What Is DePIN in Crypto?

DePIN, or Decentralized Physical Infrastructure Networks, is a network of individuals and hardware resources that leverages blockchain technology and token rewards to develop real-world infrastructure. Unlike traditional infrastructure networks, DePINs function without centralized control. 

In this article, we provide deeper insights into the DePIN ecosystem, how it functions, its use cases, pros, and cons. We also walk you through the best DePIN projects and a step-by-step process to build DePINs. 

What Is DePIN in Crypto?

DePIN is an innovative use case of blockchain technology. It represents a transition from centralized models to decentralized and community-backed infrastructure development. Instead of a central authority, DePINs distribute the responsibility of building and managing infrastructure among a network of participants. They are more secure and cost-effective, eliminating single points of failure and the need for intermediaries. 

DePINs in crypto comprise three key components: blockchains, smart contracts, and crypto tokens. Blockchain networks create an immutable ledger of transactions, while smart contracts automate processes. Tokens are digital assets that are rewarded to users who provide resources or services to the network. 

You can compare DePINs to Uber, a centralized and community-powered ride-sharing service. Uber drivers offer chauffeuring services or physical resources like vehicles. They also get paid for their services. On the other hand, the platform makes the services available to a broader user base. 

Similarly, DePINs are community-driven. They enhance the global accessibility, efficiency, and resilience of physical infrastructure, albeit in a decentralized environment. They also offer economic incentives to providers in the form of cryptocurrency rewards. 

Why Decentralized Physical Infrastructure Networks Matter?

DePINs make physical infrastructure, like energy grids, sensors, wireless hotspots, etc., accessible to all at affordable prices. Moreover, a community controls these resources. Thus, a single central authority or a few large corporations can’t monopolize these physical infrastructure networks.

Additionally, the decentralized and distributed nature of DePINs fosters innovation and competition in the crypto industry.  Thus, the services rendered by these networks are relatively cheaper and remain accessible even during crises.

With DePINs, you no longer need bureaucracy or huge upfront investments. They accelerate the pace of infrastructure deployment and make localization easier. Their agility helps users share resources directly with each other without intermediaries. Lastly, DePINs create income opportunities for businesses and individuals that own physical or digital resources.

How Does DePIN Work?

DePINs connect physical infrastructure resources to blockchains. These resources can include anything from routers, electricity, and solar panels to software and hardware components. In a DePIN ecosystem, private providers own and manage such resources.

DePINs function like proof-of-work blockchains, where any miner can contribute computing power to secure the network. Similarly, anybody can commit their facilities to a DePIN and help in maintaining the overall infrastructure. 

DePINs also deploy a middleware. It collects data on activities performed on every physical facility and communicates the information to the DePIN network. Consider them analogous to decentralized oracle systems that feed external data into blockchain applications. 

Blockchain technology is at the heart of DePINs. The information gathered by middleware is transmitted to blockchains, which serve as remittance mechanisms and administrators. They use the data to ration demand across providers and calculate rewards. 

For users of DePIN services, blockchains handle resource procurement. Pricing models are integrated into the remittance systems, enabling automatic calculation and charging of fees based on the services utilized.

Furthermore, blockchains are open-source digital ledgers that immutably record every on-chain activity. The smart contracts deployed on these networks automate all transactions, including payments, reward distributions, access permissions, and governance.

Regarding incentivization, DePINs reward providers with native cryptocurrencies to encourage their continued participation in running the network. These tokens can also be used for economic transactions within the DePIN ecosystem. If the tokens are listed on crypto exchanges, you can trade them at favorable prices to clock profits. 

Lastly, decentralized autonomous organizations (DAOs) govern DePINs and make decisions related to network upgrades and policies. 

Types of DePINs

Physical Resource Networks(PRNs)

PRNs are location-based, decentralized networks. They involve the use of physical assets such as hardware and infrastructure to provide services within a network. Usually, providers in PRNs contribute physical resources related to sectors like energy, connectivity, and mobility. 

Additionally, PRNs are non-fungible as they offer localized services within a specific location. They can even be non-portable, meaning they are anchored to a particular place. 

Overall, PRNs are built to harness community-owned physical assets and incentivize participants to share their resources with the network. Examples of PRNs include Helium Network, DIMO, and Power Ledger. 

Digital Resource Networks(DRNs)

DRNs are networks based on digital resources like computing power, decentralized storage, shared bandwidth, and virtual services. They are fungible, portable, and not powered by location-specific data or physical resources. 

Moreover, DRNs are designed to leverage digital assets by rewarding participants who contribute resources to the network. Examples of DRNs include Filecoin, Livepeer, and Golem Network.

