DePIN, a New Era of Physical Infrastructure Making

TL;DR:

DePIN is a network of physical infrastructure incentivized by tokens, a sector that has been highly anticipated since the early days of blockchain technology. By forming a decentralized network between protocol makers, resource providers, and consumers, and through token economics, it can gain momentum and compete with centralized infrastructure. By providing rewards for the roles of participants within the network, DePIN can compete with existing centralized infrastructure by offering better scalability, cost-effectiveness, and security. While there are still many challenges to be addressed, it is a sector that is growing rapidly with the introduction of AI and is worth noting as a sector with significant value.

Background

Blockchain is changing the paradigm of the existing IT industry through a flywheel that creates explosive growth based on incentives for participants' contributions. While the contributions of participants have mainly been security or liquidity provision for decentralization in the past, the blockchain world that will unfold in the future is where participants who provide specific resources can be rewarded. This is not limited to software. Someone will provide data storage and be rewarded, someone will provide idle computing devices and be rewarded, and it can include many of the physical infrastructures we need in our daily lives. An infrastructure in which resources are formed in a decentralized manner, from providers to consumers, is called DePIN.

As we live, we use various essential infrastructures such as energy, data, and wireless networks, and it is undeniable that most of the work of providing and managing these infrastructures is under the control of central governments or private companies. Centralized infrastructure can lead to increased costs due to monopoly, limitations of scalability and transparency, and decreased resource efficiency. Of course, it cannot be said that centralized infrastructure is unconditionally bad, but the monopoly of infrastructure providers who have long been victorious in competition can ultimately lead to increased costs for consumers and lose motivation to expand for the greater public good. However, now we have the opportunity to form an infrastructure that is not provided by a single entity, but is created by participants and operated by token incentives.

DePIN stands for Decentralized Physical Infrastructure Network. The term itself is not familiar, but similar sectors already existed in blockchain. There was a need for consensus on terms such as EdgeFi, PoPw (Proof of Physical Work), and TIPN (Token Incentivized Physical Networks) that were used in similar meanings in the past, and the term DePIN was used by Messari and is being agreed upon as a word to refer to this sector. Messari also said that it will be one of the most important areas of cryptocurrency investment in the next 10 years.

Growth Momentum

In order for the infrastructure to be formed in accordance with the meaning of DePIN, (1) construction and maintenance of the physical environment (2) off-chain computing environment (3) blockchain architecture (4) token incentives are required.

Unlike general decentralized networks, it is a network that is not just a software network, but is associated with actual physical environments and each item is harmonized. For example, if a computing environment is required, it refers to the physical environment required for data collected from physical devices (e.g., sensors) or a high-performance computing network for this, and large-capacity data storage. The token incentive model is a model of how to reward contributors who have provided the resources needed to build and maintain the physical environment.

When each element is met for its purpose, the growth foundation of DePIN is laid. The protocols and token incentives required to build DePIN provide a springboard for attracting the contributors needed to form the infrastructure. Providers who can contribute the resources needed for the infrastructure can be rewarded for their contributions to the initial infrastructure building, leading to a bootstrap process for competition with centralized infrastructure. If the infrastructure grows, more investors will participate, and if the ecosystem grows and can attract more users, it can continue to grow positively. In this flow, DePIN can directly compete with existing centralized and monopolistic infrastructures, and can absorb various advantages that existing infrastructures do not have and evolve into a better network.

Why DePIN Can Be Better

DePIN is a network composed of participants who provide resources based on token rewards and receive incentives for this. What is the difference between this and the existing centralized physical infrastructure?

The first is high scalability through open infrastructure formation. In the infrastructure led by governments or private companies, specific companies that have won the competition use their strong position through monopoly to intentionally limit scalability for cost efficiency or lose motivation to provide wider infrastructure. However, DePIN is composed of resource providers who have no restrictions on participation, so it has the potential to lead to greater scalability as it grows due to the effect of attracting more participants.

