What is DeepSeek? How It Works, Applications, and Controversies

In the world of artificial intelligence, big names like OpenAI, Google Gemini, and Meta AI have long dominated the scene. But a new player, DeepSeek, a Chinese AI firm, is turning heads with its groundbreaking approach. By offering low-cost, open-source large language models (LLMs), DeepSeek is challenging the idea that cutting-edge AI requires massive budgets and resources.

Traditionally, developing advanced AI models has been expensive. For example, the U.S. government backed the $500 billion Stargate Project to support AI innovation. But DeepSeek flipped the script. On January 20, 2025, the company launched its R1 LLM, a high-performing AI model developed at a fraction of the cost of its competitors. Even more impressive, DeepSeek made R1 available under an open-source license, allowing anyone to use it for free.

The impact was immediate and massive. Just a week later, on January 27, 2025, DeepSeek’s release sent shockwaves through the global tech market. The Nasdaq Composite dropped 3.1%, the S&P 500 fell 1.5%, and Nvidia, a key player in AI hardware, lost a staggering $593 billion in market value. This marked the largest single-day market loss in U.S. history.

In this article, we’ll explore what DeepSeek is, how it works, its applications across different industries, and the controversies surrounding its use.

What is DeepSeek?

DeepSeek is an AI development company based in Hangzhou, China. It was started in May 2023 by Liang Wenfeng, who graduated from Zhejiang University. Wenfeng is also the co-founder of High-Flyer, a Chinese quantitative hedge fund that owns DeepSeek. DeepSeek works as an independent AI research lab but is supported by High-Flyer.

In January 2025, the company released its R1 LLM, a powerful AI model that was developed at a fraction of the cost compared to competitors like OpenAI or Google. By making R1 available under an open-source license, DeepSeek allows developers, researchers, and businesses to use and build upon its technology for free.

The Technology Behind DeepSeek’s AI Models

What makes DeepSeek’s AI models stand out? It’s all about efficiency and open-source innovation. The company’s star product, the R1 model, is built to deliver top-tier performance without the sky-high costs of rivals like OpenAI or Google. Here’s how they do it:

• Sparse Mixture-of-Experts (MoE):

DeepSeek uses a clever system in which its AI only activates the parts needed for a specific task. Think of it as turning on just the lights in the room you’re using, saving energy and money.

• Lightweight Neural Networks:

Instead of building bulky, expensive AI systems, DeepSeek creates smaller, smarter models. These require less computational power (fewer Nvidia GPUs!) but still handle complex jobs like answering questions or analyzing data.

• Knowledge Distillation:

DeepSeek trains smaller AI models by “copying” skills from bigger ones. Imagine a student learning shortcuts from a master teacher, it’s fast, cheap, and effective.

OpenAI vs. DeepSeek

DeepSeek is shaking up the AI world and giving OpenAI, the company behind ChatGPT, a run for its money. OpenAI became a household name in 2022 when it launched ChatGPT, a chatbot that amazed everyone with its ability to write, answer questions, and even solve problems. Since then, OpenAI has led the generative AI industry with its GPT models and advanced o1 reasoning models, which are designed to think and solve problems like humans.

How Does Deepseek Work?

DeepSeek is a powerful AI tool that helps users find accurate information quickly by processing large amounts of data. It uses advanced artificial intelligence (AI) and machine learning to analyze and understand user queries, providing precise and relevant answers.

• Data Collection and Integration

DeepSeek gathers data from multiple sources, such as:

1. Websites
2. Databases
3. Social media

Since data exists in different formats, DeepSeek prepares and organizes it before analysis, ensuring accuracy and consistency.

• Natural Language Processing (NLP)

When a user types a question, DeepSeek’s Natural Language Processing (NLP) technology comes into play. NLP helps the AI:

1. Understand the words in the query.
2. Determine the intent behind the search.
3. Analyze context to find the most relevant data.

For example, if a user asks, “How does AI work?”, DeepSeek doesn’t just look for articles with those words—it understands the real meaning and provides insightful answers.

• Machine Learning

DeepSeek improves over time using Machine Learning (ML). It continuously:

1. Learn from past searches.
2. Updates its algorithms for better accuracy.
3. Refines responses based on trends and user feedback.

The more people use DeepSeek, the smarter it gets!

• Real-Time Processing

DeepSeek works within seconds to deliver results. It can process:

1. Text-based answers
2. Images
3. Audio responses

This real-time analysis makes DeepSeek fast and efficient for all users.

