In a nutshell: Decentralized Physical Infrastructure Networks (DePIN) is the new name for blockchain networks that use tokens to incentivise communities to build physical infrastructure networks/dApps (think charging, telecoms etc.) from the ground up. The sector has been around for years, but the consensus around a name has ignited a unified understanding that this is Web3’s time to shine — in the real-world. This blog explores all you need to know to make sense of crypto’s most exciting sector.
We’ve had metaverse mania, DeFi delirium, and NFT nuttery. The next craze and subsequent wave will go by the name …
Sure, a tad underwhelming as names go. But who’s keeping scores? We’re in tech, after all. Better yet, we’re in crypto. This is the home of esoteric acronyms seemingly intentionally created to induce people to suffocate themselves with their pillows in the middle of the night yelling ‘WHY?!’.
Alas, wouldn’t it be worse if we had an overwhelmingly sexy name for an underwhelmingly promising idea? Oleato, for example.
DePIN is the Frodo Baggins of crypto. Unassuming, even endearing at first glance. But with it comes the potential to unite Web3s most promising fields; IoT/EoT, energy, telecoms, mobility, behind one term. One call-to-arms. One word to inspire the bull run of all bull runs…
For quite a few people, crypto is about gains. In many cases, you don’t buy one bitcoin because it’s worth one bitcoin, or because you’re paying for your pizza with it. You buy one bitcoin because you anticipate it to go up against USD or another fiat currency. Fair enough, we’re not judging, we’ve all got bills to pay.
Enter Decentralized Physical Infrastructure Networks (DePIN), and the equation does a cool headstance. With a DePIN, you want the token because it buys you something tangible — like power, telecom services, Web access, or more — or is used to govern the network which enables you to buy these tangible goodies. Yes, it’s basically utility and governance tied to real-world processes and needs, unlike … some other stuff in Web3.
In other words, DePINs use blockchain and tokens to create and incentivise the deployment and use of value-generating physical infrastructure. DePINs rely on a decentralized network and community, not a centralized backend and company, for transactions and business logic. They are created to provide real-word value.
By the way, since people don’t come to consensus as neatly as blockchain nodes, you may have already heard about this trend under different names, such as EdgeFi, Proof of Physical Work (PoPw), or Token Incentivized Physical Networks (TIPIN).
In essence, it’s not actually a new trend, but rather something going back to the very dawn of the blockchain era — but given its development and increasing weight, it needs the one name to rule them all. We’ll go with Messari and call it DePIN, for the sake of consistency and consensus. After all, consistency is important when talking about what is Web3’s ostensibly best shot at not just a rebound, but actual real-world adoption.
A system that works for all
So why would anyone bother with DePIN instead of just shopping for energy and data from all the regular suspects? Well, here’s the gist:
- By crowdsourcing the physical infrastructure, DePINs can hyper-scale faster than traditional projects at a fraction of the cost, by being distributed among the network participants and offset by future growth and revenues.
- DePINs run on collective ownership over the hardware making up the network, aligning the interests of the stakeholders to foster adoption and growth. Rather than reliance on one centralized corporation interested primarily in quarterly reports.
- While traditional infrastructure projects often end up with a centralized entity dictating the terms and conditions for who can join in and what they can do, DePINs are open, democratic, and more accessible.
- Besides being permissionless and open, DePINs are also censorship-resistant, with no centralized gatekeeper capable of denying access to a specific party based on nothing but their whim.
While a lot of the above is great in general terms, innovation must always be underpinned by a clear-cut business advantage to make it long-term. Thankfully, DePINs do have a lot going for them on that front too, offering a variety of competitive edges over the traditional model:
- By crowdsourcing the hardware and its maintenance, DePINs operate at a fraction of the capital and operating expenditures of traditional companies. Where telecoms have to invest billions into the infrastructure and real estate to host it and keep armies of employees to support it, DePINs incentivize network members to take care of these expenses while still profiting.
- By leveraging blockchain, DePINs offer its members secure peer-to-peer payments without having to rely on a payments processor intermediary taking a cut.
- As Web3 natives, DePINs also grant the network participants direct access to a variety of Web3 tools and DeFi services, such as financing new hardware, that can unlock even more revenue streams for them.
- By reducing the barriers to entry thanks to the slashed upfront capital needs, DePINs bring new competition into a variety of industries that have been dormant for a while, incentivizing innovation across the board.
