The AI “Sputnik Moment,” DeepSeek, and Decentralized AI (Artificial Intelligence)

WOM B&W
Will Ogden Moore
Zhao B&W
Michael Zhao
  • The launch of DeepSeek’s AI model has been called a "Sputnik moment,” highlighting an international race for AI supremacy as well as the power of open-source technology.
  • At the same time, the news highlights risks associated with centralized AI development, like data security, biases, and censorship. Risks associated with centralized AI companies can potentially be addressed by blockchain-based AI platforms like Bittensor.
  • Bittensor helps facilitate the development of open and global AI systems through the use of decentralized networks and economic incentives. By leveraging blockchain technology and a global network of participants, platforms like Bittensor can potentially increase transparency, democratize access, and distribute ownership of AI systems. 
  • Grayscale offers eligible accredited investors exposure to Bittensor through the Grayscale® Bittensor Trust, the leading investment vehicle1 that enables investors to gain exposure to TAO, the token underlying the Bittensor platform. Investors may also gain exposure to TAO and other assets within the broader decentralized AI theme through the Grayscale® Decentralized AI Fund. Holdings are subject to change without notice.

What happened

Recently, China-based startup DeepSeek launched an open-source Artificial Intelligence (AI) model that matches or surpasses leading models like OpenAI’s o1 in performance.2 Impressively, DeepSeek achieved this with significantly less computing resources and reportedly spending just around $5 million to train the model — a fraction of the hundreds of millions spent on training by OpenAI.3 By January 27, DeepSeek overtook OpenAI’s ChatGPT on the Apple App Store rankings.4 

Tech leaders are calling this AI's "Sputnik moment" — we are potentially witnessing a modern Space Race between China and the U.S. in artificial intelligence.5 The emergence of DeepSeek caused a historic sell-off in tech stocks, with Nvidia, Microsoft, and others losing billions in value, as it forced investors to possibly reconsider previous assumptions about this powerful emerging technology.6

However, while the DeepSeek breakthroughs show the power of open-source AI, they also have brought greater attention to the risks of centralized control and development of AI technology. Immediately following news on the company’s new model performance, DeepSeek fell victim to a large-scale cyberattack, prompting the company to temporarily restrict user sign-ups.7 This incident highlights vulnerabilities inherent in centralized systems — including the risk that cyberattacks can interrupt service. Distributed systems can potentially enhance network resilience by spreading responsibility across multiple entities. Decentralized development of AI models may also help reduce bias and improve transparency for this crucial technology. 

In this piece, we’ll explore these risks related to the development of centralized AI and detail how decentralized AI platforms like Bittensor can aim to address them. We’ll also explore Bittensor’s progress to date and the potential implications of DeepSeek on broader development within decentralized AI.

The Risks of Centralized AI

Network effects and intensive capital requirements have led to many AI developers outside of large tech companies, such as small companies or academic researchers, either having difficulty gaining access to needed resources for AI development or being unable to monetize their work. This may limit overall AI competition and innovation. 

Influence over this critical technology is therefore largely concentrated in the hands of a few tech giants, leading to serious questions about censorship and bias. For example, in February 2024, Google’s AI image generator Gemini revealed racial biases and historical inaccuracies, illustrating how companies can manipulate their models.8 Notably, these concerns extend to DeepSeek. Some have claimed that DeepSeek’s model has “clear pro-Chinese Communist Party bias” as it censors certain content critical of the government — for example, it refuses to respond to questions regarding the 1989 Tiananmen Square incident or Chinese President Xi Jinping.9

This begs broader questions about AI governance. A small handful of people wield control over the companies developing the few models that may increasingly shape and influence society. As AI grows in influence and importance, many worry that one company or government could hold decision-making power over the AI models that have an outsize influence on society, potentially imposing guardrails, operating behind closed doors, or manipulating models to their benefit — but at the expense of the rest of society. 

How do we ensure that we can trust the models we use with our data? Lacking true transparency — and with the stakes so high — how can we trust that these innovative technologies are being built in our best interests and not at our expense?

Decentralized AI and Bittensor

Enter decentralized AI: a potential solution to these challenges. By leveraging blockchain technology and a global network of participants, platforms like Bittensor can increase transparency, democratize access, and distribute ownership of AI systems.

