DePIN: Physical Infrastructure to Blockchain, a Directive for the Future

Key takeaways

• Decentralised Physical Infrastructure Networks (DePINs) are blockchain-based platforms that incentivise service providers to lease their industry-specific physical infrastructure to end users. Core components include blockchain as a ledger, native tokens for incentives and payments, service providers, end users, and network protocols.
• DePINs are categorised into Physical Resource Networks (PRNs) and Digital Resource Networks (DRNs). Examples include Filecoin for distributed cloud storage, Render Network for GPU rendering, Bittensor for machine intelligence, Theta for video delivery and streaming, Helium for IoT, and IoTeX for a decentralised machine economy.
• DePINs have the potential to scale faster than traditional platforms by crowdsourcing equipment, but building a mature global network can be challenging. Factors like technology availability, token price performance, blockchain interoperability, and regulatory opacity can hinder scalability. Compared to centralised alternatives like Amazon S3, DePINs offer benefits such as better security, accessibility, and privacy, but may lack mainstream acceptance and maturity.
• DePINs offer equal power distribution, censorship resistance, lower fees, and no single point of failure. However, they may face challenges in achieving mainstream acceptance, trust from larger enterprises, and ease of technical integration compared to centralised counterparts. Despite the cons, DePINs represent a revolutionary concept that empowers service providers and consumers, paving the way for a decentralised future.

Web3 physical infrastructure has been named many things, but it seems the gaggle of enthusiasts have finally agreed on one common term: DePINs, or decentralised physical infrastructure networks. If you roam in crypto circles, you’d know they have seen a sudden burst in popularity, with more and more people interested in them. It’s safe to say that DePINs are one of the three emerging ‘De’s’ (the other two being DeFi and DeSoc) when it comes to crypto in 2024.

The reason? Largely, it’s the fact that DePINs decentralise power across industries and can be more efficient than centralised kingpins.

We will elaborate on that statement further into the article, but for now, let’s start at the definition: what is a DePIN?

What is a DePIN?

This is best understood by breaking down the name- so decentralised physical infrastructure networks are basically blockchain-based decentralised platforms that incentivise a certain group of service providers to lease their industry-specific physical infrastructure to end users through the blockchain network. 

There are some core mechanisms and components putting DePINs together, which include:

• Blockchain acts as a ledger for the network, recording all transactions and helping service providers and end users connect through peer-to-peer trading.
• The tokenomics is set up so there is a native DePIN token that can be given to service providers as incentive for their contribution, can be staked on the platform to pledge one’s secure and efficient services, can be used for fee payments, and can even be used to provide governance and voting rights to participants.
• The service providers are those, who, depending on the industry a DePIN operates in, lend out their hardware for usage and earn native tokens of a DePIN in return. So if a DePIN works to increase internet connectivity across a certain region, the service providers would be those who onboard the platform with their router (physical infrastructure) and let the end users use data through wireless hotspots.
• Said end users are there too, of course. They make payments to service providers with the native token of the DePIN blockchain network.
• As more and more people onboard a DePIN, the network matures, letting service providers offer competitive rates. This makes DePINs a more suitable choice for the regular user, as opposed to traditional platforms across industries.
• Increasing demand naturally creates growth potential in the longer term.
• Finally, there are network protocols defining all core characteristics of a decentralised physical infrastructure network. These may include but are not limited to tokenomics, governance rules, and eligibility criteria for suppliers/service providers.

Types of DePINs

Depending on the kind of service provided, decentralised physical infrastructure networks can be divided into two major types, which are:

• PRN or Physical Resource Networks: Service providers on such networks bring physical products/services through their hardware support, namely solar panels for renewable energy.
• DRN or Digital Resource Networks: On the contrary, here service providers bring their hardware support to offer digital services. VPN networks would be part of DRNs.

Examples of DePINs, and how they work

To understand ‘what is a DePIN?’ better, here are a few examples of decentralised physical infrastructure networks already active:

• Filecoin: Filecoin is a distributed cloud storage network, for storing data (duh). On Filecoin, suppliers (storage providers) lease storage to end users for free or in exchange of a small fee, on top of receiving FIL as reward. 

  You can understand Filecoin as a contender to AWS or Amazon Web Services. The decentralisation of Filecoin removes a single point of failure, however, as well as removes any censorship issues. 

• Render: The Render Network is a distributed GPU rendering platform, letting users delegate their GPU rendering work to high-performance GPU nodes situated all over the world. Of course, service providers here lend out their unused GPU power. 

  The Render Network is especially helpful to artists, designers, engineers, and developers for a broad range of GPU applications like motion graphics, visual effects, monetising portable 3D assets, and virtual production. The native RNDR DePIN crypto is used to pay platform fees, among other things.  