Besides all of that, DePINs are also way more versatile when it comes to entering traditionally underserved areas. Let’s take internet access in the developing world, for example: Bringing the infrastructure needed to connect remote communities often implies a high upfront cost that the legacy telecoms are simply unwilling to bear. DePINs empower communities to take matters into their own hands, covering the upfront costs and labor themselves. This results in more accessible community-owned infrastructure putting in the work where it counts the most.
The access-to-internet case is particularly interesting because it’s a duplicator. More people with internet access can lead to more DePIN projects to do with telco, energy, IoT - you name it.
Why DePINs are the future
For entrepreneurs and founders, this business model effectively opens a new pathway into a market that would have otherwise been almost impossible to penetrate. Let’s say Alice and Bob want to launch a new telecom service. If they were to go the traditional way, they’d have to first raise billions to cover the infrastructure purchase and deployment, helpfully conducted by one of the household centralized companies dominating the market (don’t we all love those!).
They’d also have to invest in the physical space for hosting this infrastructure, renting out or purchasing costly real estate. Finally, they’d have to retain a small army of employees to maintain the network, building a rigid and centralized corporate structure catering to an existing market (because more corporatism is totally what the world needs right now).
Now, if our good friends choose the DePIN way, they wouldn’t have to worry about most of the above. They can effectively bootstrap their network simply by allowing everyone to participate and building the digital infrastructure enabling them to do so.
The providers, both businesses and individuals, would set up their own hardware and take care of its deployment and maintenance themselves. The end result here is not a corporate structure, but a community running its own services with ownership and sovereignty and treading easily wherever demand appears.
What else could Alice and Bob put on DePIN rails, while they’re at it? In its recent report on the matter, Messari counted four distinct sub-sectors within the space: server (decentralized data storage, computation, VPNs, and more), wireless (community-powered network access), sensors (weather and other data), and energy (distributed power grids). This in itself is indicative of at least four massive markets ripe for disruption, and the momentum doesn’t have to stop there.
Various teams are already building DePINs that push the concept further, into areas such as mobility and digital twins. Through the competitive edge that comes with all of the above and their community spirit, they will make massive dents across industries, pushing out the legacy names. So if you’re wondering, yes, it’s time to get excited, and yes, you are early to the party (if you’re reading this some time close to February 2023).
Overview: How a DePIN works
As with any other network, DePIN comes down to two most fundamental components: the physical infrastructure (duh) and the digital backbone it runs on. The former can be anything from solar panels, connected with the network through a controller such as a Raspberry Pi mini-computer, while the latter is a host of smart contracts handling various aspects of the project. These smart contracts run on a blockchain network, ideally a public and permissionless one.
The blockchain works as the ledger for the network, recording the transactions and other value exchanges between network members, such as purchasing broadband access from someone renting out their router. The network rewards its participants with tokens for specific useful activities, such as selling energy via their solar panels or, well, renting out their routers.
DePIN tokens work as an incentive mechanism meant to encourage the supply side — solar panel owners, connectivity providers, sensor array owners et al — to build up the network’s capabilities to the point where it can compete with the legacy names dominating the given market.
The increasing demand, for its part, incentivizes more players to join on the supply side, creating a self-reinforcing long-term growth loop. To protect the end users from market fluctuations, DePINs usually also feature a fiat-pegged utility token that can be acquired through burning their publicly-traded token.
DePIN: What peaq was built to enable
As the Web3 network powering the Economy of Things, peaq was designed to grant DePIN projects the optimal layer-1 chain to work as their backbone — we just never said it that way, because DePIN was never a thing (until now). Here’s an in-depth explainer on why peaq is the home for DePINs, but a short overview of the host of crucial features and benefits peaq offers them looks like this:
- An array of IoT-focused functions, including self-sovereign identities for machines/Things (peaq ID), role-based access management (peaq access), and peer-to-peer payments (peaq pay), ready to be leveraged as part of a new project without the need for building from scratch.
- A Web3 machine control center (peaq control) providing a holistic way to onboard any machines, devices, sensors, vehicles, or robots to the network, ready to be used in any DePIN on peaq.
- A tokenomics model tailored to the needs of DePINs including network token incentives for dApps and all connected machines, devices, sensors, vehicles, or robots working as their earnings amplifiers, and subsidization pools for new machines added to the network.
- Native interoperability with other layer-1 networks and DeFi services within the Polkadot and Kusama ecosystem.
Future DePIN-focused functions will also include data verification tools, which is important when working with third-party edge devices, and geolocation oracles. DePINs looking to start building on peaq can also make use of the Ecosystem Grant Program for the extra oomph.
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