February 24, 2023

DePIN: What are Decentralized Physical Infrastructure Networks?

In a nutshell: Decentralized Physical Infrastructure Networks (DePIN) is the name for decentralized applications that use tokens to incentivise communities to build physical infrastructure networks (think mobility, electric vehicle 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… DePIN.

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 thought up 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 Web3’s most promising fields: Internet/Economy of Things, energy, telecoms, mobility, environment, smart cities, smart homes, and more -- behind one term. One call-to-arms. One word to inspire the bull run of all bull runs… DePIN.

So, what is a DePIN?

Let's start by laying out the definition of a decentralized physical infrastructure network (DePIN).

A DePIN is a decentralized application that uses tokens to incentivize people to crowdsource and build connected real-world physical infrastructure.

Let's break that down.

Decentralized applications (apps on blockchain networks) that use tokens (digital tokens and/or cryptocurrencies) to incentivise people to crowdsource and build (get communities of people to find, fund and set up) real-world physical infrastructure networks (networks of real, connected machines, devices, vehicles or robots which provide goods and services to people and machines in the real world).

Here’s a quick example: NATIX Network is building a DePIN of smartphones working as AI-powered cameras collecting valuable mobility data, such as the amount of traffic and road conditions in specific areas. It built a dashcam app that people can download for free and keep active when driving. This app processes the feed from the phone’s camera and turns it into anonymized insights, rewarding the user with tokens for sharing these insights. The phones are the physical infrastructure network, and the mechanism powering this network and issuing the rewards runs on-chain.

"DePIN" can be used in different ways

DePIN is an acronym, short for Decentralized Physical Infrastructure Networks. DePIN is a term used to describe decentralized applications that use tokens to incentivize people to provide services via real-world physical infrastructure/machines/devices.

DePIN is a business model that flips the traditional model on its head by allowing organizations to bootstrap their way to scale instead of needing to rely on huge amounts of upfront capital. Bottom-up. Grassroots.

DePIN is an industry focused on providing real-world services to people via real-world vehicles, robots, and devices, via the open, community-governed #Web3.

DePIN is a global infrastructure revolution, governed by the many, not the few, enabling a new era of economic participation in the tangible world we all share.

DePIN is a movement in which every person can contribute to the community they're part of and earn for the services they provide -- it is a physical embodiment of the paradigm shift from corporate-controlled Web2 to community-owned Web3.

DePIN Sectors

What is a DePIN: DePIN sector map

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, DePIN isn’t 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 the importance of consensus. After all, consistency is important when talking about what is Web3’s ostensibly best shot at not just a rebound, but of actually becoming the default Web, worldwide.

So you can have DePINs providing everything from mobility, to energy, to connectivity, to storage services. But are all DePINs equal? Isn't mobility more of a physical resource than data storage?

Physical Resource Networks vs. Digital Resource Networks

What is a DePIN: Physical vs. Digital Resource networks.
Physical vs. Digital Resource networks

According to Messari, DePINs can be put in two buckets depending on the hardware and resources, goods, and services the network is offering.

Physical Resource Networks (PRNs) incentivize people to direct or deploy location-dependent hardware to offer real-world,
non-fungible goods and
services. Think mobility, energy or connectivity. When ordering a taxi, you want to get from point A to point B; when buying power, you care about its availability in the target area; when buying local weather data, you want it, well, to be local. Location matters.

Digital Resource Networks (DRNs) incentivize people to direct or deploy hardware to offer fungible, digital resources. Think storage, bandwidth or compute networks. You don't really care where the data center is as long as it holds your vacation pics, and the location of the computer running your machine learning model isn't of that much importance either; you just care about the service they provide. That makes the PRN/DRN distinction.

With that lesson over, let's move on to why and how DePIN is going to change the world.

The DePIN Flywheel

The DePIN Flywheel demonstrates how DePINs incentivize people to build out these physical infrastructure networks for other people and machines to use, without the need for a massive upfront investment as has been the case with traditional business models. Tokens attract people to deploy hardware which offers services to other people. People on the supply side earn for providing new or existing hardware to people seeking out the goods or services that hardware provides. And since there are no middlemen, the goods and services are often cheaper and faster.

What is a DePIN: The flywheel driving DePIN scaling.
The flywheel driving DePIN scaling.

