DeepSeek AI: Intellectual Property Concerns and Market Reaction

U.S. authorities have raised concerns over China’s DeepSeek AI, with White House AI and crypto czar David Sacks claiming “substantial evidence” of intellectual property theft. Sacks stated that DeepSeek “distilled” knowledge from OpenAI’s models, a process that allows a smaller AI model to replicate similar capabilities with fewer resources.

Distillation and Intellectual Property Theft

Distillation is a common technique in AI development, but OpenAI’s terms explicitly prohibit using its outputs to train competing models. A person familiar with OpenAI’s stance noted that the issue isn’t just about knowledge transfer but whether DeepSeek extracted model outputs to build a direct rival.

OpenAI has also raised concerns over DeepSeek’s methods, telling the Financial Times that it has found signs of “distillation” in R1’s development. Another unnamed source added that OpenAI and its partner Microsoft had already taken action last autumn, investigating accounts believed to be linked to DeepSeek that were accessing OpenAI’s API. After finding signs of distillation in violation of its terms of service, OpenAI blocked these accounts, cutting off their access.

Market Reaction

The launch of DeepSeek’s R1 model triggered a massive sell-off in tech stocks, wiping over $1 trillion from the Nasdaq Composite Index. NVIDIA suffered the worst single-day loss in U.S. history, plunging by $600 billion, while Alphabet and Microsoft also took major hits.

The market reaction wasn’t limited to tech stocks. Fear rippled through the crypto sector, hammering AI-focused cryptocurrencies the most. Bitcoin briefly dipped below $100,000, and total liquidations soared by more than 850% on Jan. 27, wiping out nearly $1 billion in leveraged positions as crypto traders, already on edge over macroeconomic uncertainty, saw the DeepSeek fallout as another sign of volatility.

Potential Impact on Crypto Market

Many crypto industry proponents suggest DeepSeek’s success could be bullish, especially for AI projects, due to its potential to lower the costs of running AI-powered blockchain applications. However, the market reaction highlights the uncertainty and volatility surrounding the development of AI technology.

As the situation continues to unfold, it remains to be seen how the crypto market will react to the development of AI technology. Stay up-to-date with the latest news and analysis on Global Crypto News.

“DeepSeek’s R1 is an impressive model, particularly around what they’re able to deliver for the price. We will obviously deliver much better models and also it’s legit invigorating to have a new competitor!” – Sam Altman, OpenAI CEO

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