Grayscale Research believes that decentralized AI holds the potential to bring important decisions regarding AI development out from walled gardens and into public ownership. We believe that Bittensor offers a compelling solution as a key decentralized AI platform poised to help address these risks and provide a viable alternative to centralized AI incumbents.

What is Bittensor

Bittensor is a platform that helps facilitate the development of open and global artificial intelligence systems using decentralized networks and economic incentives. It aims to create an "Internet of AI" with interconnected ecosystems called “subnets,” each focusing on a different specific use case. Currently, Bittensor has over 50 subnets, spanning a wide range of applications and use cases, including video generation, AI agents, and deepfake detection. Here is how Bittensor attempts to address the concerns related to centralized AI:

  • Aligning Economic Incentives: Centralized AI companies prioritize shareholder value and profit, often resulting in value extraction from users. In contrast, through use of its TAO token, Bittensor aligns incentives between ecosystem participants, including its users and tokenholders.
  • Permissionless Access to Build and Use AI: Many centralized AI platforms often have high barrier to entry for developers. In addition, as AI becomes more powerful, there could be increasing restrictions around who can build or access these applications. Bittensor offers an alternative where permission is not needed to access resources to develop and use AI. 
  • Open-Source Monetization: While open-source AI models like DeepSeek’s R1 and Meta’s Llama offer benefits, open-source AI still largely struggles with monetization and coordination. Bittensor helps address this issue through TAO token emissions, allowing AI developers monetize and fund their work.

We believe Bittensor’s token (TAO) provides a particularly compelling investment right now because of the following:

  • Potential to address concerns related to centralized AI outlined above
  • Progress so far onboarding ecosystem investors like Yuma and subnet builders like Masa (data scraping and AI agent arena), Dippy (AI roleplay app), and Kaito (decentralized search)
  • The dynamic TAO (“dTAO”) upgrade slated for February10, which would enable investment in individual subnets; we believe this could inject a wave of new liquidity into the Bittensor ecosystem

The Broader Decentralized AI Landscape

Just recently, some may have thought that open-source AI would always lag behind the best-performing closed-source models offered by tech giants. DeepSeek shows that this is not necessarily the case going forward; key AI innovation does not need to be done in silos and trickle top-down.

Grayscale Research expects that a wide variety of decentralized AI assets may benefit. The DeepSeek development could spur widespread improvements across decentralized AI as efficiency gains are learned and applied. Access to DeepSeek’s highly performant, open-source model reduces costs and lowers the barrier to entry for many open-source decentralized AI projects, particularly at the application layer.11

We are already seeing this take place. For example, decentralized AI agent launchpad ai16z is already allowing for agents building with its ELIZA framework to access DeepSeek’s model.  On January 27, Venice.ai, a decentralized application that offers access to the DeepSeek model while retaining users’ data privacy on their local devices, launched its token, which reached a valuation of over $1bn within two hours of its launch.13

Conclusion

As developments like the emergence of DeepSeek continue to shape the landscape of AI, the race for international tech supremacy, and society as a whole, Grayscale Research believes it's crucial that we embrace decentralized solutions that address the risks of centralization.

Among those solutions are Bittensor and also — more broadly — the assets in Grayscale Decentralized AI Fund (including TAO, NEAR, RENDER, FIL, and GRT).14  By leveraging platforms such as these, we can potentially safeguard against monopolistic control, nurturing a future for AI that is more secure.


Interested in Investing?
We offer Grayscale Bittensor Trust, which gives investors exposure to TAO in the form of a familiar investment vehicle, and Grayscale Decentralized AI Fund, which is one of the first investment vehicles invested in and deriving value from the price of native tokens of decentralized AI protocols.

If you are an eligible accredited investor* interested in investing or want to learn more about Grayscale Bittensor Trust or Grayscale Decentralized AI Fund, please reach out to a Grayscale portfolio consultant at 866-775-0313 or [email protected]


 

Glossary:

Artificial Intelligence –The ability of computer systems to perform tasks that typically require human intelligence, such as visual perception, speech recognition, decision-making, and language translation.

