A Quick Look at the DePIN Popular Track: Development Potential, Challenges and Major Players

The hot spots in the Web3 field are endless, the summer of DeFi, the NFT boom, the first year of Layer2... "Concept first" seems to be one of the typical paradigms for the development of the encryption field. Under the diverse narratives of great creativity and imagination, the industry has gained wave after wave of development boom. **And when the heat dissipates, it can't help but lead to reflection, what benefits can the new use cases of Web3 bring to the real world? Do we really need encrypted networks? **

Explore the real-world value of encrypted networks, at the end of 2022, Messari, a well-known encryption research institution, released a survey to solicit an official title for "Web3 Physical Infrastructure". Physical Proof of Work (PoPw), Token Incentive Physical Network (TIPIN), EdgeFi or Decentralized Physical Infrastructure Network (DePIN), etc. are all options. In the end, the decentralized physical infrastructure network DePIN (Decentralized Physical Infrastructure Networks) stood out and became the general name of this Web3 potential track.

What are DePINs? In a nutshell, it is a network that connects digital space and 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 encryption field”, which has the potential to further promote the status of the encryption industry in the Internet, and ultimately promote the development of the Web3 value network. In order to further understand the situation of DePIN track, this article will analyze from the following three aspects:

• What is a DePIN? How does it work?
• Opportunities and challenges facing the development of DePIN track
• Development status of DePIN project

DePIN practice, encryption technology empowers real use cases

DePIN is built on the basic idea of Internet of Things (IoT). So before introducing how DePIN works, let's first understand the Internet of Things (IoT). The Internet of Things refers to the process of connecting everyday physical objects to the Internet. Its concept can be traced back to 1980. The world's first coke vending machine with the concept of the Internet of Things was born. It is connected to the Internet and can check inventory on the Internet. Confirm the number of drinks available. With the rapid development of the Internet and related technologies, there are more and more application scenarios of the Internet of Things, including connected vehicles, home automation, connected wearable devices, connected health monitoring devices, and remote monitoring devices.

DePIN Concept Interpretation

Decentralized Physical Infrastructure Network (DePIN) is the name of a blockchain network that uses cryptographic assets to incentivize the community to build physical infrastructure networks. There are two points worth noting here. One is that the DePIN network relies on decentralized networks and communities, rather than centralized companies for transactions and business logic. Second, unlike most Web3 products, virtual assets on this network can be used to purchase tangible assets in the real world, such as electricity, telecommunication services, network access, etc. All in all, DePIN was created to provide real value.

From the differences in hardware and resources, goods and services provided by the network, DePIN projects are divided into the following two categories:

• Physical Resource Network (PRN): PRN encourages participants to use location-based hardware to provide unique goods and services in the real world, such as wireless networks, energy networks, 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: At present, there is no consensus on the distinction of the above concepts. If you want to know whether the project is a DePIN, and whether it belongs to the category of PRN or DRN, you can go to the link below to test.

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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 building and maintenance process to a community motivated by encrypted assets. The DePIN network usually includes the following key components:

• Encrypted assets and community members: Encrypted assets (such as Token) of specific projects that pay hardware operators for services. According to the rules set by the project, each encrypted asset has different economic characteristics. Under this incentive, community members maintain and build infrastructure.
• Hardware devices: Physical components that help connect the network to the physical world. For example, a hotspot can be used for wireless networking, and extra space on the hard drive can be used to store the network.
• Hardware Carriers: Users who buy or lend hardware and connect to their networks.
• End User: A user of the infrastructure supported by network hardware. For example, end users may prefer to rely on the DePIN program rather than a company to obtain a WiFi signal and pay to receive the service provided by the network.

It can be seen that the DePIN network firstly motivates participants in the decentralized community to become the supply side through encrypted assets. As the supply side grows, capital drives the value of encrypted assets, enabling the supply side to offer competitively priced services. On the basis of creating an attractive ecosystem, it will attract more developers, builders and end users.

And as end-user adoption continues, structural demand for the network increases, driving supply-side revenue. Additionally, this crypto-network economic model will align the price of crypto-assets with increasing network utilization. As the adoption rate of the network increases and the value of the network is continuously captured, the price of encrypted assets will rise accordingly, and more participants and speculative capital will enter, forming a positive feedback loop that attracts more builders and users to join in.

DePIN development, potential and challenges coexist

Why do we need to change the status quo and use DePIN to decentralize the physical infrastructure network, even though DePIN provides a paradigm for combining encryption technology with real-world use cases? In fact, technological innovation needs to be based on clear market demand and business advantages in order to achieve long-term development. The following will introduce the development potential and challenges of DePIN.

