DePIN, Decentralized Physical Infrastructure Networks - 2024 Crypto Trend

Decentralized Physical Infrastructure Networks (DePIN) are the new way of thinking about blockchain and other decentralised technologies.

DePIN embodies a radical shift in dynamic: a decentralised set of dApps that motivates communities to use tokens to build and maintain physical infrastructure networks. This is why blockchain promises the next major shift in digital thinking – and the physical world itself. 

Venture capitalists should already be salivating over the prospect of DePIN, as billions of dollars have already been poured into the sector. There is even a fund designed specifically to invest in DePIN protocols, as the sector is viewed as a standalone step-change investment, rather than just another new evolution in the DeChain world. As reported by Binance Research, DePIN is already considered one of the core crypto trends for 2024.

The market capitalisation of DePIN stands at some $27 billion with a daily trading volume of approximately $1.8 billion. That signals a substantial transactional interest in DePIN projects and a robust and rapidly growing sector.

Prominent figures in the field, including Lex Sokolin from Generative Ventures, talk up the possibilities of DePIN. He envisions the sector crunched through DePIN, Web3 services and artificial intelligence unleashing unprecedented novel experiences on the internet.

This is an article about that concept and what is concealed behind it, and why it has become increasingly popular. 

What is DePIN and How Does It Work?

DePIN is most innovative blockchain development concept as it fundamentally shifts the paradigm away from infrastructure built for profit of some central players to infrastructure owned and maintained by those players arising from a community. DePIN leverages blockchain with tokens, smart contracts and dApps to incentivise the creation and maintenance of physical infrastructure.

Concept

Based on this simple principle of decentralisation, dePIN is a system where the cost and benefits of maintaining infrastructure are distributed to a network of actors instead of being largely controlled by a central authority. This results in greater resilience and efficiency of the system, by mitigating single points of failure and encouraging local buy-in and ownership.

Technology

1. Blockchain Technology: Blockchain, at the core of DePIN, is a distributed database that establishes a transparent, secure and immutable ledger for the recording of transactions and activities to ensure the immutable and verifiable recording of all contributions and rewards, while ensuring participants’ trust.
2. Smart Contracts: Smart contracts assist in automation of the execution of the agreements and workflows – they are self-executing (if and when the specified conditions are met, whether it is a payment or service provisioning). They wouldn’t require a mediator and can therefore ensure efficiency and precision of performance.
3. Tokens: A reward system of tokens that encourages the network’s participants to contribute energy and resources. In the DAO vision, tokens (such as those of Ethereum) would be accumulated by the participants as a reward for providing services, infrastructure or any resources to the network. These tokens can also be traded or used as digital cash within the ecosystem to support other economic activities.

Use Cases

Indeed, DePIN’s possible uses span many social sectors and demonstrate the promising ability of this technology to completely change common infrastructure models of ownership:  Some examples of possible use cases are:

Using blockchain-based smart contracts and tokenised assets such as ERC-20 tokens – developed on the Ethereum blockchain – DePIN offers a robust foundation for a decentralized infrastructure paradigm, which is able to better govern and co-develop infrastructure that is more efficient, resilient and fit-for-purpose. This contributes to reducing the role of governments, while at the same time strengthening the communities, which ultimately creates opportunities for innovation and entrepreneurialism in the sector.

Benefits of DePINs

DePINs represent a radically different way to plan infrastructures, and provide all the advantages of decentralisation, incentivisation, transparency, efficiency and robustness that are inherent in any peer-to-peer, bottom-up, micro-payments platform. Here, we explore those benefits in detail.

Decentralization

• Decentralisation of Authorities: DePINs remove the dependency on central authorities by spreading control across a network of participants. Such decentralisation removes the associated vulnerabilities to single points of failure inside a centralised system. For instance, if something goes wrong at the electrical power plant that supplies power to the grid for the entire US, there are chances of a widespread system crash, since there are only so many points of control. If the same grid design was implemented in a decentralised system, where energy generation was broken up and distributed, the dependencies of every component on each other would be substantially reduced, making the overall system more resilient to failure.
• Increased Security: A hacker’s task becomes considerably more difficult when every piece, every system in a network operates as a node and is not dependent on a single, central reference point for coordination of its activity. It would be like hitting hundreds of thousands of tiny flies with a fly swatter, an astronomically more difficult task than trying to kill a fly on the wall. The operational code of DePINs, built on the blockchain, offers a reliable, immutable, time-stamped ledger of all transactions among all participants, correcting errors based on consensus; it enforces itself.