Open AI – A OpenAI is an artificial intelligence research organization dedicated to advancing artificial general intelligence (AGI) in a safe and beneficial manner. It conducts cutting-edge research in machine learning, deep learning, and related fields, with the goal of pushing the boundaries of AI capabilities while addressing ethical concerns.

ChatGPT – ChatGPT is an artificial intelligence chatbot developed by OpenAI that uses natural language processing to create humanlike conversational dialogue. It can respond to questions and compose various written content, including articles, social media posts, essays, code, and emails.

Token - In the context of cryptocurrency, a token is a digital representation of an asset that has been created on an existing blockchain, often used to represent ownership in a specific platform or ecosystem. Tokens can serve various functions, including as a medium of exchange, a store of value, or a representation of voting rights within a decentralized system.

Blockchain - Blockchain is a secure, decentralized, and distributed digital ledger technology that records transactions across many computers, ensuring that records cannot be altered retroactively without altering all subsequent blocks. It enables the permanent, immutable, and transparent recording of data and transactions, making it possible to exchange anything of value without the need for intermediaries.

Decentralized Network – A network architecture where control and data are distributed across multiple nodes rather than being managed by a single central authority.

Centralized Artificial Intelligence – AI systems controlled and operated by a central authority or organization, typically relying on centralized computing resources.

Decentralized Artificial Intelligence – AI systems designed to operate in a distributed manner without a central authority, often leveraging blockchain technology.

Bittensor – Bittensor is a decentralized network that incentivizes the development and sharing of machine learning models using blockchain technology. It aims to create an "Internet of AI" with interconnected ecosystems called "subnets," each focusing on a different specific use case.

Deepfake - Synthetic media created using AI and machine learning techniques to manipulate or generate convincing fake audio, video, or images.

TAO – The native cryptocurrency token of the Bittensor platform, used to incentivize and reward participants in the network.

NEAR – The native cryptocurrency of the NEAR protocol, a decentralized blockchain platform designed for creating and executing smart contracts and decentralized applications (dApps).

RENDER  - The native cryptocurrency of the Render Network, a decentralized GPU rendering network that allows users to buy and sell GPU compute power for rendering 3D models and visual effects.

FIL – The native cryptocurrency of the Filecoin network, used to incentivize users to provide storage space and retrieve data.

GRT - The native token of The Graph protocol, used to incentivize participants in the decentralized indexing and querying of blockchain data.

Subnet - In Bittensor, a subnet is an incentive-based competition marketplace that produces a specific kind of digital commodity related to artificial intelligence.

Open source AI – AI systems and models made available under terms that grant users the freedom to use, study, modify, and share the system and its components.

AI Model - A computational representation trained on data to perform specific tasks or make predictions, forming the core of many AI applications.

 

1 By assets under management, as of January 29, 2025.

2 “How a top Chinese AI model overcame US sanctions.” MIT Technology Review. Jan 24, 2025

3 “How DeepSeek’s AI Stacks Up Against OpenAI’s Model.” The Wall Street Journal. Jan 28, 2025

4 “China’s DeepSeek AI dethrones ChatGPT on App Store: Here’s what you should know.” CNBC. Jan 27.

5 “China's DeepSeek AI shakes industry and dents America's swagger.” BBC. Jan 28, 2025.

6 “China's DeepSeek AI shakes industry and dents America's swagger.” BBC. Jan 28, 2025.

7 “DeepSeek hit with ‘large-scale’ cyber-attack after AI chatbot tops app stores.” The Guardian. Jan 27, 2025.

8 “Google apologizes for ‘missing the mark’ after Gemini generated racially diverse Nazis.” The Verge. Feb 21, 2024.

9 “China’s new DeepSeek AI refuses to answer these questions, experts warn.” The Independent. Jan 28, 2025.

10 X.com

11“How is DeepSeek Better Than ChatGPT: Cost Comparison.” Creole Studios. Jan 28, 2025.

12“Does DeepSeek trigger a major reshuffle in the AI Agent sector? Is it time to buy the dip or retreat?” AICoin.com. Jan 27, 2025.

13 “Venice AI token that gives private access to DeepSeek hits $1.6B total value.” TradingView. Jan 27, 2025.

14 Holdings are subject to change without notice.

 

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