DePIN 101: Understanding Decentralized Physical Infrastructure
What is in a Name?
The term DePIN which stands for Decentralized Physical Infrastructure Networks was coined by the crypto research firm Messari in their November 5, 2022 X poll where they stated “Web3 physical infrastructure needs a name!”
They offered several choices, DePIN won out and has since become widely adopted. Fast forward to 2024 and it has become one the of hottest trends in the crypto space. But is DePIN a truly new concept? Let's explore…
Historical Precedent
Before diving into what DePIN is today, it’s essential to recognize that the concept of decentralized, crowd-sourced infrastructure isn’t entirely new. Projects like SETI@home, the Human Genome Project, and Folding@home laid the groundwork for modern decentralized initiatives.
- Human Genome Project: Initiated in 1990 and completed in 2003, the Human Genome Project was an international scientific research initiative aimed at mapping the entire human genome. The project involved researchers from 20 institutions across six countries. With over 2,800 researchers contributing, the Human Genome Project successfully mapped all 3 billion base pairs of human DNA, paving the way for significant advancements in medical research and biotechnology.
- SETI@home: Launched in 1999 by the University of California, Berkeley, SETI@home utilized the idle processing power of volunteers’ computers to analyze radio signals for signs of extraterrestrial intelligence. Over its two-decade lifespan, the project attracted millions of participants from around the world. By the time it went into hibernation in 2020, SETI@home had analyzed billions of radio signal data points, showcasing the power of distributed computing.
- Folding@home: Started in 2000 by Stanford University, Folding@home is a distributed computing project that simulates protein folding to help researchers understand diseases like Alzheimer’s and cancer. At its peak, Folding@home had over 1 million active devices contributing to the network, making it one of the largest distributed computing projects in the world. In 2020, Folding@home reached a milestone of exaFLOP performance, becoming the first computing system to break the exaFLOP barrier.
To sum up, before crypto got involved, decentralized networks:
- Cracked the code on Human DNA
- Analyzed billions of radio signals in an effort to find Aliens (who are probably already here)
- Helped advance cancer research while creating the first exaFLOP network
All of these decentralized projects launched before blockchain was even a glint in Satoshi’s eye. These projects demonstrated the power of decentralized collaboration. They relied on the willingness of individuals to contribute their resources for the greater good. This is a nice sentiment and personally I am all about the greater good — I vividly recall sitting in my college dorm room watching my computer process away while crunching the numbers to decode the Human DNA. While contributing to these early decentralized projects gave me a sense of pride, it raised the question: wouldn’t it be fairer if those who contributed were also rewarded monetarily? This idea is where crypto has taken decentralized networks to the next level and it rests at the very heart of DePIN.
What is DePIN Today?
In some ways the term Token Incentivized Physical Networks, which finished third in Messari’s 2022 poll, better describes the state of DePIN today. It's the novel concept where decentralized applications utilize tokens to incentivize individuals to contribute to the creation and maintenance of real-world physical infrastructure. This crowdsourced approach leverages the power of blockchain technology and tokens to coordinate and reward participants, effectively building a robust and scalable infrastructure network.
To put it simply — if you contribute to the decentralized network by lending your computer power (think CPU, GPU, or storage space) or by deploying IoT sensor devices — you get rewarded. Typically this reward would come in the form of a crypto token.
A DePIN project operates by issuing tokens that serve as incentives for participants who provide services through physical infrastructure, machines, or devices. These tokens motivate people to contribute their resources — be it computing power, storage, or connectivity — to the network. In return, participants earn tokens that can be traded or used within the ecosystem, fostering a self-sustaining and decentralized infrastructure.
Advantages to DePINs
DePINs offer several advantages over traditional centralized infrastructure models:
- Efficiency: By leveraging decentralized coordination and incentives, DePINs can efficiently build and manage infrastructure.
- Resilience: The decentralized nature of DePINs makes them less vulnerable to single points of failure, ensuring continuous operation even if individual nodes go offline.
- Performance: With a vast network of contributors, DePINs can scale dynamically, adapting to increasing demand and improving overall performance.
- Passive Income: Many providers in DePIN projects view contributing their computing resources for crypto rewards as a way to generate passive income, akin to owning rental property, making it an attractive and relatively low-effort income stream.
- Cheaper Resources: Consumers who utilize resources provided by DePIN projects often find this decentralized model to be economically superior to traditional centralized providers as they can offer more competitive pricing and greater efficiency.
- Censorship Resistance: Since these networks tend to be govern by communities rather than corporations they significantly reduce the chances of being de-platformed or censored.
I have seen it happen time and time again where a centralized provider like AWS, Google or Microsoft, have an issue in one of their data centers and before you know it entire applications become unusable. These three centralized providers represent the bulk of all internet and compute power and they have a virtual monopoly in the space. This is not only a problem when it comes to resilience but can also be an issue when considering censorship and the ability for one to own their own data.
We Can’t Build Enough Data Centers
The rapid growth of data generation and the increasing complexity of computational tasks have outpaced our ability to build and maintain enough data centers to meet the demand. Traditional data centers require significant capital investment, time, and energy to construct and operate. According to a report by Data Center Frontier, the demand for data center capacity is growing at an unprecedented rate, driven by the proliferation of cloud services, AI, and IoT applications. However, building new data centers fast enough to keep up with this demand is a significant challenge.
