Crypto Guide: DePIN Analysis – Meltem Erdem

The emergence of blockchain technology in the last few years has caused a significant shift in our perception and interaction with digital systems. The idea of ​​decentralization has changed various aspects of our digital existence, starting from decentralized finance (DeFi) to non-fungible tokens (NFTs). However, this transformation is not limited to the internet.

A new concept called “decentralized physical infrastructure networks,” or “DePINs,” extends the idea of ​​decentralization to actual physical structures. DePINs could transform multiple industries and empower individuals to take control of their own destiny.

In this article, we will examine the basics of DePIN, why it is necessary, and how it can impact various sectors.

What Exactly Is DePIN?

Historically, large companies have been responsible for building and overseeing physical infrastructure, including electrical grids, water and waste management systems, cloud computing, and maintenance of public infrastructure.

Extensive projects require significant financial investments and complex logistical hurdles that contribute greatly to their elite status. As a result, these centralized companies often dominate the market and influence customer decisions and prices for various services. This arrangement often leads to reduced innovation and competition, ultimately reducing the quality of the overall customer experience.

DePINs, which stand for Decentralized Physical Infrastructure Networks, use decentralized methods, often facilitated by blockchain technology, to create and maintain physical infrastructure in new and creative ways. The concept envisions a new approach to financing, building, and maintaining infrastructure such as electrical grids, transportation systems, water networks, and essential services.

How Do Cryptocurrency DePINs Work?

Cryptocurrency is vital to the development of the community within DePINs.

They use cryptocurrency tokens as incentives to encourage decentralized physical infrastructure providers to join their network. As a result of the increase in investor funds, the value of a DePIN token increases, allowing service providers to provide competitive pricing. This leads to increased demand for DePIN’s services and greater acceptance, resulting in an increase in the token price. This virtuous cycle attracts an increasing number of consumers, service providers, and investors to the network.

Excluding traditional financial institutions, DePIN network platforms use blockchain technology and provide financial services such as trading, borrowing, and lending. Tokenization, a method of storing information about assets such as real estate in a permanent record for decentralized trading using tokens, can be applied by these platforms to link tangible assets.

DePIN’s Four CategoriesCloud storage/server networks: DePIN distributes storage and server networks to guarantee durable and protected data storage. Normally, centralized services experience a single point of failure. However, DePIN provides a powerful alternative for shared storage services by distributing data across several storage nodes. This includes storing files, using CDN, managing relational databases, and connecting via VPN networks.
Energy resource networks: DePIN revolutionizes energy trading and sharing through a decentralized energy network. It allows for the direct sale or exchange of excess energy within neighborhood networks, encouraging a community-focused energy distribution method. This network connects decentralized energy resources to increase the flexibility and efficiency of the grid.
Sensor networks: DePIN’s sensor networks are decentralized and collect accurate, secure, and transparent information from different threshold networks. This system ensures that sensor data remains secure and available. It includes connected devices with sensors to collect data immediately. It improves data integrity and the ability to map data.
Wireless Networks: DePIN revolutionizes wireless networks like 5G and WiFi by creating a decentralized access point network. This method makes internet access more accessible to everyone. It focuses on bridging connectivity gaps in remote or rural locations that are often overlooked by traditional ISPs.

Additionally, DePIN includes support for cutting-edge technologies such as 5G and LoRaWAN used for Internet of Things (IoT) applications.

DePIN Mechanics

Decentralized Physical Infrastructure Networks (DePIN) rely on a combination of crypto-economic protocols and blockchain technology to establish and maintain physical networks in a decentralized, trustless, and programmatically controlled manner.

The core components of a DePIN protocol encompass blockchain architecture, off-chain computing infrastructure, physical network infrastructure, and token incentives. Together, these elements empower distributed individuals to oversee and maintain networks of collectively owned and globally managed physical infrastructure.

Tokens play a key role in the DePIN ecosystem by creating a robust network effect while acting as a catalyst for the deployment of physical infrastructure networks. The essence of DePIN lies in its practical application, where DePIN crypto tokens serve as gateways to real-world utility. For example, DePIN crypto token holders can gain access to tangible services such as energy, internet connectivity, or telecommunications. This innovative approach gives DePIN crypto tokens an intrinsic value tied to real-world services and assets.

