- DeepSeek’s cheap R1 AI rivals ChatGPT but stores data in China, raising privacy fears.
- It’s R1 has weak security, with a 100% attack rate and outdated encryption.
- It’s news crashed markets, cutting Nvidia 17% and Bitcoin below $100,000.
A Chinese tech firm, DeepSeek, developed a new artificial intelligence model called R1. It’s affordable to produce yet performs just like large AI machines such as ChatGPT.
It’s success is notable, but the firm has issues such as data privacy, security threats, and impacts on technology and crypto marketplaces.
DeepSeek’s Innovation and Privacy Concerns
DeepSeek began in 2023 in Hangzhou, China. They claim they created R1 for just $5.6 million, much lower than companies like OpenAI invest. This cost became noticeable.
Major corporations such as Microsoft and Amazon Web Services began collaborating with it since it could make AI more affordable. Some labeled it the biggest AI news since the release of ChatGPT in 2022.
There is a catch, however. DeepSeek stores user information on Chinese servers. The government can compel companies in China to turn over data. That concerns people because the Chinese government might get access to users’ private data, including users in the US.
Security is also a major concern. It’s R1 model couldn’t block any harmful commands in a study by Cisco. That means hackers could use it to cause trouble, such as starting cyberattacks or spreading false information.
Furthermore, the DeepSeek R1 application for iPhones uses old methods of security, so hackers would be able to steal data easily. These problems show that being low cost can make it less safe. US authorities are worried because DeepSeek’s weak security might put American users’ data at risk.
Financial Markets and Crypto Fallout
When the news of DeepSeek came out, it affected the stock market badly. On January 27, 2025, technology companies lost a major amount of money. Nvidia, an AI chip maker, lost 17% of its value in one day, which was $593 billion.
That’s a record one day loss by any company. The crypto market also took a hit because it’s linked to tech stocks. Bitcoin fell below $100,000, and the entire crypto market declined by 6.49%. According to experts, Bitcoin trends with tech stocks, with a connection score of 0.5. Firms that mine Bitcoin and also operate AI data centers had their stocks decline by 13% to 18%.
The crypto market also had another problem: scams. Counterfeit tokens claiming to be associated with DeepSeek surfaced on smaller trading platforms. New investors may not be able to recognize these scams and can lose money on them. Jean Rausis of Smardex stated DeepSeek’s technology has nothing to do with Bitcoin, but during panic, tech and crypto markets collapse together.
OpenAI, a leading American AI firm, submitted a 15 page letter to the American government. OpenAI warned the American government that DeepSeek is racing towards closing the gap in US AI technology. This prompted debate regarding if the US restrictions to prevent exporting AI chips to China are being effective.
DeepSeek employed Nvidia’s H800 chips, not the best quality but managed to develop a very strong AI. There are individuals who believe China is developing tactics to bypass American restrictions, a situation that would make them gain dominance in AI.
Some individuals believe DeepSeek is wonderful because it reduces the cost of AI. This may increase competition and new innovations. Low cost AI can be implemented in more locations. However, there is an issue.
If cheap AIs like DeepSeek do not secure data properly, users may experience data leaks or government spying. The US is considering stricter regulations to secure data. Other nations such as Italy, Taiwan, and Australia have already prohibited DeepSeek on government computers due to security concerns.
DeepSeek’s tale proves cheap, quick AI is dangerous. It reminds firms and governments to focus on safety, rather than new technology. As more low cost AIs emerge, we must address these issues to keep users and markets safe. The choices we make today will impact AI, tech stocks, and crypto for years to come.
Also Read: Cardano Founder Charles Hoskinson Predicts Ethereum Will Crash Within 15 Years
