A quick look at hot tracks DePIN development potential, challenges, and key players
DePIN's development potential, challenges, and key players.
The hot topics in the field of Web3 are constantly changing, from the DeFi summer, NFT craze, to the year of Layer2… “Concepts first” seems to have become a typical paradigm of development in the cryptocurrency field. Under the creative and imaginative narratives, the industry has experienced wave after wave of development frenzy. But when the heat dissipates, it inevitably leads to reflection: what practical benefits can new use cases of Web3 bring to the real world? Do we really need an encrypted network?
Exploring the real value of the encrypted network. At the end of 2022, the famous cryptocurrency research institution Messari released a survey seeking a formal title for “Web3 physical infrastructure”. Physical Proof of Work (PoPw), Token Incentivized Physical Network (TIPIN), EdgeFi, or Decentralized Physical Infrastructure Networks (DePIN) were all among the options. Eventually, the Decentralized Physical Infrastructure Network (DePIN) stood out and became the common name for this potential Web3 track.
What is DePIN? In summary, it is a network that connects the digital space and the physical space in a decentralized manner based on encryption technology. According to Messari researchers, “the adoption of DePIN will go beyond the early financial transaction use cases in the cryptocurrency field” and has the potential to further promote the cryptocurrency industry’s position on the Internet, ultimately driving the development of the Web3 value network. To further understand the situation of the DePIN track, this article will analyze it from the following three aspects:
What is DePIN? How does it work?
Opportunities and challenges for the development of the DePIN track
The current development status of DePIN projects
DePIN in practice: empowering real-world use cases with encryption technology
DePIN is built on the basic concept of the Internet of Things (IoT). Therefore, before introducing how DePIN works, let’s first understand the Internet of Things (IoT). The Internet of Things refers to the process of connecting everyday physical objects to the Internet. The concept can be traced back to 1980 when the world’s first vending machine with the concept of the Internet of Things was born. It was connected to the network and could check the inventory on the network to confirm the available quantity of drinks. With the rapid development of the Internet and related technologies, there are more and more applications of the Internet of Things, including connected vehicles, home automation, connected wearable devices, connected health monitoring devices, and remote monitoring devices, etc.
Understanding the concept of DePIN
Decentralized Physical Infrastructure Networks (DePIN) is the name of a blockchain network that uses encrypted assets to incentivize the community to build physical infrastructure networks. There are two points worth noting here. First, the DePIN network relies on a decentralized network and community, rather than centralized companies, for transactions and business logic. Second, unlike most Web3 products, the virtual assets on this network can be used to purchase tangible assets in the real world, such as electricity, telecommunication services, and network access. In summary, DePIN was created to provide practical value.
Based on the different hardware and resources, goods, and services provided by the network, the DePIN project can be divided into the following two categories:
Physical Resource Network (PRN): PRN encourages participants to use location-based hardware to provide unique real-world goods and services, such as wireless networks, energy networks, and sensor networks.
Digital Resource Network (DRN): DRN encourages participants to use hardware to provide interchangeable digital resources, such as cloud storage networks, bandwidth, or network computing.
Note: Currently, there is no consensus on the distinction between the above concepts. If you want to know if a project is DePIN and whether it belongs to the PRN or DRN category, you can test it at the link below.
DePIN Hardware Network and Economic Operation
Unlike traditional centralized companies that invest a lot of time and money in building and maintaining infrastructure, DePIN attempts to outsource this construction and maintenance process to a community incentivized by encrypted assets. The typical components of the DePIN network include:
Encrypted assets and community members: Cryptocurrency assets (such as tokens) are used to pay for specific projects’ services to hardware operators. Each type of encrypted asset has different economic characteristics based on the project’s rules. Under this incentive, community members maintain and build the infrastructure.
Hardware devices: Physical components that help connect the network to the physical world. For example, hotspots can be used for wireless networks, and additional space on hard drives can be used for storage networks.
Hardware operators: Purchase or lend hardware and connect to users on their respective networks.
End users: Users of the infrastructure supported by the network hardware. For example, end users may prefer to rely on the DePIN project rather than companies to access WiFi signals and pay for services provided by the network.
Therefore, the DePIN network first incentivizes participants in the decentralized community to become suppliers through encrypted asset incentives. As the supply side grows, capital drives the value of encrypted assets, enabling the supply side to provide competitively priced services. By creating an attractive ecosystem foundation, more developers, builders, and end users will be attracted to join.
As end users continue to adopt and demand for the network’s structural requirements increase, it drives an increase in revenue for the supply side. In addition, the economic model of this encrypted network will keep the price of encrypted assets consistent with the increase in network utilization. As the adoption rate of the network increases, capturing more network value, the price of encrypted assets rises, attracting more participants and speculative capital, and forming a positive feedback loop that attracts more builders and users to join.
DePIN Development: Coexistence of Potential and Challenges
Although DePIN provides a paradigm that combines cryptographic technology with real-world use cases, why do we need to change the status quo and utilize DePIN to decentralize the physical infrastructure network? In reality, technological innovation needs a clear market demand and business advantages as a basis for long-term development. The following will introduce the development potential and challenges of DePIN.