Currently, a large number of companies are leveraging blockchain technology to disrupt various industries. Many of these companies have introduced their own DePIN crypto tokens to support their ecosystem. Examples include:

Akash Network (AKT): An open Supercloud blockchain network that provides easy access to global services and scalability. The native token AKT governs and secures the Akash Network. Arweave (AR): A Web3 protocol that offers decentralized data storage across a network of devices. Miners on Arweave earn AR tokens by verifying data. Filecoin (FIL): A peer-to-peer storage network that provides a decentralized marketplace for storage space. FIL tokens are used to compensate storage providers. Helium (HNT): A wireless infrastructure network that allows users to deploy Helium hotspots for wireless coverage and earn HNT tokens. Render Network (RNDR): A provider of decentralized GPU rendering solutions. RNDR tokens are used for rendering services on the Render Network. Theta Network (THETA): A decentralized video delivery network powered by blockchain technology. THETA tokens are used for governance, staking, transaction validation, and block generation.

Decentralized Physical Infrastructure Networks are reshaping the landscape of physical infrastructure by reimagining the use of physical infrastructures such as energy grids and communications networks, enabling both small organizations and individuals to participate, transact, and compete with traditional centralized infrastructure giants.

Benefits of Decentralized Physical Infrastructure (DePIN)

Let’s examine some of the advantages and disadvantages of Decentralized Physical Infrastructure Networks.

Advantages

Cost-effectiveness is achieved through the sharing economy model used by DePINs, which distributes the costs of infrastructure development and maintenance responsibilities across providers. This reduces overhead, allowing users to use services at a fraction of the cost of centralized PINs. Decentralization ensures that users are not dependent on a single entity with the power to exploit customers with high prices or lack of innovation. Resiliency is achieved through the decentralization of infrastructure by DePINs, which eliminates single points of failure and reduces downtime and vulnerability to attacks.

Disadvantages

Securing initial investment: Infrastructure must reach a certain threshold before users can use DePINs. Providing incentives for providers to develop the network requires financing, which can be difficult to obtain. Incentive models for tokens: Projects face challenges in finding the right mix to decide how many tokens should be released and their value in motivating participants. Failure to achieve the right balance could result in tokens losing value in the future.

DePIN’s Major Challenges

In its early stages in the blockchain industry, DePIN faces numerous challenges that could hinder its progress.

Limited Interest and Application. DePIN’s innovation poses a major challenge that has attracted little attention from the blockchain community and infrastructure owners. Without sufficient participants, it is unclear whether the ecosystem will grow and succeed. Educational complexity. The complexity of DePIN technology makes it difficult for new users to get started, so it requires a lot of educational effort to attract them effectively. Overcoming this hurdle requires simplifying the technology and providing comprehensive educational resources. Monetary and financial requirements. Maintaining private networks often requires significant operational costs without external financing assistance. The challenge lies in attracting potential network hosts and ensuring smooth network operations due to financial pressure. Provider profitability. Profitability is the main motivation for network providers. DePIN platforms need to carefully balance compensating providers with controlling costs to maintain profitability. However, this balance is difficult to achieve due to lack of user and provider participation.
DePINs Impact on the Crypto Ecosystem

DePINs can help advance the Web3 ecosystem by addressing specific issues related to dependency on centralized infrastructure.

It enables the development of flexible and powerful infrastructure for decentralized applications. One example that demonstrates the potential impact of DePINs is the Render (RNDR) initiative. The project was founded at the same time as the increasing need for GPUs worldwide. The individuals behind it say it can shake up the 3D Graphics industry by offering top-tier rendering services at a lower cost than centralized competitors.

Efficient DePIN projects will likely increase the use of cryptocurrencies.

Summary

The DePIN sector is a relatively new industry that will continue to evolve.

Using blockchain and tokens to incentivize the operation and maintenance of physical infrastructures could make for a fascinating sector to consider investing in or monitoring. Its appeal lies in its ability to facilitate the transition from centralized to decentralized market structures.

DePIN protocols remain a specialized niche in the digital asset market. However, the growth potential is significant, as there are currently numerous cryptocurrency projects using the technology, including Arweave, Filecoin, and Helium.

If DePIN is adopted on a large scale, it could also contribute to the increase in the use of cryptocurrencies and blockchain technology across different industries.

DePIN represents an interesting new development in the field of physical infrastructure networks and offers a new way for people to interact with essential services. By embracing blockchain, collaborative governance, and decentralization, DePIN offers a way to increase efficiency, empowerment, and resilience. It is crucial to fully utilize the potential of DePIN to create a future-ready, inclusive, and sustainable infrastructure ecosystem.