What is DePIN? Everything You Need to Know
What is DePIN?
DePIN stands for Decentralized Physical Infrastructure Networks. It uses blockchain and token rewards to develop physical infrastructure in the real world, covering areas like transportation, energy, and wireless connectivity.
DePIN is an acronym for Decentralized Physical Infrastructure Networks. This term refers to developing blockchain-based management systems for real-world facilities, such as computing power and real-world data markets.
DePIN uses a cryptocurrency-driven incentive system to create a reward-based model for crowdsourced physical infrastructure providers while promoting decentralized alternatives to traditional infrastructure.
The concept of DePIN is broad, covering many critical operational systems in both industry and daily life.
Projects like IoTeX, Helium, Hivemapper, and Natix Network are making significant efforts in this field, and DePIN is emerging as a noteworthy industry within the cryptocurrency sector.
Various centralized digital platforms use community power to build resource networks for millions of users. One example is ride-sharing services like Uber. Uber drivers contribute physical resources (vehicles) and services (driving) and are compensated accordingly, while the platform delivers these services to a large user base.
Such centralized systems use fiat currency to reward providers or attract them through volunteer benefits (like broader visibility) while maintaining control over the providers’ resources (at least while they are active on the platform). Providers also need to go through explicit processes to gain membership; the same applies to users.
Blockchain-based projects are developing solutions and improvements for this system. These projects claim to offer providers better ways to participate in public service delivery and flexible, higher compensation for these services. These projects are called DePIN and have the potential to disrupt service-based industries in the future. So, what exactly is DePIN?
DePIN in the Crypto Space
DePIN is the decentralized version of the above systems. It stands for Decentralized Physical Infrastructure Network. DePIN is a network of crowdsourced providers offering specific real-world services, with the services recorded on a public ledger (blockchain) and compensated with cryptocurrency operating on the same or different blockchain networks.
For DePIN, the blockchain serves as a management, remittance, and recording facility. As a management facility, DePIN designs a permissionless system for providers and users through the blockchain; anyone with sufficient resources can provide the required services.
As a remittance facility, users receive services through blockchain-based solutions, and providers are compensated in cryptocurrency. As a recording facility, the details of each operation are logged on the ledger, often publicly accessible.
DePIN has a wide range of applications. Their scope covers various sectors, from crowdsourced geographic services to advanced infrastructure markets fully operating on the blockchain.
DePIN Classification
DePIN can be broadly classified into two categories:
- Physical Resource Networks (PRNs).
- Digital Resource Networks (DRNs).
PRNs are location-based decentralized physical resource networks. Providers in the network contribute hardware resources related to connectivity, mobility, energy, etc., to offer services.
These resources are location-based and, to some extent, non-fungible, meaning the services are localized (set in a specific location) and sometimes immovable (fixed in a specific place).
DRNs are networks of interchangeable digital resource providers. Providers contribute resources like computing power, shared bandwidth, or storage facilities. These resources are not limited to specific locations or linked to location data.
DePIN is breaking boundaries by connecting blockchain and the real world in an unprecedented way. Here’s the foundation of how it works.
How Does DePIN Work?
DePIN creates a connection between physical infrastructure and blockchain. In simple terms, the main components include the physical infrastructure controlled by providers, middleware that connects the infrastructure with the blockchain, and the public ledger that manages this connection for remittance. Here’s how it works in detail:
- Physical Infrastructure: The physical infrastructure can include various devices like sensors, internet routers, or solar panels. These are managed by private providers, some of whom may have owned these facilities before participating in the DePIN project. You can imagine it as a PoW (Proof-of-Work) blockchain network where miners contribute computing power to secure the network. As many private providers as possible can contribute their facilities to DePIN.
- Middleware: The middleware handles most of the connection work between the blockchain and the physical infrastructure. Similar to Decentralized Oracle Networks (DONs), which gather data from the outside world and pass it on to blockchain applications, middleware plays a similar role. It collects activity data from each private facility and relays it to the DePIN network.
- Blockchain System: The data collected by the middleware is sent to the blockchain, which serves as the management and remittance system for providers and users. Based on the data provided by the middleware, the blockchain allocates demand to providers and calculates corresponding rewards. The rewards are distributed in cryptocurrency. On the user side, the blockchain also handles resource procurement, integrating pricing models into the remittance system so that users pay for each service promptly.
The DePIN Flywheel
DePIN aims to develop resource-efficient physical infrastructure through incentive mechanisms. First, providers are incentivized to contribute their physical infrastructure to the decentralized network.
To earn rewards, many providers, some of whom may have these facilities sitting idle, contribute them to the network. DePIN makes these resources available to users. The network generates revenue through fees paid by users.
