A Quick Overview of Hot Tracks DePIN Development Potential, Challenges, and Major Players

The hotspots in the Web 3 field are constantly changing, from the DeFi summer, to the NFT craze, to the Year of Layer 2… “Concepts first” seems to have become one of the typical paradigms of development in the crypto field. Amidst the creative and imaginative narratives, the industry has seen wave after wave of development trends. But as the hype subsides, it inevitably leads to reflection: what practical benefits can new use cases in Web 3 really bring to the real world? Do we really need an encrypted network?

Exploring the real value of encrypted networks, at the end of 2022, the well-known crypto research institution Messari conducted a survey seeking an official title for “Web 3 physical infrastructure”. Physical Proof of Work (PoPw), Token Incentivized Physical Networks (TIPIN), EdgeFi, or Decentralized Physical Infrastructure Networks (DePIN) were all among the options. In the end, the decentralized physical infrastructure network DePIN (Decentralised Physical Infrastructure Networks) stood out and became the common name for this potential Web 3 track.

What is DePIN? In summary, it is a network that connects the digital space and the physical space in a decentralized manner based on encryption technology. According to Messari researchers, “the adoption of DePIN will go beyond the early financial transaction use cases in the crypto field” and has the potential to further promote the position of the crypto industry on the Internet, ultimately driving the development of the Web 3 value network. To further understand the DePIN track, this article will analyze it from the following three aspects:

  • What is DePIN? How does it work?

  • The opportunities and challenges facing the development of the DePIN track

  • The current development status of DePIN projects

DePIN in practice: applying encryption technology to real-world use cases

DePIN is built on the basic concept of the Internet of Things (IoT). Therefore, before introducing how DePIN works, let’s first understand what the Internet of Things (IoT) is. The Internet of Things refers to the process of connecting everyday physical objects to the Internet. The concept can be traced back to 1980 when the world’s first vending machine with the concept of the Internet of Things was born. It was connected to the network and could check the inventory on the network to confirm the quantity of drinks available. With the rapid development of the Internet and related technologies, there are more and more applications of the Internet of Things, including connected vehicles, home automation, connected wearable devices, connected health monitoring devices, and remote monitoring devices.

Understanding the concept of DePIN

Decentralized Physical Infrastructure Networks (DePIN) is the name of a blockchain network that uses encrypted assets to incentivize the community to build physical infrastructure networks. There are two points worth noting here. First, the DePIN network relies on decentralized networks and communities, rather than centralized companies, to conduct transactions and business logic. Second, unlike most Web 3 products, the virtual assets on this network can be used to purchase tangible assets in the real world, such as electricity, telecommunications services, and network access. In summary, DePIN was created to provide real value.

The DePIN project is divided into the following two categories based on the different hardware, resources, goods, and services available on the network:

  • Physical Resource Network (PRN): PRN encourages participants to use location-based hardware to provide unique real-world goods and services, such as wireless networks, energy networks, and sensor networks.

  • Digital Resource Network (DRN): DRN encourages participants to use hardware to provide interchangeable digital resources, such as cloud storage networks, bandwidth, or network computing.

Note: Currently, there is no consensus on the distinction between the above concepts. If you want to know if the project is DePIN and whether it belongs to the PRN or DRN category, you can test it at the link below.

?https://2hd1brbnhvd.typeform.com/to/YzJbOSYh

DePIN Hardware Network and Economic Operation

Unlike traditional centralized companies that invest a lot of time and money in building and maintaining infrastructure, DePIN attempts to outsource this construction and maintenance process to a community incentivized by cryptographic assets. The DePIN network typically includes the following key components:

  • Cryptographic Assets and Community Members: Cryptographic assets (such as tokens) are used to pay hardware operators for specific projects, and each cryptographic asset has different economic characteristics according to the project’s rules. Under this incentive, community members maintain and build the infrastructure.

  • Hardware Devices: Physical components that help connect the network to the physical world. For example, hotspots can be used for wireless networks, and additional space on hard drives can be used for storage networks.

  • Hardware Operators: Purchase or lend hardware and connect users to their respective networks.

  • End Users: Users of the infrastructure supported by the network hardware. For example, end users may prefer to rely on the DePIN project rather than companies to access WiFi signals and pay for services provided by the network.

Therefore, the DePIN network first incentivizes participants in the decentralized community to become suppliers through cryptographic asset incentives. With the growth of suppliers, capital drives the value of cryptographic assets, enabling suppliers to provide competitively priced services. Based on creating an attractive ecosystem, it will attract more developers, builders, and end users.

As end users continue to adopt and the structural demand for the network increases, it drives an increase in supplier revenue. In addition, the cryptographic network’s economic model will keep the price of cryptographic assets consistent with the increase in network utilization. As the adoption rate of the network increases, capturing more network value, the price of cryptographic assets rises, attracting more participants and speculative capital, and forming a positive feedback loop that attracts more builders and users to join.

DePIN Development: Potential and Challenges Coexist

Although DePIN provides a paradigm that combines cryptographic technology with real-world use cases, why do we need to change the status quo and utilize DePIN’s decentralized physical infrastructure network? In reality, technological innovation needs to be based on clear market demand and business advantages in order to achieve long-term development. The development potential and challenges of DePIN will be discussed below.