The second is that specific entities do not adjust prices under monopoly and can provide resources to consumers at reasonable prices. Many of the computing and data storage currently available are provided by a few top companies and have high adoption rates. Consumers cannot influence pricing decisions, and some find it difficult to use resources as efficiently as they consume. On the other hand, computing or storage provided in a decentralized environment can leverage community governance to make reasonable and participatory decisions. Compared to the centralized approach that requires large-scale processing, users can experience a much cheaper way of managing and maintaining costs. As a result, consumers can utilize the infrastructure at a lower price compared to existing infrastructure.

For this to happen, the token economic model of the protocol provider needs to be reliable, and this is a key area to be validated for DePIN to be adopted in real life. These advantages are possible because DePIN utilizes blockchain, which guarantees immutability and tamper-proof features. All participants in DePIN, including protocol providers, resource providers, consumers, nodes and devices that make up the infrastructure, can be expanded into a single ID industry within the blockchain. In other words, this means that there is a possibility that many of the existing physical infrastructure industries in the IT industry will be reorganized in the process of realizing the current vision of DePIN. For example, the energy grid and the IT industry have different device identification IDs and data, but in DePIN, these two different domains can operate on a single network. As these domains converge, new market opportunities may arise due to the diversification of resource providers and the creation of a huge network.

Notable Projects

DePIN includes various protocols for different purposes, with projects providing sensors, wireless networks, and data storage for physical infrastructure. Networks that connect directly to clients instead of traditional cloud (server) environments offer token incentives tailored to their specific purposes. Here are some of the currently highlighted key projects:

Arweave: 

Arweave is a decentralized storage network known for its low-cost storage, similar to the well-known storage network Filecoin. It maintains storage space by providing token rewards to providers. AR, the reward token for the Arweave decentralized permanent storage network, is provided as an incentive to resource providers based on the amount of data stored and access frequency.

Livepeer: 

Livepeer is a live video transcoding application. It is a protocol that enables the creation of smooth and fast video streaming services without intermediaries and at no cost. LPT is used as a reward for resource providers (CPU, GPU, and bandwidth) called orchestrators, and can also be partially acquired when broadcasters pay fees to the network. This method is simply called video mining.

Ocean: 

Ocean Protocol is a project that tokenizes data, which is the core of AI, and enables trading in a marketplace. The protocol implements blockchain-based data sharing and introduces a whitelist system called TCR (token curated registry) to participate as a market maker for long-term data monetization, thereby enhancing the reliability of data for use in AI. It also supports the tokenization of data and algorithms through the Ocean Market, and consumers can purchase access rights to data or algorithms.

Helium: 

Helium, widely known as a decentralized wireless network project, promotes the construction of environments by providing token incentives to providers to address the cost limitations of existing IoT device infrastructure. It is further expanding into the 5G and WiFi market, and is accelerating the construction of large-scale IoT environments using LoRaWAN technology, a network technology with low power consumption and long transmission distance. While it has shown slow growth for a while due to regulatory issues and market cap limitations, it is currently one of the most successful projects in building physical infrastructure.

Render: 

Render Network, a distributed GPU rendering platform, is one of the projects that has benefited most from the adoption of AI. Render provides rendering services based on high-performance computing power through a decentralized network, emphasizing the efficient utilization of idle GPU resources. It also improves the efficiency of computing tasks through efficient two-way market matching.

Conclusion

DePIN has been a topic of discussion since the early days of blockchain technology. The DePIN ecosystem, established as a conceptual term by Messari in 2022, is gradually growing. In particular, the recent growth of AI is expected to be a catalyst for DePIN growth, leading to an explosion in demand. However, DePIN is not an industry solely composed of software, so it cannot grow as fast as the general crypto industry. Additionally, the transition from an environment monitored and operated by existing governments or private companies to a decentralized one requires new regulations, and there are still many uncertain factors. Nevertheless, with blockchain expected to change many environments in the transition to a new internet, there is enough reason to pay close attention to DePIN in the future.