Users are also attracted by lower service costs compared to company-owned facilities. As the network grows, the value of the local token increases, meaning providers receive more rewards, attracting more investors and providers to join. As the cycle continues and the network expands, the DePIN flywheel starts to spin.
What Are the Benefits of DePIN?
Although not exhaustive, here are some advantages of DePIN:
Horizontal Scalability
DePIN allows facilities to increase their capacity more flexibly. Instead of increasing the capacity of each resource, the network can add more resources. This method offers high flexibility, enabling facilities built with this system to scale up or down easily based on demand. The blockchain can manage available resources and allocate demand.
In low-demand situations, some providers might experience lower workloads. In high-demand situations, the network can reactivate idle resources, add more instances, and increase the overall network capacity without any transfer. Depending on the available idle resources and DePIN’s allocation system, such a system can scale indefinitely.
Community Control – Decentralization
Like DeFi, DePIN is decentralizing infrastructure systems, shifting from company control to a group of individuals pooling resources to build facilities. This system decentralizes control of the facilities to different providers—similar to miners in a PoW network.
DePIN acts as an industrial DAO where everyone in the system contributes resources and holds corresponding control based on their capacity. In a system where each provider’s capacity is equal, DePIN becomes a (nearly) fully decentralized system.
Fair Pricing
DePIN’s pricing model differs from traditional infrastructure. Factors affecting the pricing model include the costs incurred by private providers in operating their facilities and other network-related factors. Additional fees related to the platform may be lower since the platform itself doesn’t need to fund these facilities.
Overall, DePIN’s pricing model is expected to be cheaper and fairer as it considers fundamental factors, avoiding the unfair price inflation often associated with facilities run by centralized institutions. For a system driven by individuals, DePIN is more likely to account for affordability in its pricing model than a company would.
Cost-Effective Operations
The DePI network requires minimal costs to keep it running; providers have high flexibility in the services they offer. For example, providers can contribute their facilities to multiple networks.
Users also pay a fair price for the services they receive from the network. DePIN is designed to deliver the best possible services at the lowest possible cost, offering a cost-effective system.
Permissionless
Anyone can contribute their resources to DePIN. On the user side, anyone can also access the services provided by DePIN. There’s no issue of price negotiation or user screening for these services.
Once providers have the required infrastructure, they can run provider accounts on DePIN just as easily as anyone can deploy liquidity pools on decentralized exchanges or take out loans from money markets.
Incentives
Incentives are a crucial tool for DePIN. For providers, they offer opportunities for passive or active income, depending on how DePIN operates. Individuals can also primarily build income sources from DePIN.
For example, projects like Nunet aim to reduce idle computing resources through their AI-based computing power marketplace. Providers can earn income from their facilities, which might otherwise remain idle.
What Challenges Does DePIN Face?
DePIN is an emerging concept that has shown potential on paper and in early prototypes, but some factors could limit its development. These factors include:
Impact of Adoption Stage on Revenue
DePIN’s flywheel depends on the network’s progress, reflected in the token’s value and the willingness of investors and providers to participate.
At this stage, DePIN is still new, and only a small portion of blockchain enthusiasts and facility owners are currently interested in participating in such a system. While this may change in the future, DePIN faces a significant challenge in designing a system that attracts enough providers and users to join the network and flywheel.
Technical Complexity
As a concept, DePIN can be difficult to understand. For enthusiasts looking to participate in this field, the technical aspects can be daunting, at least initially. Projects in this space need to step up efforts to educate individuals at different levels.
Costs of Operating Private Facilities
The daily operation of some facilities can incur considerable costs. This can be challenging for some providers, as private facilities rarely receive external financial support.
Profitability
To attract providers, DePIN must be able to pay rewards at least equivalent to the operating costs and maintain profitability. The appeal is directly proportional to the profit percentage for each operating cycle. At this stage, with users and providers still scarce, DePIN may struggle to offer attractive rewards.
The Domain of DePIN and DePIN Crypto Projects
Here are some domains in which DePIN projects operate:
Wireless Communication
In the field of wireless communication, DePIN focuses on developing decentralized platforms for connection sharing among IoT and mobile devices.
These projects incentivize providers with cryptocurrency to pledge their connection resources to the network. Middleware computes the data from the connection resources and rewards providers based on the services provided to devices connected through the network.
Wireless DePIN projects like Helium focus on capturing a share of connection services from large network providers. Helium uses a multi-token system, where each token in the ecosystem plays a role in providing network resources and rewarding providers.
The HNT token is burned by users to obtain connection services, while the MOBILE token powers Helium’s 5G project. Owners of 5G hotspot bundles provide network coverage and earn MOBILE tokens.
Geospatial
Location services are another niche domain for DePIN. The Position Reference Network (PRN) incentivizes providers to offer physical location services, rewarding them with native cryptocurrency.
