direct job as an investment banker, but more so my role in the larger scope of the global financial system, and how this system is uniquely and intrinsically related to the lives of every single person. I did not understand the consequences of the numbers I was crunching, nor their impact on other people. My sense of naivety is poetically expressed in the movie through the words of Brad Pitt, who plays a seasoned Hedge Fund manager.
“If we’re right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions. You know what I hate about f*cking banking? It reduces people to numbers — every 1% unemployment goes up, 40,000 people die, did you know that?”
Brad Pitt’s character unveils the paramount idea of how small numbers in the finance world are inherently connected to real world things and people. I did understand this, and was in a sense numb to the consequences of my job.
My ignorance was short-lived, however, and my perspective has greatly changed since that time of my life. Now a California resident struggling with the ridiculous cost of living, I feel more in touch with the real world and its struggles. I run a startup and am frequently in contact with a multitude of investors, more specifically Venture Capitalists. Their ultimate goal is to make money by investing in small startups, hoping they will become unicorn companies with one billion dollar valuations. They are obsessed with numbers and ratios, constantly asking about market size, number of potential customers, average dollars per year per customer, and cost of customer acquisition. Asides from these numbers surrounding the business itself, they are engrossed by the number of shares they would gain by investing x dollars, and most importantly how much they would gain from said investment.
Despite this strong quantitative focus, it’s not all about the numbers. They love to hear about founder’s story. What kinds of problems did you find and how did you come up with your solution? Did you start off in ad-tech, recognize a widespread problem plaguing the industry, and carefully formulate a software solution? Were you a genius machine-learning engineer at one of the top-notch companies who found data cleansing a waste of time? Are you a mother who had trouble finding a suitable nanny in the midst of a busy career? These stories are critical when it comes to the final investment decision, which makes complete sense. Numbers are not the only thing driving the brilliance of an idea: it is the story behind these numbers and the fundamental idea the company is founded on that truly matters.
Here at Alpaca, our investors are typically in the retail trading field. They use a few different approaches to value our company and its potential opportunities, performing deep technical and quantitative analyses. However, as we dig more into their decision making process, it becomes clear that many, if not most, retail traders equally value more qualitative measures, considering the market as a whole and the story of the company. One of our friends says “I bought the shares of this semi-conductor company since I believe their products will be demanded in this coming cloud age” and another insists “oil and gas sector is my best investment since I think that won’t go anywhere as far as we transport human and goods.”
As we enter 2018, people are constantly talking about the great potential of AI and bots in the financial industry. Goldman Sachs reportedly reduced the number of human traders down to a few from hundreds. Although there is this focus on computers and numbers, investment decisions are at the end of the day, influenced at least partially by human emotion and psychological factors. Here at Alpaca, we strive to help maintain this well rounded investment strategy, balancing quantitative and qualitative elements. We have crafted an AI bot in order to help humans make better investment decisions and thrive. We think beyond the numbers, and truly care about creating a world where humans can utilize AI’s to lead happier, more fulfilled lives.