What are AI agents, and how do they work in crypto?

AI agents in crypto explained

AI agents in cryptocurrency refer to automated software programs designed to execute specific tasks on behalf of users. 

These autonomous onchain agents leverage artificial intelligence (AI) to interact with blockchain protocols, enabling a range of functionalities such as trading, swapping tokens, managing portfolios and engaging with decentralized finance (DeFi) platforms. 

By automating complex processes, AI agents can help users optimize their strategies, reduce manual errors and execute transactions quickly and efficiently.

The rise of AI agents in crypto aligns with the broader trend of integrating AI into various sectors, enhancing the capabilities of smart contracts and decentralized applications (DApps). These agents can analyze vast amounts of market data, identify trends and make informed decisions without constant human oversight.

How can AI agents drive automation in crypto?

AI agents can make crypto more accessible, secure and efficient, transforming how users manage their digital finances.

• Automated financial management: AI agents can take charge of your finances, making trades and managing your portfolio while you sit back and relax. It’s like having a personal financial adviser on autopilot.
• Efficient transaction handling: AI agents can handle millions of transactions simultaneously, allowing for faster trades and more sophisticated strategies, keeping up with the fast-paced crypto market.
• Personalized financial assistants: Think of an AI that not only recommends services but also takes care of payments and bookings — making your financial life easier.
• Natural language transactions: You can interact with your finances using simple text commands. Tell your AI what you want, and it handles the complex operations for you.
• Enhanced security: With advanced technologies like multi-party computation (MPC), your transactions are extra secure, protecting your assets from unauthorized access.

Coinbase CEO Brian Armstrong has been a vocal advocate for using AI agents in crypto, even suggesting that the future of blockchain transactions may increasingly involve these automated entities, reflecting the growing intersection of AI and blockchain technology.

What is the Based Agent?

Coinbase introduced a new tool called “Based Agent,” which allows users to create their own AI agents in under three minutes.

Based Agent is an AI-driven autonomous agent that connects with the Base L2 using the Coinbase Developer Platform (CDP) and OpenAI’s Swarm. It allows users to perform onchain tasks like deploying NFTs, creating tokens and transferring assets.

According to Lincoln Murr, a developer at Coinbase, the Based Agent template enables users to easily integrate smart-contract functions and execute trades, swaps and staking activities.

To get started with Based Agent, you need the following:

• An API key from Coinbase’s developer program.
• A key from OpenAI.
• A template provided by Replit.

This streamlined approach democratizes access to AI capabilities in the crypto space, empowering users to automate their trading strategies and build AI-powered bots that can perform onchain tasks.

But can AI agents have crypto wallets? 

Yes, AI agents can have their own crypto wallets, enabling them to perform various transactions on the blockchain. For instance, the Based Agent template serves as a straightforward application for creating autonomous AI agents equipped with crypto wallets and onchain access. 

Did you know? Replit is an AI-powered software development and deployment platform designed to help developers build, share and ship software quickly. Coinbase’s Based Agent Replit template is available here.

Step-by-step guide to create an AI agent using the OpenAI Swarm Framework and Coinbase’s CDP

Steps required to build your AI agent with a crypto wallet include setting up the development environment, obtaining API keys, configuring your project, understanding the code structure and extending capabilities.

Here’s how to build your AI agent with a crypto wallet using the OpenAI Swarm Framework and Coinbase’s CDP by following a simple step-by-step process.

Step 1: Set up your development environment

• Fork the template: Start by forking the template from the Based Agent Replit.
• Create a Replit account: If you don’t have one, sign up for an account.
• Modify your project: Once you’ve forked it, you’ll have your own version of the project to customize.

Step 2: Obtain required API keys

Coinbase CDP API key:

• Go to the CDP Portal.
• Create a new project and generate an API key. Make sure to save both the key name and private key.

OpenAI API key:

• Visit the OpenAI Platform, sign up or log in.
• Go to the API keys section and create a new key.
• Fund your account with $1 or $2 for testing.

Step 3: Configure your environment

In your Replit project:

• Access “Tools” in the left sidebar.
• Select “Secrets” to store your API keys securely.
• Add your Coinbase and OpenAI keys as secrets, as shown in the image below.

Step 4: Understand the code structure

• Core functionality: Familiarize yourself with the main functions that enable blockchain operations, such as transferring assets and creating tokens.
• Operation modes: Review how to interact with your agent through different modes, including direct command line interaction (chat mode), independent operation (autonomous mode) and conversation between OpenAI and Based Agent (two-agent mode).

Did you know? The Based Agent template includes two key files: agents.py, which handles the core functionality of the AI agent for blockchain operations, and run.py, which defines the different operation modes for interacting with the agent. 

Step 5: Extend agent capabilities

• Think about new functionalities you want to add to your agent to enhance its capabilities.
• You can integrate these new features by updating the agent’s function list (in agents.py file) with your additions.

Risks of AI agents in crypto trading

AI agents in crypto trading pose risks such as algorithmic bias, security vulnerabilities, regulatory gaps and potential market manipulation, necessitating caution from investors.

One notable example is Truth Terminal, an AI bot that promotes memecoins like Goatseus Maximus (GOAT). While it can create buzz and drive prices up, this hype often lacks any fundamental support, making investments highly speculative.

Another risk is the potential for algorithmic bias, where the AI might favor certain narratives or projects, creating echo chambers that mislead investors about a token’s value. This can lead to irrational exuberance and unsustainable price spikes.

There’s also the risk of market manipulation, where AI tools could be used to execute pump-and-dump schemes, leveraging automated trading to distort true market values. 

Additionally, the lack of regulatory oversight for AI-driven promotions means that unscrupulous actors can exploit these technologies without accountability. 

Finally, security vulnerabilities are a concern; if an AI agent is compromised, it could manipulate trading strategies or market perceptions in harmful ways. As the landscape evolves, staying informed and cautious is more critical than ever.