DePIN Is Where Crypto Gets Real

"Ideas do not come in a flash but by diligent trial-and-error that take time and thought" - Charles K Cao, father of fiber optic communication.

Technically, DePIN (short for Decentralized Physical Infrastructure Network) is an open-source stack of technologies and protocols enabling the development of peer-to-peer physical infrastructure. However, DePIN is also a slow revolution, building a new layer atop internet and energy systems controlled and surveilled by insiders and returning power to the people.

In this post, you will learn what problem DePIN solves (hint: it’s centralized), what incentives DePIN uses to scale decentralized infrastructure, and the projects and protocols driving this transformation.

By using distributed incentives to crowdsource independent hardware administrators (for example, installing a solar panel on your roof or a Pebble Tracker in your attic), DePIN applications redistribute control away from tech giants and back to users. DePIN affects everyone since it gives regular people a chance to contribute to global IoT networks and perhaps earn thousands of dollars annually.

To understand DePIN, we have to briefly review the downsides of the current centralized order.

Who Controls the Internet?

For most people, the internet is experienced virtually. But it's also a physical thing, of which we are rarely aware. And it is the internet's very physicality, where economies of scale flourish away from the public eye, that has allowed centralized entities to dominate the digital millennia.

Very roughly, the internet is made of billions of devices connected by a network of wires and cables controlled by large telecoms. The application layer (the websites and services we use daily) relies on server farms. Globally, 55 percent are controlled by Microsoft and Amazon, a number that goes far higher in the US.

Amazon Web Services alone has 26 million square feet of server farms, translating to about 600 acres scattered around the globe. A surprisingly small footprint for a company that hosts 40 percent of the Western internet. The vast fiber networks controlled largely by Verizon and AT&T in the US are protected from greater competition by enormous capital moats and regulatory capture.

For a startup to go after these markets is like taking a chisel to a mountain. But cryptographic incentives and distributed networks can connect millions of people whose collective power opens up legitimate alternatives.

DePIN: A Revolution Right Now

Revolution is an overused word in tech, which is a shame because it describes DePIN perfectly.  The scale of DePIN's potential impact ranges from internet infrastructure to energy systems. It is a fundamental reimagining of the technology powering modern civilization. But how does DePIN work?

DePIN Overview

DePIN uses token rewards to incentivize thousands (and ultimately millions) of people around the world to purchase machines and contribute their outputs (which can range from data to energy itself) to a decentralized network. Some real-world examples include Helium's 5g hotspots, Filecoin's storage ecosystem, Nillion's compute layer, DIMO's car data ecosystem, and Smartpoint's sidewalk data centers.

IoTeX has developed a DePIN stack called W3bstream that cuts startup development time from years to weeks. The tooling, which includes middleware connecting physical device data to smart contracts, is to DePIN what Ethereum was to dAPPs. By dramatically lowering the technical overhead, W3bstream opens up the DePIN design space to orders of magnitude more founders.

The DePIN Flywheel

The value of networks, characterized by Metcalfe's law, is the square of its size. In other words, a small network is almost worthless relative to a large one (imagine Instagram with none of your friends).

To overcome the cold start problem, DePIN apps deploy tokens that disproportionately reward early adopters for purchasing hardware and running it before any demand exists. This is the exact mechanism employed by Bitcoin when early amateur miners earned thousands of BTC every month.

This means supply arises prior to demand, an inversion of the capitalist norm. When it first launched, Filecoin had such a bloat of storage supply it had to significantly subsidize storage costs. But as networks grow, demand and developer activity reliably follow. The value of each token grows with demand, which boosts the supply incentive pro rata.

This is a beautiful model for bootstrapping decentralized networks because once launched, the token incentives are entirely blind to any social marker outside the network contributions of any given supplier. Even core developers are often unaware of the identities of large network contributors.

Real World Examples

W3bstream has opened up a new design space for hundreds of up-and-coming applications.

Here are a few highlights:

Healthblocks (health/fitness)

Health researchers have long dreamed of accessing the treasure trove of data collected by wearables. But how do you anonymously pool wearables data while incentivizing contributors to keep them on longer than a few months? This is where W3bstream comes in.

Healthblocks is a health data collective that rewards users for completing daily health tasks like step goals and well-being assessments. You can earn up to thirty $HEALTH tokens daily using their app, which connects to health trackers. The data is securely transmitted via W3bstream. Most profits from the sale of the anonymized data to research groups will be returned to users as tokens, driving the ecosystem forward.

Weatherflow (weather data)

Weather is highly localized, but forecasts are usually wrong, offering only general predictions for large geographical regions. Weatherflow is Helium for weather data, with over 45,000 crowdsourced Tempest weather stations deployed, their decentralized data capture ecosystem offers pinpoint forecasts. The managers of Tempest weather stations (regular people all over the globe) receive payment for sharing their data in a beautiful example of the DePIN model.

SmartPoint.io (information/edge networks)

SmartPoint.io is a decentralized kiosk network that uses on-the-edge computation to deliver insights and display information in real time. Active in New York City and across metro areas in the US, Smartpoint.io delivers content, and advertising, and can take in survey data from pedestrians. 24,000 endpoints have been deployed as of April 2023.

Caldance (web-3 peloton)

Caldance, similar to Heatlhblocks, is building a decentralized “fitness-to-earn” ecosystem that rewards users of their peloton-style bike for calories burned. Their $CDT token is used by research firms to purchase fitness data, driving the ecosystem forward.

Conclusion

DePIN is far less abstract than other crypto sectors; everyone–from construction workers to hedge fund managers–can host devices in their homes that contribute to the global decentralized movement while earning passive income. This is the essence of the vision for UBDI (Universal Basic Data Income) and it affects everyone. The economy is changing–the automated world is disrupting industries.

Will you be a part of it?