Such projects use sensors or community contributors to provide location data to the network, which then processes this data to offer services like area mapping.
Projects like Hivemapper are leveraging the power of the community to build a crowdsourced map. Contributors can provide manual mapping resources or use Hivemapper’s dashcam.
Users can install the dashcam on their vehicles and enable the network to read location data as they move. These contributors are rewarded with HONEY tokens based on the area covered.
Mobility
Cars and other vehicles have significantly improved how people move around. However, beyond the infrastructure development of car technology, there hasn’t been much focus on how car owners manage their vehicles or how much additional value they derive from them.
Mobility DePIN projects are designing new ways to manage vehicles, collaborate with other owners and companies, and earn rewards in the process.
Health
Fitness apps promote a healthy lifestyle. Some time ago, FitFi sparked a brief trend, where apps like this promoted healthy living by rewarding users for completing specific fitness tasks.
Although these apps no longer generate the same level of buzz, DePIN projects in this domain are operating with a similar design.
Apps like Healthblocks reward users for providing specific health-related information so that healthcare companies and workers can make progress.
Users can also connect their fitness devices to the app to track their fitness goals. Users earn HEALTH tokens as rewards for completing tasks or providing data.
Energy
DePIN projects in the energy sector claim to facilitate the generation of green energy by connecting renewable energy providers with companies that utilize these energies.
These projects promote the aggregation of reliable energy supply data and use this data to develop environmentally friendly energy practices.
Arkreen is a decentralized project focused on green energy, incentivizing green energy providers to offer data from their energy facilities. Data that can be provided includes the capacity of solar installations and other similar information.
The demand side for such applications includes Renewable Energy Certification (REC) issuers and green computing operators, who can access power data and use it to build applications and services.
Storage Networks
Decentralized storage networks provide on-demand storage space to users by incentivizing providers to contribute their storage space. Projects like Filecoin claim to make the internet more secure and efficient through a decentralized data storage market, protocol, and cryptocurrency.
The Filecoin blockchain records the storage space contributed by each provider and rewards contributors with Filecoin, while users pay storage rental fees to securely store their data and files.
Computing Networks
Decentralized computing networks provide retail computing infrastructure to users by pooling idle resources from private computing resource providers into the network. They establish a marketplace for computing resources and incentivize providers to participate.
An example of a DePIN project is Nunet. Nunet is an AI-powered computing resource marketplace. It claims to promote a resource-efficient environment for companies by making idle computing resources available to anyone.
Computing resource providers are rewarded with NTX tokens for their contributions to the market. Companies and individuals can borrow available computing power and pay fees.
Bandwidth Networks
Decentralized bandwidth networks aim to optimize content delivery and reduce costs by incentivizing private providers to share their bandwidth. By doing so, they enable existing video and media platforms to generate incremental revenue, while users utilize shared bandwidth at lower costs, providing higher-quality multimedia content.
One project in this domain is Theta Network. Theta is an Ethereum Virtual Machine (EVM) compatible network consisting of a blockchain network and an edge network.
The blockchain portion of Theta handles financial remittances and smart contracts, while the edge network manages the storage and delivery of media assets. Bandwidth providers are rewarded with THETA tokens, and bandwidth can be shared on mobile devices, PCs, and other devices.
Final Thoughts
Decentralized Infrastructure Projects (DePIN) democratize software and hardware infrastructure in a community-based manner, offering everyone the opportunity to contribute and be rewarded. Both theoretically and practically, they demonstrate the power of community, cryptocurrency, and blockchain technology.
While it is unclear whether their financial advantages are fully established, they have already shown signs of being a cost-effective method of infrastructure development. This benefits users, providers, and the projects themselves.
For projects, the contributions from everyone can save the project team significant resources. Providers earn passive or active financial rewards based on their level of contribution. For users, community-based systems are more likely to adopt pricing models aligned with their purchasing power.
From a technical perspective, decentralized infrastructure projects may represent the next stage in the development of commercial-grade facilities, software, and hardware. Current systems are overly centralized, with corporations holding sway over the management of essential routine infrastructure.
Decentralized infrastructure projects can actively change this and return control to distributed providers and users, forming an industrial-grade DAO (Decentralized Autonomous Organization). Current prototypes of decentralized infrastructure projects have already demonstrated this.
By issuing rewards in cryptocurrency, they also promote the adoption of smoother payment systems. Cryptocurrencies are inherently suitable for such systems.
However, it is important to note that while these projects show potential, they may also have certain drawbacks, some of which are not yet known due to the current stage of development. It is also important to understand how these systems, which are relatively young, may be prone to rapid changes, some of which may not align with user expectations.
You should also consider how some of these protocols interact with you as a provider or user. Additionally, bad actors could potentially exploit these systems. Overall, it is recommended to conduct proper personal research.