From time to time, a disruptive and innovative protocol or narrative emerges in the blockchain and crypto space, gaining momentum and capturing widespread attention. These innovations reflect the boundary-pushing nature of participants in the Web3 ecosystem.
In this article, we will explore one such innovation: Decentralized Physical Infrastructure Networks (DePINs). This rapidly growing narrative has given rise to a new category of tokens, now boasting a market capitalisation of $18.4 billion, according to CoinGecko.
DePINs is a broad term encompassing decentralised applications (dApps), networks, and protocols that use cryptocurrency to incentivise users to contribute digital or physical resources to a decentralised network.
These resources can include storage, GPUs, sensors, internet connectivity, and more. In return for their contributions, users are compensated in cryptocurrency, fostering a decentralised, user-driven infrastructure serving as an alternative to traditional centralised facilities.
Understand Decentralised Physical Infrastructure Network In Crypto
In traditional contexts, the concept of leveraging collective resources to build large-scale networks is well-established. Ride-sharing platforms like Uber, Bolt, and Lyft are prime examples, where individuals contribute their assets(resources)—in this case, vehicles—and are compensated for their participation(completed rides) with cash.
These centralised platforms aggregate resources from contributors to provide services at scale.
This is the framework used by DePINs whilst leveraging blockchain technology to make it decentralised!
As an example, consider Silencio Network, a DePIN for collecting local noise data. Users install an app on their phones, which works as the contributed infrastructure by measuring the noise pollution in the area, and are rewarded with blockchain tokens in return for this data.
The model can also apply to costlier machines as well. For example, ELOOP Network leveraged tokenization to set up a DePIN of car-sharing Teslas in Vienna, and is now working to unlock tokenization for everyone.
All in all, DePIN decentralises some services that are otherwise centralised in traditional settings, for example, cloud storage services are owned by big corporations that build up and provide storage infrastructure to users.
Decentralised Physical Infrastructure Networks (DePINs) eliminate this issue of centralisation and also reduce the barrier of entry (the cost of single-handedly building/running enough infrastructure) for entrepreneurs as with enough participants a DePIN network can become self-sustainable (more on this in the DePIN flywheel section).
Image credit: blaize. tech
How DePINs Work
DePIN networks are connecting blockchain and the real world in ways we have never seen before. Here are the essential parts of how DePIN works:
Physical infrastructure: These physical facilities encompass a wide range of resources, from sensors and computing power to internet routers and solar panels. They are owned and contributed to the network by individual participants
Blockchain Architecture: DePIN projects rely on blockchain architecture as an immutable way to record transactions, execute smart contracts distribute rewards to participants, etc.
DePINs can leverage their own chains or build on a layer-1 of choice; peaq has been establishing itself as the home of DePIN due to its DePIN-friendly ecosystem and pre-made Modular DePIN Functions.
Off-Chain Network: Bridges the physical resources and the blockchain by handling the transfer of information and data from resources to the blockchain
Token Rewards: Participants who contribute to the protocol receive token (usually the native coin of the project) rewards as incentives.
Types Of Decentralised Physical Infrastructure Networks
DePINs are classified into two major categories they are:
Physical Resource Networks(PRNs)
These are location-based physical infrastructures, users get rewarded for providing location-based hardware resources related to connectivity, energy or geospatial data
Digital Resource Networks (DRNs)
These resources are not set to any location or related to locational data, DRNs include digital resources such as storage facilities, bandwidth computing power, etc.
The DePIN Flywheel
The DePIN flywheel is a self-sustaining cycle that grows as more participants provide resources to the network.
Some participants may have these resources lying dormant before joining the network.
As more participants provide resources the network becomes stronger and bigger.
Because everything is crowd-sourced and decentralized protocols can offer these services cheaper than traditional corporations.
This attracts users and the protocol makes money from fees while participants who provide their resources receive token rewards as incentives.
If the demand increases so will the value of the native token which means contributors will also receive higher rewards which will attract more contributors.
As more resources are contributed, the DePIN network expands its capacity. This allows the protocol to handle more users and offer a wider range of services.
This growth and increase in token value will attract investors who will provide funding and additional support that will further accelerate the growth of the protocol.
Benefits of DePINS
Here are some of the benefits of DePINs:
Permissionless
Anyone can contribute their resources to a DePIN protocol provided they have the necessary infrastructure. Additionally, anyone can access the services offered by a DePIN protocol.
Decentralisation
By leveraging blockchain technology, DePINs achieve decentralization, effectively eliminating vulnerabilities such as single points of failure.
Cost-Effectiveness
The DePIN model allows participants to contribute their own infrastructure, significantly reducing the costs that would be incurred in a centralised model. This decentralised approach enables projects to offer more competitive and fair pricing to users seeking to utilise their services.
Incentivisation
DePIN projects provide token-based rewards to participants who contribute resources to the network, creating opportunities for both passive and active income. This incentivised model attracts more participants, effectively setting the flywheel in motion and driving the growth of the network.
DePIN Security Considerations
As the narrative continues to garner support and grow it is also important for both DePIN protocols to ensure safety and security.
- DePIN protocols can employ robust encryption techniques to protect data integrity and ensure the security of information transmitted across the network.
- Regular smart contract audits can help fish out any vulnerability and potential security threats.
- Onchain monitoring will also help me raise alarm in the event of suspicious activities in the protocol
- Teams should educate participants on how to recognise and avoid phishing attempts and other forms of social engineering attacks.
- Participants are encouraged to use strong secure passwords and enable multi-factor authentication to prevent unauthorised access.
Closing Thoughts
“In essence, DePIN is all about bringing Web3 into the real world. It is the true adoption which puts blockchain at the core of some of the most everyday things out there, like renting a car or grabbing a coffee on your way to work. The sector’s potential is nothing short of revolutionary, but with the real-world focus also comes the prospect of causing real-world harm. This is why security is crucial for DePINs, which makes audits by security companies like Hashlock very much worth considering for all DePIN builders.” — Max Thake, co-founder of peaq, the layer-1 blockchain for DePIN and Machine RWAs.
DePIN brings traditional infrastructure services into the blockchain and Web3 space in an innovative way. While centralized giants like Amazon and Microsoft dominate with trillions in market capitalization, the DePIN sector in Web3 is still in its early stages with significant growth potential ahead.
The DePIN model is quite impressive; if successfully implemented, a DePIN protocol can be self-sustainable. However, it is important to bear in mind that while this shows potential, there could be certain disadvantages, some of which are yet to be known due to the current nescent stage of development.
[Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.]
Author: Godwin Okhaifo