Development Potential of DePIN

On the one hand, DePIN aims to create a fairer and more efficient process for bootstrapping infrastructure networks than traditional IoT top-down, capital-intensive approaches. It has the following advantages:

• Safe and efficient. Utilizing blockchain technology, DePIN provides secure peer-to-peer payments to its network participants without relying on payment processing intermediaries for fees. Through distributed physical infrastructure and community participants, DePIN will achieve hyperscale expansion faster than traditional projects, and DePIN's operating capital and operating costs are only a fraction of traditional companies. Telecom companies have to invest billions of dollars in infrastructure and real estate to host it, and retain a large number of employees to support it, while DePIN incentivizes network members to make everyone profitable while hosting.
• High adoption rate. The community can own the hardware that makes up the network, and the hardware or services they need to use, that is, they can be both service providers and service consumers, which will promote the adoption of the network. Therefore, users' trust in the network service comes from the alignment of interests, rather than relying on a centralized company that provides quarterly reports.
• Openness. Traditional infrastructure projects usually end up with a centralized entity that dictates the terms and conditions that you can enforce and use, where users have little say. But DePIN is open, democratic and accessible.
• Censorship resistance. In addition to being permissionless and open, DePIN is also censorship resistant, no one can deny your access for any reason.

** On the other hand, the use of blockchain technology in DePIN will promote the innovative development of Web2 and Web3 fields in addition to the Internet of Things:**

As a Web3 native network, DePIN also allows network participants to directly access various Web3 tools and DeFi services, such as financing new hardware, which can provide more potential users for the Web3 multi-track.

By significantly reducing upfront capital requirements and lowering barriers to entry, DePIN empowers traditional industries in real life and brings new competitiveness to traditional telecommunications, energy and other industries, thus stimulating comprehensive innovation.

Development Challenges for DePIN

Incentive Burden: The DePIN project uses cryptocurrency to incentivize and reward those who use and or maintain the hardware that powers the network. Under the highly diluted incentive model, on the one hand, it can continue to motivate and attract the builders of the community, but on the other hand, the excessively diluted incentive model will cause the interests of the original holders to shrink, and cause problems in the economic structure of the entire project.

Development costs: Compared with purely consumer-oriented Web3 applications such as games, DePIN takes much longer to build applications and requirements, and developers face more development challenges.

Competition is fierce: choose to replace existing services, or create new ones? Competing with Web2 giants like Amazon, Microsoft, and Google is a very big challenge, despite the current market size.

In short, subverting traditional industries requires more efforts and professional technical support, and DePIN has a long way to go.

DePIN project, development status inventory

DePIN uses blockchain and crypto-assets to create and incentivize the deployment and use of real-life physical infrastructure. While the DePIN ecosystem is still being explored, existing projects have already made significant progress. Messari Research Institute summarized the current DePIN project panorama for everyone, as shown in the figure below.

Among them, the top 10 companies in DePIN are "server network" Filecoin, Arweave, Sia, and Storj in the digital resource network (DRN) category, "wireless network" Helium and PollenMobile in the physical resource network (PRN) category, "sensor network" "Hivemapper and DIMO, "Energy Network" React Protocol and Arkreen. The following will introduce the development status of specific projects. Interested partners can go to the corresponding project official website to view the details of project development.

Helium

Helium is one of DePIN's pioneer projects. In July 2019, Helium led the DeWi movement with its LoRaWAN network designed to power the Internet of Things (IoT). Its original goal was to create a Low Power Wide Area Network (LoRaWAN) for IoT devices to connect to each other. A unique service at the time, it enjoyed a first-mover advantage in the field, with partnerships for projects aimed at tracking weather, monitoring air quality, and integrating GPS.

In 2022, the project has adjusted its development goals, and it is committed to becoming a "network of networks" to help support other DePIN projects, such as building decentralized solutions for Wi-Fi, 5G, VPN, etc. To date, nearly 1 million hotspots have been connected to the Helium network. But Web3 critic Liron Shapira believes that Helium's use case is overstated, that most of its revenue comes from selling hardware to new network providers, that supply is increasing, and that actual demand gains for Helium products are negligible.

Filecoin

Launched in 2020, Filecoin offers cloud storage services similar to Web2 giants Google Cloud and Amazon Web Services. However, instead of being controlled by a centralized provider, Filecoin offers a distributed storage solution secured by cryptoeconomic incentives. Filecoin connects users who need space to store data with users who have free space on their hard drives. Users who provide storage space will pay through FIL.

At present, Filecoin's monthly income has dropped sharply during the bear market. Researcher Domica believes that after the expansion and development in the summer of 2021, Filecoin has been exaggerated in terms of scale and utility. The project addressed this issue by launching Filecoin Plus, a new product offering free storage to verified users, and a large number of users have already turned to Filecoin Plus.

Conclusion

As the Web3 network that powers the IoT economy, is the centralized physical infrastructure network DePIN a new concept hype, or a new flywheel that drives development? At present, as far as the development of the top project on the track is concerned, there are still barriers between the huge market and DePIN services, and how to make encryption technology and incentive models truly used in real-world use cases has become a key issue that needs to be resolved urgently. But from another perspective, compared with mature projects such as DeFi and NFT, DePIN is in a blue ocean market that needs to be explored. It is expected that more developers will use technological innovation to drive the development of DePIN track in the future and promote the realization of the Web3 value network.

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