Numerai Numeraire is a cryptographic token designed to coordinate machine intelligence and disincentive overfitting. The token was created by Numerai. Find out more about Numerai today in our review.
What is Numeraire?
Numeraire, found online at Numer.ai, is a cryptographic token that solves crucial problems in the machine learning industry. Specifically, machine learning competitions are susceptible to intentional overfitting. Numerai – the creator of the Numeraire token – has a solution that involves a novel auction mechanism to make overfitting economically irrational.
The auction works by leading to equilibrium bidding behavior, revealing rational data scientists’ confidence in their models’ ability to perform well on new data. Using the auction mechanism, you can also see natural arguments for the economic value of a Numeraire token.
This bidding and AI system leads to the construction of an artificial intelligence hedge fund. In a recent writeup, Forbes called Numeraire “the world’s first cryptocurrency issued by a hedge fund.”
The company was created by Richard Craib, a 29-year old South African. Craib and his team built the technology that masks the fund’s trading data before sharing it with a vast community of anonymous data scientists.
Obviously, all of the above is a little complex, and it may have gone over your head. In layman’s terms, Numerai has created a platform that encourages financial firms – like hedge fund managers – to work together anonymously to improve hedge fund management. Together, this organization is anonymously creating a machine learning AI capable of more efficiently managing financial securities.
The reason Numerai needed to create the Numeraire token is because financial organizations don’t typically work together for mutual benefit: it’s a highly competitive industry that disincentives the sharing of information. Numerai has created a system where data scientists can work together using encrypted, anonymous blockchain technology to continuously improve machine learning artificial intelligence.
Still following me? Let’s take a closer look at the Numerai technology and platform.
How Does Numerai’s Technology Work?
Numerai essentially uses artificial intelligence to build a smart, autonomous hedge fund that works in anonymous ways based on data collected by anonymous data scientists.
The platform relies on a method similar to homomorphic encryption. The technology works to ensure that the scientists can’t see the details of the company’s proprietary trades. However, scientists can build machine learning models that analyze trades, and, in theory, learn to trade financial securities more efficiently.
Essentially, Numerai gives away detailed trading data to data scientists. However, before giving away that data, the data gets converted into abstract form. Scientists can build machine learning models for the data “without really knowing what they’re doing”, explains Craib in an interview with Wired.com.
These data scientists remain anonymous. Craib and the team behind Numerai don’t know who these data scientists are before they’re recruited online.
Data scientists are paid for their work in a digital currency that can preserve anonymity.
Why do data scientists get paid? Well, any of these anonymous scientists can submit predictions to the Numeraire team. If those predictions work, the data scientists get paid in Numeraire tokens – a totally anonymous payment method.
Ultimately, as mentioned above, this leads to a more efficient way of trading financial securities.
Numerai isn’t the first company that’s explored the use of machine learning algorithms in regards to hedge fund management. Major Wall Street names like Renaissance and Bridgewater Associates, along with tech startups similar to Numerai, have explored the use of machine learning in hedge funds. What makes Numerai different, however, are its efforts to crowdsource the creation of machine learning algorithms.
The Numeraire Cryptographic Token
Numerai has created a cryptographic token called Numeraire. That token is an ERC20 Ethereum token. Like other Ethereum tokens, it’s represented as smart contracts executed on the Ethereum blockchain.
The source code for Numeraire tokens are available to the public. All minted Numeraire are sent to Numerai. Using Ethereum’s smart contracts, Numerai has ensured there will never be more than 21 million Numeraire in circulation.
How will those Numeraire tokens be used? 1 million tokens will be sent to data scientists based on their historical ranking on Numerai’s leaderboard. After the initial distribution, the smart contract will mint a fixed number of Numeraire each week until the maximum amount is reached.
Data scientists can earn Numeraire on an ongoing basis in exchange for performing well in Numerai’s machine learning competition.
Numerai was created by Richard Craib and his team. The 29-year old Craib studied mathematics at Cornell University in New York before working for an asset management company in his native South Africa.
Other key members of the team include Geoffrey Bradway, Xander Dunn, and Joey Krug. The Numeraire whitepaper was published online on February 20, 2017.
In addition to the core team, Numerai relies on a network of data scientists. In December 2016, an estimated 7,500 data scientists had contributed to the project to build the hedge fund’s brain, as reported by Wired.
Numerai Numeraire Conclusion
Numerai is a unique platform that incentivizes users to create smarter machine learning algorithms that can be used to manage hedge funds. The innovative San Francisco-based startup aims to solve a crucial problem in the hedge fund and machine learning communities: machine learning competitions are susceptible to intentional over-fitting. Using the Numeraire cryptographic token, the company has created an auction mechanism that makes over-fitting economically irrational. It’s introducing the benefits of network effects to the world of high finance – something that hasn’t previously been done.
The ultimate goal of Numerai is to crowdsource the creation of machine learning algorithms that manage hedge funds more efficiently. That leads to smarter management of financial securities.
Obviously, Numerai is a complex operation that dives deep into blockchain and mathematics technologies. You can read a more detailed explanation of the Numerai platform at their whitepaper here.