The Development Potential of DePIN

On the one hand, compared to the traditional top-down and capital-intensive approach of the Internet of Things, DePIN aims to create a fairer and more efficient process to guide the infrastructure network. It has the following advantages:

  • High security and efficiency. Utilizing blockchain technology, DePIN provides secure peer-to-peer payments for its network participants without the need for payment intermediaries. By leveraging distributed physical infrastructure and community participants, DePIN can achieve rapid scalability on a larger scale than traditional projects, and its operational capital and costs are only a fraction of those of traditional companies. For example, telecommunications companies must invest billions of dollars in infrastructure and real estate to host it and retain a large number of employees to support it, while DePIN achieves hosting by incentivizing network members to benefit everyone.

  • High adoption rate. The community can own the hardware that constitutes the network, as well as the hardware or services they need to use, making them both providers and users of the service, which will promote the adoption of the network. Therefore, users’ trust in the network service comes from the consistency of interests, rather than relying on a centralized company that provides quarterly reports.

  • Openness. Traditional infrastructure projects are often ultimately governed by a centralized entity that dictates the terms and conditions you can execute and use, making it difficult for users to have a say. But DePIN is open, democratic, and easily accessible.

  • Censorship resistance. In addition to being permissionless and open, DePIN is also resistant to censorship, as no one can refuse your access for any reason.

On the other hand, by utilizing blockchain technology, DePIN will promote innovation and development in various fields of Web 2 and Web 3, in addition to the Internet of Things:

As a native Web 3 network, DePIN also allows network participants to directly access various Web 3 tools and DeFi services, such as financing for new hardware, which can provide more potential users for Web 3 multi-track.

By significantly reducing the initial capital requirements and lowering barriers to entry, DePIN empowers traditional industries in real life and brings new competitiveness to traditional industries such as telecommunications and energy, thereby stimulating comprehensive innovation.

The Development Challenges of DePIN

Incentive burden: The DePIN project uses cryptocurrency to incentivize and reward those who use and/or maintain the hardware that powers the network. In a highly diluted incentive model, on the one hand, it can continuously incentivize and attract community builders, but on the other hand, an excessively diluted incentive model can dilute the interests of original holders and cause problems in the entire project’s economic structure.

Development costs: Compared to consumer-oriented Web 3 applications like games, building applications and meeting demand for DePIN takes much longer, and developers face more development challenges.

Intense competition: Choosing to replace existing services or create new ones? Although the current market is large, it is still a significant challenge to compete with Web 2 giants like Amazon, Microsoft, and Google.

In short, disrupting traditional industries requires more effort and professional technical support. The development of DePIN still has a long way to go.

DePIN Project: Development Status Review

DePIN uses blockchain and encrypted assets to create and incentivize the deployment and use of real-life physical infrastructure. Although the DePIN ecosystem is still being explored, significant progress has already been made in some projects. Messari Research Institute has summarized the current panorama of DePIN projects, as shown in the figure below.

Among them, the top 10 companies in DePIN are Filecoin, Arweave, Sia, and Storj in the Digital Resource Network (DRN) category, Helium and Pollen Mobile in the Physical Resource Network (PRN) category, Hivemapper and DIMO in the Sensor Network category, and React Protocol and Arkreen in the Energy Network category. The specific development status of each project will be introduced below. Interested friends can visit the respective project’s official website for more details.

Helium

Helium is one of the pioneering projects of DePIN. In July 2019, Helium led the DeWi movement with its LoRaWAN network aimed at powering the Internet of Things (IoT). Its initial goal was to create a low-power wide-area network (LoRaWAN) for interconnecting IoT devices. As a unique service at the time, it enjoyed a first-mover advantage in the field and established partnerships with projects aimed at tracking weather, monitoring air quality, and integrating GPS.

In 2022, the project adjusted its development goals to become a “network of networks” that helps support other DePIN projects in building decentralized solutions for Wi-Fi, 5G, VPN, and more. As of now, nearly 1 million hotspots have been connected to the Helium network. However, Web 3 commentator Liron Shapira believes that Helium’s use cases have been exaggerated, as most of its revenue comes from selling hardware to new network providers, and the actual demand for Helium’s products is insignificant compared to the increasing supply.

Filecoin

Filecoin was launched in 2020 and provides cloud storage services similar to Web 2 giants Google Cloud and Amazon Web Services. However, Filecoin is not controlled by centralized providers but offers a distributed storage solution secured by cryptographic economic incentives. Filecoin connects users who need space to store data with users who have idle space on their hard drives. Users providing storage space are paid in FIL.

Currently, Filecoin’s monthly revenue has significantly declined during the bear market. Researcher Domica believes that after experiencing expansion and development in the summer of 2021, Filecoin’s scale and utility have been exaggerated. The project has addressed this issue by launching Filecoin Plus, a new product that provides free storage space to verified users, and many users have already switched to Filecoin Plus.

Conclusion

As a Web 3 network that powers the Internet of Things economy, DePIN, a centralized physical infrastructure network, is a new concept being hyped. Is it just a speculative bubble or a new growth engine? Currently, there are still barriers between the vast market and DePIN services in terms of the development of top projects in this field. How to truly apply encryption technology and incentive models to real use cases has become a key problem that needs to be addressed. However, from another perspective, compared to mature projects such as DeFi and NFT, DePIN is in a blue ocean market that is waiting to be explored. We look forward to more developers driving the development of the DePIN track through technological innovation and promoting the realization of the Web 3 value network.

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