• Bittensor:  In an adjacent stream, Bittensor is a mining-based platform like Bitcoin. The network is dedicated to the creation of a peer to peer market for machine intelligence, making it a ‘tradable commodity.’ As the team further explains the goal of Bittensor, “It enables the collective intelligence of AI models to come together, forming a digital hive mind.”

  The TAO token is the native DePIN crypto to Bittensor. TAO miners serve machine learning models to end users, and get rewarded with TAO tokens in return, as any mining mechanism works. TAO also spearheads the Bittensor payment system. 

• Theta: As many have called it, the Theta Network can be described as something similar to YouTube, but in a decentralised atmosphere. The layer 1 blockchain provides peer to peer video delivery and streaming. Theta has two tokens, Theta and TFuel, the first a governance token and the second an operational token. THETA is used for staking and maintaining the network, and those running nodes get a share of the TFuel tokens used for on-chain activities.
• Helium: Helium looks to advance the IoT (internet of things) technology, by connecting wireless devices. The native DePIN crypto of the platform is called HNT, used to award Hotspot providers and even back governance tokens on the platform (such as MOBILE and IOT). The maximum supply for HNT is at 223 million, with the rate of emission being controlled by the Burn-and-Mint Equilibrium or BME model. In BME, HNT is burned for data credits. 

• IoTeX: Another DePIN related to the Internet of Things, this open source platform looks to accelerate a decentralised machine economy. The IoTeX network is a layer 1 blockchain with the capability to host dApps (decentralised apps); the platform brings tools for NFT (non fungible token) and dApp creation as well.

  IoTX is the native DePIN crypto, which can be used to pay transaction fees, for staking and participation in network governance, and for the registration of devices on the IoTeX platform. 

Filecoin storage vs. Amazon S3

The best way to understand just how impactful a DePIN can be against traditional alternatives would be to actually compare the two. As data storage requirements grow with the arrival of more and more AI projects on the technology scene, let’s compare Filecoin with Amazon S3 or Amazon Simple Storage Service from Amazon Web Services.

Filecoin is built on top of the IPFS protocol- also known as InterPlanetary File System, which is a peer to peer network and brings a decentralised system; there is no centralised server. Thus Filecoin offers benefits like better security, better accessibility, no censorship issues, and better privacy protection. 

On the other hand, Amazon S3 is a centralised platform for data storage, creating a singular point of failure that can bring down the entire network. On the other hand, even if one or two of the Filecoin nodes go down, the network will persist overall, creating no widespread disruptions.

The only roadblock for Filecoin stands to be the mainstream acceptance that AWS enjoys. Meanwhile Filecoin is still in development, in need of more maturity and optimisation before it replaces systems like AWS. 

How scalable are DePINs at the moment?

While DePINs are quite scalable in theory- such a network can crowdsource its equipment and scale faster than traditional platforms given there are enough enthusiastic users- in actuality, it may be quite difficult to build a mature enough network, especially on a global scale.

For physical resource-based DePINs, it may be acceptable to form a localised network that serves a certain user base without requiring to scale widely. On the other hand, better scalability would be a requirement for digital resource-based infrastructure networks. 

A few factors can hinder scalability for DePINs, namely:

• Technology and material availability are both important factors for the scalability of a DePIN. For instance, renewable energy may be a limited resource, which can make a DePIN lack in scalability.
• As you can imagine, it may get difficult to incentivise the service providers since the value of their rewards depends on the price of the DePIN crypto. Early investors as well as the top executives get early exits on the tokens they have, and they also hold a large number of these tokens. If the price does not perform in the positive, it means the suppliers do not get sufficiently rewarded for their services.
• Blockchains have not yet achieved smooth interoperability yet, and a lack of appropriate solutions can stop blockchains from interacting and slow down a DePIN’s actions.
• Finally, very few regions in the world have secured substantial regulation for crypto so far, and as DePINs can not follow the same regulations as their centralised counterparts, the regulatory opacity lowers network participation due to a fear of profitability. 

Pros and Cons of DePINs

As you may have gathered by now, the pros of DePINs include:

• Equal power distribution among participants
• No centralised authorities to censor transactions and extract profits
• Payments are done peer to peer, without requiring any intermediaries and therefore lowering fees
• No single point of failure exists to bring the DePIN network down

However, there are some cons as well, including:

• It may be a while yet before DePINs achieve mainstream acceptance and enough maturity to compete with the more traditional contemporaries
• Larger enterprises do not yet trust scaling with the blockchain technology
• Compared to centralised counterparts of DePINs, the ease of technical integration is lower

However, despite the cons, DePINs bring a revolutionary concept that gives power back to the service provider and the consumer, and it’s an important step to secure a decentralised future for the world. As institutional support pours into crypto, the importance of DePINs can not be undermined. There is endless potential for such infrastructure lying on the horizon, and just the right regulation can guide us to this empowered future soon enough.

Stay tuned to India Crypto Research for more insights into the world of crypto and blockchain!