HOW NUMERAI WORKS
NUMERAI is a weekly data science competition.
Predictions submitted by users steer Numerai's hedge fund together.
A weekly prize pool is paid out to the top performing users who stake.
Interested? Here is how to get started.
7,500 FACELESS CODERS PAID IN BITCOIN BUILT A HEDGE FUND'S BRAIN
RICHARD CRAIB IS a 29-year-old South African who runs a hedge fund in San Francisco. Or rather, he doesn't run it. He leaves that to an artificially intelligent system built by several thousand data scientists whose names he doesn't know.
Under the banner of a startup called Numerai, Craib and his team have built technology that masks the fund's trading data before sharing it with a vast community of anonymous data scientists. Using a method similar to homomorphic encryption, this tech works to ensure that the scientists can't see the details of the company's proprietary trades, but also organizes the data so that these scientists can build machine learning models that analyze it and, in theory, learn better ways of trading financial securities.
"We give away all our data," says Craib, who studied mathematics at Cornell University in New York before going to work for an asset management firm in South Africa. "But we convert it into this abstract form where people can build machine learning models for the data without really knowing what they're doing."
He doesn't know these data scientists because he recruits them online and pays them for their trouble in a digital currency that can preserve anonymity. "Anyone can submit predictions back to us," he says. "If they work, we pay them in bitcoin."
The company comes across as a Silicon Valley gag. All that's missing is the virtual reality.
So, to sum up: They aren't privy to his data. He isn't privy to them. And because they work from encrypted data, they can't use their machine learning models on other data—and neither can he. But Craib believes the blind can lead the blind to a better hedge fund.
Numerai's fund has been trading stocks for a year. Though he declines to say just how successful it has been, due to government regulations around the release of such information, he does say it's making money. And an increasingly large number of big-name investors have pumped money into the company, including the founder of Renaissance Technologies, an enormously successful "quant" hedge fund driven by data analysis. Craib and company have just completed their first round of venture funding, led by the New York venture capital firm Union Square Ventures. Union Square has invested $3 million in the round, with an additional $3 million coming from others.
Hedge funds have been exploring the use of machine learning algorithms for a while now, including established Wall Street names like Renaissance and Bridgewater Associates as well as tech startups like Sentient Technologies and Aidyia. But Craib's venture represents new efforts to crowdsource the creation of these algorithms. Others are working on similar projects, including Two Sigma, a second data-centric New York hedge fund. But Numerai is attempting something far more extreme.
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The company comes across as some sort of Silicon Valley gag: a tiny startup that seeks to reinvent the financial industry through artificial intelligence, encryption, crowdsourcing, and bitcoin. All that's missing is the virtual reality. And to be sure, it's still very early for Numerai. Even one of its investors, Union Square partner Andy Weissman, calls it an "experiment."
But others are working on similar technology that can help build machine learning models more generally from encrypted data, including researchers at Microsoft. This can help companies like Microsoft better protect all the personal information they gather from customers. Oren Etzioni, the CEO of the Allen Institute for AI, says the approach could be particularly useful for Apple, which is pushing into machine learning while taking a hardline stance on data privacy. But such tech can also lead to the kind of AI crowdsourcing that Craib espouses.
On the Edge
Craib dreamed up the idea while working for that financial firm in South Africa. He declines to name the firm, but says it runs an asset management fund spanning $15 billion in assets. He helped build machine learning algorithms that could help run this fund, but these weren't all that complex. At one point, he wanted to share the company's data with a friend who was doing more advanced machine learning work with neural networks, and the company forbade him. But its stance gave him an idea. "That's when I started looking into these new ways of encrypting data—looking for a way of sharing the data with him without him being able to steal it and start his own hedge fund," he says.
The result was Numerai. Craib put a million dollars of his own money in the fund, and in April, the company announced $1.5 million in funding from a group that included Howard Morgan, one of the founders of Renaissance Technologies. Morgan has invested again in the Series A round alongside Union Square and First Round Capital.
https://numer.ai/homepage
In February, Numerai announced Numeraire, a cryptographic token to incentivize data scientists around the world to contribute artificial intelligence to our hedge fund (see Forbes, Wired, Smith+Crown). Earlier today, the Numeraire smart contract was deployed to Ethereum, and over 1.2 million tokens were sent to 19,000 data scientists around the world.
A Protocol For AI
Numerai is building the protocol to connect machine intelligence to the stock market, and we want you to build on top of it.
Numerai has made over $200 000 in payments to our users. We have used bitcoin to make these payments. The problem with bitcoin is that it exists on a different blockchain to the Numeraire token. This drastically limits the extent to which decentralized applications based on Numerai can be automated and unstoppable because these applications cannot receive payment in bitcoin, they can only receive and use ether.
If Numerai made payments in ether, then a decentralized application on Ethereum could automatically use that ether to fund its operations (for example, its gas costs). Bitcoin payments make sense for people not for decentralized autonomous organizations (DAOs). We want to move more of Numerai onto Ethereum to accommodate DAOs. Making payments in ether will have large cascading effects for the kinds of applications that can interface with Numerai.
Today we are announcing that we are abandoning bitcoin. It will be phased out of Numerai by September 30th. From that point on, all payments will flip into ether and Numeraire.
Numeraire Live On Ethereum
Starting today, data scientists can withdraw Numeraire tokens to any Ethereum address, and interact with the smart contract. Data scientists can also use Numeraire to earn more money by staking it on their predictions. If their predictions perform well, they earn more money. If their predictions perform badly, their Numeraire is destroyed on the blockchain.
The staking mechanism creates a powerful new incentive to build the best machine learning model on Numerai. For thousands of people, staking Numeraire will be the first time in their lives they have interacted with an Ethereum smart contract. And they can do it all from Numerai’s website without needing to manage keys or use an Ethereum client. This is not speculative; you can stake Numeraire right now, and the Ethereum transaction will influence the course of Numerai’s hedge fund.
INVESTORS & ADVISORS
Howard Morgan
Co-Founder of Renaissance Technologies and First Round Capital
Fred Ehrsam
Co-Founder of Coinbase
Juan Benet
Founder of Protocol Labs (IPFS and Filecoin)
Ash Fontana
Board Member at Kaggle
Joey Krug
Thiel Fellow and co-founder of Augur
Peter Diamandis
Founder of Singularity University and the IBM Watson AI XPRIZE
Olaf Carlson-Wee
Founder of Polychain Capital
Union Square Ventures
Founded by Fred Wilson
Numeraire: "... a new cryptographic token that can be used in a novel auction mechanism to make overfitting economically irrational."
https://numer.ai/static/media/whitepaper.29bf5a91.pdf
Read the whitepaper
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