Training Innovations in DeepSeek

DeepSeek is taking a unique approach to train its R1 AI model, and it’s shaking up the AI world. Unlike OpenAI, which relies on massive resources and time, DeepSeek’s training process is faster, uses fewer AI accelerators (like Nvidia GPUs), and costs way less. Their goal? To achieve artificial general intelligence (AGI)—AI that can think and reason like humans.

Here’s how DeepSeek is making waves with its R1 model:

• Reinforcement Learning

Instead of relying only on traditional training, DeepSeek teaches its AI through trial and error—a method called reinforcement learning. The AI repeatedly solves tasks and learns from its mistakes to improve over time.

• Reward Engineering

DeepSeek created a rule-based reward system that helps its AI learn more effectively. This system rewards the AI for correct answers, guiding it to make better decisions. This method is more efficient than traditional neural reward models used by other AI companies.

• Distillation (Knowledge Transfer)

To make its AI models smaller but still powerful, DeepSeek uses distillation—a process that compresses knowledge into a compact model. This allows DeepSeek to create AI models with as few as 1.5 billion parameters, making them faster and cheaper to run while maintaining strong performance.

• Emergent Behavior Network

One of DeepSeek’s biggest discoveries is that complex reasoning patterns can develop naturally when AI is trained using reinforcement learning. This means that DeepSeek’s AI can learn new problem-solving techniques on its own, without needing every step to be programmed by humans.

DeepSeek Large Language Models

Since its launch in 2023, DeepSeek has introduced several AI models, each improving in performance, capabilities, and efficiency. Here’s a simple breakdown of its key releases:

• DeepSeek Coder (November 2023)

1. DeepSeek’s first open-source AI model is designed for coding tasks.
2. Helps developers write, debug, and optimize code using AI.

• DeepSeek LLM (December 2023)

1. DeepSeek’s first general-purpose AI model.
2. Designed to handle a wide range of language-based tasks, similar to OpenAI’s ChatGPT.

• DeepSeek-V2 (May 2024)

1. A second version of DeepSeek’s AI, with better performance and lower training costs.
2. More powerful and efficient than its predecessor.

• DeepSeek-Coder-V2 (July 2024)

1. A massive upgrade for coding-related tasks.
2. Has 236 billion parameters and supports a context window of 128,000 tokens (meaning it can process and remember longer code snippets).
3. Helps developers solve complex coding challenges with greater accuracy.

• DeepSeek-V3 (December 2024)

1. Uses a mixture-of-experts (MoE) architecture, meaning it switches between AI models to improve efficiency.
2. Has 671 billion parameters and can handle longer, more complex tasks.
3. Designed for advanced AI applications beyond just text processing.

• DeepSeek-R1 (January 2025)

1. Built on DeepSeek-V3 but optimized for reasoning tasks.
2. Competes directly with OpenAI’s o1 model in logical thinking and decision-making.
3. Still maintains significantly lower costs than OpenAI’s models.
4. Like DeepSeek-V3, it has 671 billion parameters and a 128,000-token context length.

• Janus-Pro-7B (January 2025)

1. DeepSeek’s first AI vision model, meaning it can understand and generate images.
2. Expands DeepSeek’s AI capabilities beyond text, making it more versatile.

Applications of DeepSeek

DeepSeek is an advanced AI technology with a wide range of applications across various industries. Here are some key uses of DeepSeek in simple terms:

• Healthcare

1. Medical Diagnosis: DeepSeek can analyze medical data like X-rays, MRIs, and patient records to help doctors diagnose diseases faster and more accurately.
2. Drug Discovery: It can speed up the process of finding new medicines by analyzing chemical compounds and predicting their effectiveness.

• Finance

1. Fraud Detection: DeepSeek can spot unusual patterns in transactions to help banks detect and prevent fraud.
2. Stock Market Analysis: It can analyze market trends and predict stock movements, helping investors make better decisions.

• Customer Service

1. Chatbots: DeepSeek can power smart chatbots that answer customer questions, solve problems, and provide 24/7 support.
2. Personalized Recommendations: It can analyze customer behavior to suggest products or services they might like.

• Education

1. Personalized Learning: DeepSeek can create custom learning plans for students based on their strengths and weaknesses.
2. Automated Grading: It can grade assignments and tests, saving teachers time.

• Manufacturing

1. Quality Control: DeepSeek can inspect products on assembly lines to ensure they meet quality standards.
2. Predictive Maintenance: It can predict when machines might break down, helping companies avoid costly repairs.