Why DePINs do it better

Why would anyone bother with DePIN instead of doing things as they are now? Well, here’s the gist:

  • Lightning-fast scaling: By crowdsourcing 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. Example: Counting thousands of users, NATIX is mapping the world faster than Google.
  • Community instead of corporation: Instead of relying on a centralized corporation interested primarily in quarterly reports, communities can own the hardware making up the network that provides the goods and services they need and use. This aligns the interests of the stakeholders to foster adoption and growth. Example: By distributing a share of the revenues from the car-sharing Teslas in its fleet, ELOOP enables everyone to earn when someone takes a ride — even the person who is using the vehicle. 
  • Open governance: While traditional infrastructure projects often end up with a centralized entity dictating the terms and conditions for what you can do and use, DePINs are open, democratic, and accessible. Example: Traditional electric vehicle charging companies set their prices as they please and pick the new locations in line with profit considerations, but PowerPod relies on community governance and enables any charger owner to become a service provider.
  • No gatekeeping: Besides being permissionless and open, DePINs are also censorship-resistant, with no centralized gatekeeper capable of denying access to you for whatever reason. Example: While centralized platforms often only share data with researchers that fit their interests, anyone can access the global noise pollution data gathered by the Silencio network.
  • New investment opportunities: By leveraging tokenization and fractional ownership, DePINs unlock an entire new asset class for the global Web3 community, enabling it to provide liquidity for APY-generating real-world machines. Example: penomo enables anyone to invest in green energy storage batteries and earn a share in the revenues they generate.

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 expenditure and operating costs of traditional companies. Where telecoms companies 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 this while everyone profits.    
  • 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.

Example: Tracking noise pollution

Noise pollution is a pervasive problem plaguing modern population centers, big and small. It causes a whole variety of health issues, from sleep disruptions to headache and hearing loss. These issues translate into real and tangible losses for entire economies and cause distress across communities, making for a near-universal problem.

While it’s safe to assume that decision-makers would have been happy to solve this problem, this is easier said than done — especially as the data is often scarce. How would you measure it, after all? Would you be happy with having a private company set up microphones all across your city? Just imagine the upfront costs of that. And how far would its reach extend? Would it be able to set up shop only in certain areas? Would it be able to go international? How fast can it scale?

Well, Silencio has more than 150,000 noise pollution sensors deployed across more than 170 countries. All of these are privately-owned, in the sense that Silencio doesn’t own them; in fact, these are microphones on the phones of the people who installed the Silencio app. Don’t worry, though, the app doesn’t actually send the feed from the mics anywhere, it’s very privacy focused. What it does is measuring the overall noise level in your vicinity; this data, properly anonymized, is what leaves the phone.

Now, noise pollution data has value — not just for decision-makers and researchers, but also for a whole bevy of businesses. A real estate developer would want it for offering buyers estate in a quieter area, as that would be factored into the price, and brokers would want that data too, pretty much for the same purposes. Restaurants and hotels would love to quantify their claims of being in a quiet location with hard data. That’s where liquidity comes from into the Silencio ecosystem, and since the valuable data is provided by device owners, Silencio grants them rewards on tokens. This way, it can incentivize the deployment of a network that would have been unimaginable for a traditional company at a pace that a regular business wouldn’t have been able to keep up with. All of this is at the fraction of expenses of a regular business, and with full commitment to privacy and community ownership.

Why DePIN is 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 hundreds of millions 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.

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).

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. 

peaq: the go-to blockchain for DePIN

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 versatile Modular DePIN Functions, including self-sovereign identities for machines/Things (peaq ID), role-based access management (peaq access), peer-to-peer payments (peaq pay), data verification (peaq verify), and more 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.
  • A multi-chain strategy ensuring wide interoperability with other layer-1 networks and DeFi services, including peaq ID compatibility with Polkadot, Kusama, BNB Chain, and Solana, and bridges to dozens of blockchains via Wormhole.     

Future DePIN-focused functions will also include geolocation oracles. DePINs looking to start building on peaq can also make use of the Ecosystem Grant Program for the extra oomph.

If you enjoyed that, you'll love this piece on why DePINs that build on DePIN-focused blockchains have an unfair advantage over those that don't.

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