Incentivization

• Token-Based Rewards: utility tokens for services, infrastructures and resources with DePINs, users are incentivised to contribute to the network with these utility tokens. Once a user puts in effort to provide services, infrastructure or resources for the network, users get rewarded. For example, with decentralized wireless networks like the Helium Network, users who have their own hardware (can be as little as an antenna and a router) can provide coverage for the network and earn the platform’s tokens.
• Economic Participation: not only does it incent participation, it also builds an economy around the network. Community members can trade with one another or use utility tokens within the network, chasing and creating economic activity and sustainability in the network. In this way, the success of the network ties in to the individual’s success, which makes us work together.

Transparency

• Immutable Records: The activities and exchanges will be listed in an immutable ledger; no one can delete any activity and any records of activities, which allows for real-time audit and verification to ensure all participants’ interests are not stolen. The electricity users can report records of their electrical use with transparent verification that the records of use cannot be tampered with; both entities benefit from the same PIN ID and the same record information. Any participants can verify their own records for their use, agree on the terms and engage in the contract.
• Open Access: Decentralised communications imply open access for all users to the same information. Equality is enhanced and asymmetry in information reduced.Big Data: DePINs focus on local communities. Cities and regions are autonomous and exchange information only with neighbours. DePINs host information cores (nodes with long-distance connections to other nodes) and information satellites that share information ranging from village events to news about collaboration in national networks. Decentralised communications enable a completely new access to big data.Finally, consider the inherent social and political nature of information. It is important to pose the counterfactual question. What if we had not readily absorbed this model, and instead set out to secure freedom of information as a distinct form of autonomy?

Efficiency

• Automation: Contractual processes are automated in the form of ‘smart contracts’, a kind of pre-programmed autonomous agent. Smart contracts cause actions (eg, payment or service provisioning) to take place only when conditions specified in advance are met. This eliminates the need for mediating third parties, and reduces both administrative overhead and transaction times.
• Cost Savings: Cutting out the middlemen and automating communication can drastically cut down the development and maintenance costs of infrastructure. For instance, decentralised energy grids can use smart contracts to automatically allocate energy to users and bill them, rather than relying on elaborate administrative systems.

Resilience

• Built-in Resilience: The distributed nature of DePINs creates built-in resilience. In distributed networks, many nodes can keep working when some nodes fail, which helps maintain availability of service. In a centralised network, if the brain region or the ‘server’ of that centre fails, it brings down the entire network, leading to a massive service outage.
•  Scalability: DePINs can scale more effectively than centralised systems. The network gains capacity and resilience as more participants join and contribute resources to the system. This is important in applications such as telecommunications and energy systems, where demand varies widely.

DePINs are an important complement to existing models of infrastructure development that leverage the benefits of decentralised control, incentive, transparency, efficiency and resilience. As the sector scales up over the coming decades, DePINs are likely to play a key role. 

Types of DePINs: PRNs and DRNs

Depending on their purpose, DePINs can be divided into two types: Physical Resource Networks (PRNs), which involve the management of physical resources like IoT devices and goods, and Digital Resource Networks (DRNs), which are used to exchange data among digital resources without the need to be in the same place. Written by the authors of this Science Fiction Disclosure. 

Physical Resource Networks (PRNs)

Physical Resource Networks (PRNs) provide services to a community using physical assets (rather than software) as the basis of a decentralised network. PRNs rely on physical assets such as hardware, infrastructure and physical goods because these assets can be operated by a community. This means that any of these assets might be a part of a PRN, and the community can collectively incentivise human behaviour through ownership of physical goods.

Example: Helium Network

Helium bucks the trend in significant ways, being an entirely decentralized wireless network that uses devices in a community-owned hardware network to deliver internet-of-things (IoT) service.

