What is DePIN? | How DePIN works?

DePIN was born offering the opportunity to create defi projects that reward actions in the physical world. What is this technology about and how does DePIN work?

Theoretical studies on cryptocurrencies have long predicted that the encryption tools currently implemented in the blockchain will be used on the Internet and sooner or later affect the physical world. Nick Szabo stated that at the end of the 20th century, smart contracts could automatically manage physical objects. More than 25 years have passed and blockchain is firmly entrenched in our lives.

This is mainly due to cryptocurrencies: Bitcoin (BTC) continues to break records and is backed by a significant physical infrastructure. At first glance, this confirms a real physical presence in our world.

However, the boundaries of decentralized technologies continue to expand with the emergence of solutions such as DePIN.

What is DePIN and why does blockchain need it?

DePIN stands for Decentralized Physical Infrastructure Network. Blockchain participants use a public ledger and cryptocurrency to create and maintain specific, real-world infrastructure projects. Simply put, DePIN involves using the DePIN blockchain to operate and maintain decentralized networks of equipment that can serve a common purpose.

This allows the network to be built on decentralized, horizontal connections rather than the hierarchical approach typically seen in large infrastructure projects such as bridges or roads. Because physical infrastructure networks are expensive and complex to build and manage, they have historically been the domain of large corporations or governments with capital and resources.

In contrast, DePIN encourages voluntary cooperation among participants. People can join DePIN networks using their own hardware or by purchasing specialized hardware for specific tasks. Options range from simple hard drives to weather stations. However, DePINs are often built around publicly available capabilities.

Peaq co-founder Max Thake explained to crypto.news that DePIN uses tokens to encourage people to use connected hardware to provide services to other people:

“Let’s imagine a smartphone-focused DePIN like Roam Network. Smartphones owned by ordinary people are hardware components, while the local connection quality data they collect are commodities. Telecommunication companies that want to improve their services purchase this data from the Web3 market; “This is where smart contracts come into play and enable the exchange of value between the supply and demand sides.”

Max Thake, co-founder of Peaq What are the DePIN options?

There are two types of DePINs: Physical Resource Networks (PRN) and Digital Resource Networks (DRN).

PRNs are decentralized networks where providers provide hardware resources (such as sensors or internet access) and these resources are connected to a specific location. Their contribution to the network depends on location, so they are not interchangeable.

DRNs are networks where providers provide resources determined by their function, not their location. Location doesn’t matter here. Examples of such resources are computing power, bandwidth, and storage.

DePIN Sector Map | Source: Messari Advantages and disadvantages of DePIN

DePIN could theoretically completely transform the way we manage and interact with physical infrastructure. Using blockchain and smart contracts, this model increases the efficiency and transparency of systems, allowing the community to make independent decisions.

DePIN can be considered a kind of “industrial DAO” where all participants have equal opportunities and ensure the independence of the infrastructure. The system is flexible and can be scaled horizontally. By successfully attracting motivated users, the creation of a decentralized physical infrastructure can be significantly accelerated.

The pricing model in DePIN crypto systems is also thought to be more accessible and fair since infrastructure assets are publicly owned and the cost of services is determined according to their availability, not the benefits of the company. Rewarding participants in the form of tokens allows users to earn regular passive income for the benefit of society.

But significant disadvantages should be taken into account:

Vulnerability to attacks and bugs. High volatility of tokens. Technical knowledge is needed to maintain a decentralized infrastructure.

However, with DePIN, blockchain powers real-world DePIN use cases and value exchanges, inherently linked to real-world supply and demand, making this segment uniquely positioned for sustainable, healthy growth.

“People aren’t going to stop using navigation apps, ordering food, or using the internet just because Bitcoin goes down. DePIN combines web3 with real value rather than speculation, offering it a chance to fulfill its promise of changing the world.”

Looking to the future: What will happen to DePIN in five years?

According to Messari analysts, in 2023 the DePIN ecosystem reached more than 650 projects and the number of nodes increased by 600,000. Researchers noted the main trends in the development of DePIN in 2024.

Experts believe that meme tokens will contribute to the mass adoption of projects such as the BONK airdrop for Solana Saga smartphone users. Analysts also see Asia as the region with the most significant potential for the rapid development of decentralized infrastructure and expect some of the most impactful projects in the sector to emerge there from 2024 to 2025.

The first development in the field of DePIN appeared about ten years ago. During this time, the number of projects increased significantly. According to Messari experts, the industry’s market value is more than $20 billion, excluding RWA and blockchain oracles.

Source: Messari

Speaking about the future of DePIN, Thake expects it to form the foundation of the industry, as well as the entire support stack, from DePIN crowdsourced data for training models to Web3 federated learning marketplaces for decentralized computing and AI agents.

“Some of the most exciting applications of the DePIN model will be in the energy sector, especially when it comes to green energy, which requires flexible and decentralized grids, where most old-style grids follow the centralized model. People will soon be making money by harvesting solar energy and contributing it to the electric grid.”

But DePIN projects are not yet popular even among cryptocurrency industry participants, let alone widespread adoption of the concept. Implementation of decentralized infrastructure may take time as DePIN faces issues that need to be resolved. However, experts are confident that this system will play a key role in shaping the future and changing the working principles of physical infrastructure.