• Transportation

1. Self-Driving Cars: DeepSeek can help autonomous vehicles navigate roads safely by processing data from sensors and cameras.
2. Traffic Management: It can optimize traffic flow in cities by analyzing real-time data from traffic lights and sensors.

• Entertainment

1. Content Creation: DeepSeek can generate music, art, or even scripts for movies and TV shows.
2. Gaming: It can create smarter and more realistic AI opponents in video games.

• Retail

1. Inventory Management: DeepSeek can predict demand for products, helping stores manage their stock more efficiently.
2. Virtual Shopping Assistants: They can guide customers through online stores and recommend products.

Why it is raising alarms in the U.S.

The release of DeepSeek-R1 has caused a lot of excitement but also raised concerns in the U.S., leading to a stock market sell-off in tech stocks. On Monday, January 27, 2025, the Nasdaq Composite dropped by 3.4% at the market opening. Nvidia, a major tech company, saw its stock fall by 17%, losing around $600 billion in market value.

Here’s why DeepSeek is causing alarm in the U.S.:

1. Cost Disruption: DeepSeek says it developed its R1 model for less than $6 million. This is much cheaper than what U.S. tech companies spend on AI, which is often billions of dollars. DeepSeek’s technology is also cheaper for users compared to competitors like OpenAI.
2. Technical Achievement Despite Restrictions: The U.S. restricts the export of its most advanced AI chips to China. However, DeepSeek has shown it can still create cutting-edge AI technology without relying on the best U.S. tech.
3. Business Model Threat: Unlike OpenAI, which is proprietary (owned and controlled by a company), DeepSeek is open-source and free. This challenges U.S. companies that charge monthly fees for AI services.
4. Geopolitical Concerns: DeepSeek is based in China, and its success challenges the U.S.’s leadership in AI technology. Tech investor Marc Andreessen called this a “Sputnik moment” for AI, comparing it to the Soviet Union’s surprise success in the 1950s space race.

Which countries have banned DeepSeek and why?

Several countries and organizations have banned DeepSeek due to concerns about privacy, security, and ethics. The biggest concern is that all user data is stored in China, raising fears that the Chinese government could access sensitive information.

Another issue is that DeepSeek’s AI model was trained with a Chinese worldview, which may lead to biased responses and censorship of politically sensitive topics.

• Where DeepSeek is Banned

Many governments and agencies have already taken action against DeepSeek, including:

1. Australian government agencies
2. India’s central government
3. Italy (banned due to privacy concerns)
4. NASA (concerned about security risks)
5. South Korea’s Industry Ministry
6. Taiwan government agencies
7. Texas state government (U.S.)
8. U.S. Congress
9. U.S. Navy
10. U.S. Pentagon (high security risk)

DeepSeek Cyberattack

On January 27, 2025, DeepSeek experienced a massive cyberattack, forcing the company to temporarily limit new user registrations.

The attack happened just as DeepSeek’s AI assistant app became the most downloaded app on the Apple App Store, surpassing ChatGPT.

DeepSeek has not shared specific details about the attack. However, public reports suggest it was a DDoS attack, which means hackers overloaded DeepSeek’s servers to disrupt its service.

Despite the attack, DeepSeek’s rapid response minimized the impact on its users and kept its AI assistant running.

Challenges and Controversies

DeepSeek has made many achievements, but it also faces some challenges. Here are the main concerns people around the world have raised:

• Bias and Censorship:

DeepSeek is a Chinese company, and some people worry that its AI models might have biases or reflect state-imposed censorship. This could mean limitations on free expression, especially when talking about geopolitics.

• Ethical Concerns:

The fast growth of AI has raised ethical questions. People are worried about how AI might be used in areas like surveillance and defense, which could have serious consequences.

• Trade Sanctions:

The U.S. has placed export controls on advanced AI chips, but this hasn’t stopped DeepSeek’s progress. Still, these restrictions show how geopolitical tensions are affecting AI technology.

• Generalization Challenges:

DeepSeek handles huge amounts of user data, which raises concerns about privacy, regulatory compliance, and the risk of data exploitation, especially in sensitive areas.

Conclusion

DeepSeek is a powerful AI tool with unique capabilities, including logical reasoning and cost-effectiveness. However, concerns over data privacy, censorship, and potential misuse of AI-generated data raise ethical and security questions. Users should weigh the benefits against the risks before integrating DeepSeek into their workflow.