• How it works: Hotspot hosts – people who deploy physical devices (Hotspots) to provide network coverage and relay data – earn Helium tokens (HNT) based on the quality and coverage of their service.
•  How: You’ve created a robust, global wireless network based on decentralised rather than centralised control, run entirely by unwired nodes, rather than relying on costly physical infrastructure. 
• What: The Helium Network was built on the decentralized wireless network Interface standard, a global IoT network incentivising ‘hotspots’ that cover sections of terrain with internet access.

Example: Filecoin

 Filecoin, a decentralised storage network, is a good example. Everybody with an ‘extra’ 1GB of disk space on their computer can ‘rent’ that space to other users.

• Here’s how it works: People who volunteer their unused storage space to the network, the so-called ‘Storage Providers’ – are rewarded with Filecoin (FIL) tokens for storing and delivering those files.
• Impacts: Enabling a more decentralised approach to data storage by minimising dependency on data centres will enhance the resilience and efficiency of data storage solutions.Additionally, the idea of democratising the market by enabling participants with excess available storage capacity to earn rewards through Filecoin, thereby incentivising users and storage providers to collaborate and improve the system.

Digital Resource Networks (DRNs)

DRNs leverage not physical resources like fibre but digital ones, such as data, computational and other digital services. DRNs distribute incentive structures across a distributed community of human and digital agents that, in turn, control and manage a collection of distributed digital resources that are designed to optimise their potential. DRNs leverage a ‘long tail’ of idle capacity from participants That’s because DRNs provide incentives to participants to contribute their digital ‘assets’ (ie, data, computational and other digital services) to the network.

Example: Golem Network

• Description: The Golem Network is a decentralized marketplace for computational power.
• How it works: Providers are the people who offer unused computing resources to the network. They get paid in Golem tokens (GLM) for providing computing resources to users who need them for tasks such as rendering, scientific computing, machine learning and more.
• What Impact: Golem is a platform that democratises access to computational power, making even small users able to request computations from a distributed supercomputer; that is, to farm out computations, lowering price and increasing supply of high-performance computing resources.

Example: Livepeer

‘Livepeer is a decentralised video streaming network that uses community-provided computational power to concurrently transcode video.’  Description: Livepeer is a network for digital video streaming that taps into community-based computational power in parallel to transcribe video at the same time.

• How it works: The ‘Transcoders’, or volunteer users granting computational power to transcode video streams for the network, will receive Livepeer tokens (LPT) for each processing job performed. 
• Takeaway: Livepeer decentralises the infrastructure of video delivery. It allows for cheaper and more efficient distribution for video content. This is done through incentivising piecemeal contributions, making it resilient and scalable.

TOP Key Differences Between PRNs and DRNs

 It refers to the fact that PRNs use physical resources (hardware, infrastructure), whereas DRNs use digital resources (data, computational power). 

• Contribution Mode: PRN participants contribute physical assets, whereas DRN participants contribute digital assets.
• Examples: Helium Network is an example of a PRN, while Filecoin is an example of a DRN. Golem Network and Livepeer, meanwhile, are examples of DRNs.

Biggest Opportunities and Challenges

The DePINs discipline, as it develops, will bring with it both opportunities and challenges, and it requires an appreciation of both in order to realise the potential of DePINs and successfully navigate them. 

Opportunities

1. Innovation and Economic Growth: DePINs facilitate the infrastructure of the future with blockchain and smart contracts that are more efficient, transparent, and resilient and with lower costs and better performances. These developments enable use cases, applications and services previously rolled out as centralised, single-party models.
2. Community Engagement and Empowerment: DePINs partners local involvement with incentives to earn digital tokens for contributing to the ongoing upkeep of existing infrastructure, fostering community empowerment and the development of sustainable, localised solutions. For instance, communities can earn basis points in a public-ledger asset by installing renewable energy sources to the decentralised energy grid. 
3. Economic Growth and New Revenue Streams: The incentive model of tokens creates economic opportunities. Both publishers and users can earn tokens and trade them, as well as provide services. Economic activity is created, and financial inclusion is encouraged. Paying users to add coverage to a decentralized wireless network provides network operators with a market for their tokens.
4. Environmental Sustainability: DePINs promote environmental sustainability by enabling the use of renewable energy and by reducing our reliance on fossil fuels. By decentralising our energy grid, new systems can incorporate numerous renewable sources and abide by global initiatives for maintaining environmental protections and for ensuring sustainable development.