The Development Potential of DePIN
On one hand, compared to the traditional top-down and capital-intensive approach of the Internet of Things, DePIN aims to create a fairer and more efficient process to guide infrastructure networks. It has the following advantages:
Security and efficiency. Utilizing blockchain technology, DePIN provides secure peer-to-peer payments for its network participants without relying on payment intermediaries. Through distributed physical infrastructure and community participation, DePIN achieves rapid and large-scale expansion faster than traditional projects, with operational capital and costs only a small fraction of those of traditional companies. While telecom companies have to invest billions of dollars in infrastructure and real estate to host it and retain a large number of employees to support it, DePIN achieves hosting by incentivizing network members to profit while everyone benefits.
High adoption rate. Communities can own the hardware that makes up the network as well as the hardware or services they need to use, making them both service providers and users, which promotes the adoption of the network. Therefore, trust in the network service comes from the consistency of interests, rather than relying on a centralized company that provides quarterly reports.
Openness. Traditional infrastructure projects are usually ultimately governed by a centralized entity that dictates the terms and conditions you can execute and use, making it difficult for users to have a voice. But DePIN is open, democratic, and easily accessible.
Censorship resistance. In addition to being permissionless and open, DePIN is also censorship-resistant, with no one able to deny your access for any reason.
On the other hand, by utilizing blockchain technology, DePIN will promote innovation and development in various fields of Web2 and Web3, in addition to the Internet of Things:
As a native Web3 network, DePIN also allows network participants to directly access various Web3 tools and DeFi services, such as financing for new hardware, which can provide more potential users for Web3 multi-track development.
By significantly reducing the upfront capital requirements and lowering the barriers to entry, DePIN empowers traditional industries in real life and brings new competitiveness to industries such as traditional telecommunications and energy, thereby stimulating comprehensive innovation.
The Development Challenges of DePIN
Incentive burden: The DePIN project uses cryptocurrency to incentivize and reward those who use and/or maintain the hardware that powers the network. In a highly diluted incentive model, on one hand, it can sustainably incentivize and attract community builders, but on the other hand, an excessively diluted incentive model can lead to the dilution of interests of the original holders and cause issues in the overall economic structure of the project.
Development costs: Compared to consumer-oriented Web3 applications such as games, building applications and meeting demand takes much longer for DePIN, and developers face more development challenges.
Intense competition: Replace existing services or create new ones? Although the market is currently large, it is still a huge challenge to compete with Web2 giants such as Amazon, Microsoft, and Google.
In short, disrupting traditional industries requires more effort and support from professional technology, and the development of DePIN still has a long way to go.
DePIN Project, Development Status Inventory
DePIN uses blockchain and encrypted assets to create and incentivize the deployment and use of real-life physical infrastructure. Although the DePIN ecosystem is still being explored, some projects have made significant progress. Messari Research Institute has summarized the current panorama of DePIN projects, as shown in the figure below.
Among them, the top 10 companies in DePIN are “Server Network” Filecoin, Arweave, Sia, and Storj in the category of Digital Resource Network (DRN), “Wireless Network” Helium and PollenMobile in the category of Physical Resource Network (PRN), “Sensor Network” Hivemapper and DIMO, and “Energy Network” React Protocol and Arkreen. The specific development status of each project will be introduced below. Interested friends can go to the respective project’s official website to view the details of the project’s development.
Helium is one of the pioneering projects of DePIN. In July 2019, Helium led the DeWi movement with its LoRaWAN network aimed at powering the Internet of Things (IoT). Its initial goal was to create a low-power wide area network (LoRaWAN) for interconnecting IoT devices. As a unique service at the time, it enjoyed a first-mover advantage in the field and established partnerships with projects aiming to track weather, monitor air quality, and integrate GPS.
In 2022, the project adjusted its development goals and is committed to becoming a “network of networks” to help support other DePIN projects, such as building decentralized solutions for Wi-Fi, 5G, VPN, etc. As of now, nearly 1 million hotspots have been connected to the Helium network. However, Web3 commentator Liron Shapira believes that the use case of Helium has been exaggerated, as most of its revenue comes from selling hardware to new network providers, and the actual demand for Helium’s products is negligible.
Filecoin was launched in 2020, providing cloud storage services similar to Web2 giants Google Cloud and Amazon Web Services. However, Filecoin is not controlled by centralized providers but offers a distributed storage solution secured by cryptographic economic incentives. Filecoin connects users who need space to store data with users who have idle space on their hard drives. Users providing storage space will be paid in FIL.
Currently, Filecoin’s monthly revenue has dropped significantly during the bear market. Researcher Domica believes that after experiencing expansion and development in the summer of 2021, Filecoin’s scale and utility have been exaggerated. The project has addressed this issue by launching Filecoin Plus, a new product that provides free storage space for verified users, and many users have switched to Filecoin Plus.
As a Web3 network that provides power to the Internet of Things economy, is DePIN, a centralized physical infrastructure network, a new concept speculation or a new flywheel driving development? Currently, in terms of the development of top projects in this field, there are still barriers between the huge market and DePIN services. How to truly apply encryption technology and incentive models to real use cases has become a key issue that needs to be addressed. However, from another perspective, compared to mature projects such as DeFi and NFT, DePIN is in a blue ocean market that is waiting to be explored. We look forward to more developers driving the development of the DePIN track through technological innovation, and promoting the realization of the Web3 value network.