DeepSeek AI: Disrupting the AI Industry with Innovation and Privacy Challenges

Introduction

DeepSeek AI is making waves in the artificial intelligence landscape, challenging the dominance of U.S.-based companies. Praised by OpenAI CEO Sam Altman, DeepSeek’s models stand out for their impressive performance and cost-efficiency. The Chinese AI startup has quickly risen to prominence by offering open-source large language models (LLMs) that cater to both commercial and academic needs.

The Rise of DeepSeek AI

Founded in May 2023 by Liang Wenfeng in Hangzhou, Zhejiang, DeepSeek AI was established with a vision to advance artificial general intelligence (AGI). Liang, previously a co-founder of the hedge fund ‘High-Flyer’, introduced DeepSeek Coder in November 2023—an open-source model designed for coding assistance. Subsequent breakthroughs included DeepSeek-V2 in May 2024 and DeepSeek-V3 in December 2024, with the latter featuring 671 billion parameters, outperforming models like Llama 3.1 and Qwen 2.5.

DeepSeek-R1: A Game-Changer in AI Technology

The latest model, DeepSeek-R1, launched on January 20, 2025, has revolutionized the AI market. Optimized for logical inference and mathematical reasoning, it quickly surpassed ChatGPT in app store downloads. What sets DeepSeek-R1 apart is its significantly lower training cost—around $5.58 million—compared to U.S. models that often cost over $100 million. This affordability has raised concerns among investors about the long-term valuation of major chip manufacturers like Nvidia and AMD.

Key Features and Technological Advantages

Open-Source Model
DeepSeek-R1 is fully open-source, enabling users to download, modify, and run the model locally—offering greater flexibility than proprietary models like those from OpenAI.

Cost and Energy Efficiency
DeepSeek’s innovative architecture allows the model to operate on just 2,000 chips—significantly fewer than the 16,000 typically required by similar models. This reduction translates to 90% lower energy consumption, contributing to sustainability and lower operational costs.

Performance Metrics
The model achieves a 79.8% accuracy rate on mathematical benchmarks, slightly outperforming OpenAI’s models in specific domains. Techniques like Sparse Attention Mechanisms and Mixture-of-Experts (MoE) further enhance efficiency.

Privacy and Data Governance Concerns

Despite its technological advancements, DeepSeek faces scrutiny over its data privacy practices, especially in Western markets. The Italian Data Protection Authority (DPA) has issued a 20-day deadline for DeepSeek to clarify its data handling processes following concerns about GDPR compliance. Allegations suggest that DeepSeek's data collection methods, including keystroke pattern tracking, could pose privacy risks.

Indian authorities are also monitoring DeepSeek, assessing whether user data is being transferred to China. This evaluation is crucial under India’s Digital Personal Data Protection (DPDP) Act, 2023, which mandates transparency, data minimization, and explicit consent.

Allegations of Data Misuse

OpenAI has accused DeepSeek of using its data to train AI models through a method called “distillation.” Microsoft, an OpenAI investor, is investigating claims that DeepSeek may have accessed data through unauthorized API usage. Meanwhile, DeepSeek has reported ongoing cyberattacks, which have forced the company to limit user registrations.

Compliance Challenges in India

Under India’s DPDP Act, DeepSeek’s data collection practices raise red flags. The company gathers extensive personal data, including:

• Profile details (name, email, phone number)

• Chat history

• Keystroke patterns

• Payment information

The lack of clarity regarding data retention periods and the sharing of user information with partners could breach DPDP provisions. Additionally, if China is classified as a restricted country under Section 16 of the DPDP Act, data transfers to China may face further compliance hurdles.

Conclusion

DeepSeek AI's rapid rise signals a shift in the AI industry, offering cost-effective and energy-efficient alternatives to traditional models. However, the company’s data privacy practices and regulatory compliance remain under intense scrutiny. Addressing these concerns transparently will be essential for DeepSeek’s continued growth in global markets.