DePIN represents Decentralized Physical Infrastructure Networks, a novel way of establishing and maintaining infrastructure in the real world. "Infrastructure" here can be WiFi hotspots in wireless networks or solar home batteries in energy networks. DePIN is constructed in a decentralized manner by individuals and companies worldwide and is accessible to anyone. In return, contributors receive financial compensation and ownership shares in the networks they build and serve. The emergence of DePIN is attributed to the widespread internet connectivity and advancements in blockchain infrastructure and cryptographic technologies.
Web3 Essential Infrastructure
Despite the emergence of applications like DeFi, Games, NFTs, Social, and RWA on Layer1 and Layer2, the Web3 sector faces challenges relying on traditional centralized cloud services and internet infrastructure. DePIN, as a crucial infrastructure, becomes vital in safeguarding the normal operation and robustness of Web3 and crypto projects. Although DePIN projects may not have a significant share in business volume, their irreplaceable role lies in ensuring the resilience and security of Web3 and crypto projects.
Advantages of DePIN
Compared to traditional physical infrastructure networks, DePIN (Decentralized Physical Infrastructure Networks) offers distinct advantages:
1. Collective Ownership: DePIN incentivizes network participants through token rewards to deploy and maintain network infrastructure, ensuring decentralized ownership dispersed among many participants.
2. Distributed Infrastructure Costs: Leveraging the shared resources of network participants, DePIN significantly reduces the expenses required for maintaining physical infrastructure, fostering a cost-sharing model that benefits all participants.
3. Decentralization: DePIN networks, being decentralized, exhibit greater resilience and security compared to traditional centralized infrastructure networks. Distributed ownership reduces susceptibility to issues like corruption, hijacking, and hacking, enhancing network reliability and security.
4. Open Competition and Innovation: The decentralized nature of DePIN breaks down market entry barriers, allowing new participants to enter markets traditionally dominated by a few entities. This stimulates competition and innovation, potentially providing consumers with higher-quality services and solutions.
Market Potential of DePIN
While DePIN is currently a relatively small emerging field in the crypto token industry, its growth potential is substantial. The model is employed to build more efficient networks, spanning various industries such as telecommunications, energy, transportation, and storage. The global valuation of the real-world economy easily reaches trillions of dollars, and according to a recent report by crypto research firm Messari, the total addressable market value of the DePIN sector is currently around $22 trillion, expected to reach approximately $35 trillion by 2028. This is three times the current market capitalization of the entire crypto industry. Presently, the comprehensive diluted value (FDV) of all decentralized physical infrastructure projects is only around $5 billion. DePIN projects aim to address fundamental issues by leveraging blockchain technology, token incentives, and the power of the internet.
Four Fundamental Components of DePIN
Every DePIN network involves connecting real-world devices to generate and share data. The four basic components on which DePIN projects are built go beyond what centralized networks can offer:
1. Physical Infrastructure: DePIN projects require establishing and maintaining physical infrastructure in the real world.
2. Off-chain Computing Infrastructure: DePIN utilizes middleware to import, analyze, and use real-world data for calculating user contributions and meeting actual needs.
3. Blockchain Architecture: The blockchain constitutes an immutable ledger, device registry, and the core of the token economy.
4. Token Incentives: Tokens are used to incentivize the construction of the network's supply side and are typically used as currency to price network service demands.
These components are powerful tools in the DePIN builder's toolbox, but they come with costs and challenges. Establishing any form of physical infrastructure network in the real world is challenging. Setting up and using functional, decentralized middleware to record real-world activities immutably on the network, triggering token incentives in the token economy, are complex and challenging tasks.
Flywheel Effect of DePIN
Due to the token incentive mechanism, DePIN projects can achieve rapid scale expansion through the flywheel effect. As usage increases (demand rises), token prices rise through destruction or repurchase, providing additional incentives for contributors to continue expanding the network. This implies that the value of tokens they receive will also increase.
As the network continues to expand, investor interest in the project gradually rises, leading to financial support. If the project is open source or opens contributor/user data to the public, developers can build dApps based on this data, creating additional value within the ecosystem, attracting more users, and contributors.
Popular Projects in the DePIN Ecosystem
The DePIN sector is full of innovation, with numerous projects breaking possible limits by combining physical infrastructure with decentralized technology.
Helium and Helium Mobile
Helium is a decentralized wireless network protocol using blockchain technology and token incentives for users to deploy wireless networks. Its 5G business, Helium Mobile, recently announced a pilot program in Miami, providing local residents with a $5 monthly unlimited voice/data plan. Helium Mobile aims to offer low-cost, reliable wireless network access services in the future by strategically encouraging rapid growth in key areas and location network coverage.
IoTeX
IoTeX is an EVM-compatible Layer 1 blockchain designed for machine data and DePIN startups. Its W3bstream off-chain computing infrastructure platform allows smart devices' data to directly connect to smart contracts. IoTeX provides developers with hardware development kits, embedded SDKs for platforms like Android, iOS, Arduino, Raspberry Pi, APIs, and cloud backend connection options, enabling developers to easily and quickly introduce real-world data into the W3bstream environment.
Livepeer
Livepeer is a decentralized video transcoding network aiming to provide a decentralized, highly scalable real-time streaming protocol, significantly lowering the costs of video streaming applications. Although originally established on Ethereum, its business has migrated to Arbitrum. Livepeer's overall transcoding business remains stable, handling over 2 million minutes per week on average. In November, Livepeer successfully transmitted 11.3 million minutes of video. Despite the continuous increase in streaming minutes, publicly competitive pricing has reduced the cost-effectiveness of video encoding for users by 48% (November vs. September), aligning with the DePIN flywheel theory, where competition between idle computations reduces user costs.
Arweave
Arweave is a decentralized protocol for permanent data storage, using the Proof of Access mechanism for consensus. Its distinctive feature, compared to IPFS, is one-time payment for permanent storage. Ar tokens spent to store data are partially paid directly to miners (nodes) responsible for storing content and mostly stored in an endowment fund, slowly releasing rewards indefinitely. Arweave ensures unlimited permanent storage through this mechanism. Arweave has various partners and a rich ecosystem, adopted by Solana and Nervos as the default data storage layer, and providing data storage services for multiple public chains like Avalanche, Near, through middleware projects like KYVE. As of November 2023, Arweave's monthly transaction volume has reached 321 million, with a year-over-year growth of over 159% and a month-over-month growth of approximately 9.4 times. Arweave can add about 170 pieces of data per second to the network. Despite the monthly growth in transaction volume, Arweave's fee market remains stable at 0.858 AR/GiB, demonstrating its scalability.
In Summary
Decentralized Physical Infrastructure Networks (DePIN) have the potential to significantly transform the way humans interact with everyday physical structures, with its impact rivaling the influence of the internet on data exchange. Based on decentralized, shared ownership, and digital token models, DePIN has the potential to bring about fair, robust, and groundbreaking progress in the infrastructure sector. However, in the process of advancement, a series of technical, legislative, and public obstacles need to be overcome. The key to realizing the potential of DePIN lies in fostering collaboration, community-centered development, and creating an unrestricted environment for innovation. Looking ahead to the development of DePIN, there is reason to believe that its influence extends beyond enhancing various industries and may reshape global societal structures, building a more unified and capable global society to address future challenges.
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