DePINs address this issue by leveraging decentralized resources many of which exist today in our homes and offices. By incentivizing individuals and organizations to contribute their idle computing power and other resources, DePINs can rapidly scale to meet demand without the need for massive infrastructure investments. This decentralized approach not only accelerates the expansion of computational capacity but also distributes it more evenly, enhancing overall network resilience and performance.
The DePIN Market Opportunity
According to Messari’s State of DePIN 2023 report, the DePIN ecosystem has grown significantly, with over 650 projects spanning multiple subsectors, including compute, AI, wireless (DiWi), sensors, energy, and services. DePINs saw the addition of over 600,000 nodes, predominantly from software-based DePINs, which are capitalizing on everything from existing commodity hardware, home computers, sophisticated sensors, and mobile phones just to name a few. The combined market cap of DePIN projects with liquid tokens surpassed $20 billion in 2023, generating approximately $15 million in annualized onchain revenue.
The $15 million in estimated revenue in 2023 truly only represents the tip of the iceberg. According to Grand View Research: “The global cloud computing market size was estimated at USD 602.31 billion in 2023 and is expected to grow at a CAGR of 21.2% from 2024 to 2030.” If DePIN projects can capture just 1% of that market in the next few years it will be set up for huge leaps forward in the decades to come.
If you want some more real-time information on the state of DePIN market I suggest you check out DePIN.ninja, which attempts to tracks the total number and value of the entire DePIN market. At the time of publishing this post in July of 2024, DePIN.ninja reported 1,377 DePIN Projects with a total of $17m ARR and a $53 billion Market Cap.
So, you might be wondering: with so many DePINs out there and a substantial market cap, what industries do they actually serve? Is this just a niche market? The answer is a resounding no. DePINs are far from being a niche service; they cater to a wide array of industries.
Take a look at this comprehensive House of Chimera infographic that highlights primary DePIN projects across various sectors. Beyond just cloud computing, DePINs are making significant impacts in industries such as data management, telecommunications, wearables, VPN services, bandwidth optimization, healthcare, and content delivery networks (CDNs), among many others. This broad applicability underscores the versatility and expansive potential of DePINs across different market segments.
Examples of DePIN Projects
Let's jump into four real word examples of projects that exemplify the potential of DePINs.
Helium: One of the more prominent examples of a successful DePIN Helium is a decentralized wireless network that incentivizes users to deploy and maintain wireless hotspots globally. Launched in 2019 the Helium network has now reached nearly one million hotspots globally and through the Helium Mobile project, they have launched a wireless carrier service to allow consumers to “Break free from big telco”.
Filecoin: A decentralized storage network where users earn tokens by providing storage space. Launched in October 2020 Filecoin has seen steady growth in its network size and storage capacity, with numerous developers and enterprises contributing to its ecosystem. As of now, Filecoin has the capability to provide petabytes of decentralized storage across its network, offering a scalable solution for storing and retrieving data securely.
Flux: A decentralized compute network that launched in 2019 provides a decentralized platform that enables developers to build and deploy any app. Developers can easily deploy an app using a docker image to 13,000 Flux nodes cheaper than they could deploy on any centralized provider. With Flux Marketplace they also support a host of prebuilt apps from deploying a website using WordPress to file storage with Flux Drive. They recently launched Flux Edge where you can rent GPUs for a fraction of the cost of what centralized providers charge in what they term Proof-of-Useful-Work (PoUW).
DIMO: A virtual newcomer in the space launched in 2023 DIMO is an open connected vehicle platform that allows car owners to connect their vehicles and earn rewards. Drivers can connect their cars through a small DIMO device and a smartphone app. The platform offers various features such as rewards, support for multiple car brands, private location tracking, car health diagnostics, keyless entry, and more. DIMO also provides opportunities for developers to build apps and solve mobility problems using vehicle data.
Those are just four examples of DePIN projects out of the thousands that are out there and what's more exciting is now we are seeing DePINs working with DePINs. There are DePIN aggregators like the recently launched Hivello which allows users to manage and run multiple DePIN projects from their computer with just a few simple clicks. We have already seen the launch of module DePIN platforms like Peak Network and IoTeX to help would be DePIN projects launch with a full suite of decentralized tools at their disposal.
It’s DePIN using DePIN to build more DePIN!
Are you falling in love yet? I have…
The Future of DePIN
In their April 2023 Coin Telegraph article Raullen Chai & Andrew Law argue that decentralized physical infrastructure is offering the most real-world implementations for blockchain technology to date and will become one of this decade’s most important crypto investments. They demonstrate how a DePIN network flywheel provides benefits to DePIN projects, suppliers, developers, and end users creating a virtuous cycle.
I believe DePINs represent a transformative approach to building and managing physical infrastructure. By harnessing the power of decentralization and token incentives, DePINs can create efficient, resilient, and scalable networks that benefit both participants and the broader community. As this ecosystem continues to evolve, it promises to be one of the most significant developments in the world of cryptocurrency and beyond.
The DePIN sector is poised for continued growth and innovation. DePINs will expand to more and more industries and become a prevalent force. Looking ahead we can expect DePINs to explore all sorts of technologies such as zero-knowledge proofs (ZK technology), onchain AI, capturing of environmental data and even gaming. These advancements will further enhance the utility and resilience of DePINs, solidifying their role as a critical component to not only the crypto ecosystem but to world wide compute power.