Challenges

1. Regulatory Hurdles: Decentralised networks and organisations alike have to deal with often labyrinthine regulatory frameworks when it comes to finalising regulatory hurdles, legal requirements for energy distribution, data privacy and so on.
2. Scalability Issues: Most significantly, scaling up DePIN projects to meet increasing demand is fraught with difficulty. As the number of stakeholders increases, delivering comparable and effective performance, security and efficiency becomes precarious. Layer 2 scaling and sharding serve as potential solutions.
3. Security Concerns: Keeping decentralized networks secure against 51 per cent or ‘double spend’ attacks on their ledgers, as well as against vulnerabilities caused by the complex interactions of many thousands of individual computers in chain-linked and other distributed networks through the processing of smart contracts, is no mean feat. There is also a need to continually monitor networks for performance, as well as carrying out regular audits. This requires sophisticated software and security protocols.
4. Interoperability: Interoperability in DePIN systems is the ability to communicate and exchange data between heterogeneous devices across different DePIN projects and central systems. Developing interoperable solutions to integrate heterogeneous technologies and standards is an essential aspect to quickly scale DePIN systems in a large city.
5. User Adoption and Education: Enabling mass adoption and educating users about DePINs is critical. A large share of potential participants are new to blockchain and decentralised models, and this lack of familiarity can act as a barrier to their participation. There is a need to educate the user and develop a user friendly interface.

Though DePINs can provide tremendous opportunities for innovation, community collaboration, economic growth and environmental security, the networks’ operations also require regulation, standardisation, scalability, security, interoperability, constraint management and increased user adoption. These challenges can only be grappled with and resolved through a partnership between developers, regulators and the community. 

Conclusion

DePINs represent the next wave in infrastructure innovation utilizing blockchain technology, smart contracts and token-based incentives to create smarter, more transparent, secure and resilient systems. By distributing control, improving security, and incentivising community members, we can expect a wave of innovation that will lead to novel, distributed and more sustainable infrastructure solutions worldwide. 

DePINs bring easier access, no single points of failure, economic benefits from new revenue streams, huge potential for environmental improvement with renewable energy sources, among other advantages. There are of course a host of challenges – the regulatory framework of every jurisdiction has to be considered, the scaling challenge has to be addressed (with layer 2 usage being one solution for increased throughput), security has to be carefully monitored, and interoperability has to be promoted along with the general user education.

DePINs have the power to transform infrastructure by incorporating greater equity, efficiency and environmental sustainability. Developers, regulators and communities alike must work collectively to anticipate and overcome its challenges. DePINs promise to empower a more flexible, distributed future. 

FAQ

What is DePIN in simple terms? 

DePIN: Decentralised Physical Infrastructure Networks DePIN describes a class of applications that use blockchain technology and tokens to incentivise distributed communities to develop and maintain physical infrastructure networks (allowing infrastructure that continues to function at scale without reliance on top-down control and dedicated resources).

How does DePIN work? 

DePIN works by applying blockchain technology and smart contracts to back the process, as such it can be automated and thus open and transparent. Infrastructure elements share their resources (energy, computing power and/or connectivity) and are rewarded in the form of tokens. These tokens can be exchanged or used within the services themselves, creating a self-sustaining economic model that allows for ongoing maintenance of network elements.

What is an example of DePIN? 

An example of DePIN is the Helium Network: a decentralized wireless network where wireless coverage is provided through physical devices called Hotspots that are maintained by token-economy incentives, and whose internet connectivity is enabled through ultra-low power IoT radio communications. The Helium network provides IoT connectivity by treating these shared infrastructures as decentralised financial services with token-economy incentives. This enables the next generation of ubiquitous cryptoeconomic infrastructure to get built.

What are DePIN tokens? 

DePIN tokens are credits used to motivate people to contribute to these decentralized infrastructure networks – for example, by providing storage, data processing or other resources. Participants earn tokens for contributing, which they can trade or use within the ecosystem for whatever goods and services the network members might offer.

How to make money with DePIN? 

This is similar to how users can make money on DePIN, for example, by donating some of your renewable energy to the network infrastructure, or offering computer time for storage and processing services. These kinds of contributions earn you tokens, which can be traded on cryptocurrency exchanges, or used in more dedicated transactions with other customers of the network.