Benefits of DePIN

1. Decentralization and Community Control

Since DePINs are distributed networks, they foster decentralization. They remove the need for central authorities by distributing control among community members who participate in the network’s operations. They also minimize single points of failure, a common issue that plagues centralized models. 

For instance, in conventional energy grids, a failure in the central power plant can trigger widespread blackouts. Conversely, in decentralized energy grids, power generation is allocated across multiple sources, reducing outages.

Moreover, as data and control are distributed across many nodes in decentralized networks, bad actors can’t compromise the system easily. DePINs are also fuelled by blockchain technology, which records transactions in unalterable distributed ledgers. Thus, they are safer than traditional centralized models.

2. Cost-Efficiency and Scalability

Decentralized physical infrastructure networks are designed to deliver high-quality services at the lowest possible price. Their inherent flexibility enables providers to commit their resources to multiple platforms. Users also pay fair rates for the services they obtain, making DePINs cost-efficient. 

In terms of scalability, DePINs can scale faster, especially horizontally. Rather than enhancing the capacity for every resource, they can increase resources. During periods of high demand, they can re-activate dormant resources to boost the network’s capacity. Besides, DePINs leverage blockchain technology to ration demands and manage available resources, enhancing scalability.

3. Transparency, Permissionless Access, and Resilience

As blockchain-based systems, DePINs benefit from tamper-proof records, minimizing the potential for fraud and errors. They foster transparency, trust, and collaboration, as participants can independently verify the data. They also reduce information asymmetry as participants have open access to the same data.

Additionally, DePINs are permissionless marketplaces with no price bargains or user screening. Anybody with unused physical or digital resources can become a provider. On the consumer side as well, anyone can use the services offered by DePINs. 

Apart from being permissionless, DePINs are more resilient. Even if some nodes fail, multiple nodes continue to function, making services available despite disruptions.

4. Fair Pricing and Incentivization

DePINs are relatively cheaper than traditional organizations because private providers bear the costs of managing resources or infrastructure. Additional charges like platform fees are low because the network doesn’t incur the costs of operating these facilities. In general, DePIN projects adopt fair pricing models that determine rates based on the network’s demand and supply conditions.

To ensure the network’s sustained growth, DePINs incentivize providers by rewarding them with utility tokens. Participants earn these tokens by providing services, physical infrastructure, or digital resources to a DePIN. Therefore, incentivization creates an alternative income stream for providers by enabling them to monetize their dormant facilities. 

For example, Helium network, a decentralized wireless network, rewards hotspot owners with IOT and MOBILE tokens for providing network coverage. These protocol tokens are redeemable for Helium’s native token, HNT.

Use Cases of DePIN

1. Wireless connectivity

DePINs democratize access to wireless networks by deploying mobile or internet connectivity infrastructure across a widespread area at nominal costs. They function as peer-to-peer (P2P) infrastructure networks, where physical devices like IoT gadgets, routers, etc., communicate directly with nearby devices. Thus, DePIN projects in the wireless sector stimulate innovations in farming, logistics, and smart cities.

For example, Helium Network has created a robust decentralized wireless infrastructure to provide Internet of Things (IoT) connectivity. 

2. Energy distribution

In the energy sector, DePIN projects predominantly focus on green energy production and seamless energy data exchange. They connect renewable energy producers with organizations harnessing these energy sources. They also collate reliable energy supply data to promote sustainable practices. Through intelligent automations and tokenized incentives, DePINs even improve the efficiency and resilience of smart grids. 

For example, Arkreen is a decentralized green energy network that aims to build a carbon-neutral future. Its ecosystem comprises a community solar program and a green initiative (PGP) for achieving net-zero emissions. Its GreenBTC Club has greened 160,000+ Bitcoin blocks and retired carbon offset tokens on-chain. Renewable energy certification (REC) issuers and green computation operators find Arkreen’s energy data helpful for developing services and applications. 

Another notable DePIN, Blaize, converts renewable energy certificates into non-fungible tokens (NFTs). Its primary objective is to generate decentralized energy grids.

3. Data Storage and Computing Power

Decentralized storage marketplaces help you store data across multiple nodes, enhancing data privacy and security. For instance, Sia, a decentralized cloud platform, leverages underutilized hard disk capacity around the world. The renters (users accessing storage space) pay rent, while hosts (users providing surplus storage capacity) receive SC tokens as compensation. 

DePINs have also revolutionized the sharing, allocation, and exchange of computing resources globally. For example, Nunet pools software and hardware resource providers to help individuals and businesses borrow computing power. To encourage participation in its AI-driven P2P marketplace, NuNet incentivizes providers by compensating them with its native NTX tokens.

4. Healthcare

DePINs have also forayed into the healthcare sector, enabling users to have complete ownership of their health-related data. For example, HealthBlocks is a next-gen health application that promotes healthy living. It rewards users with HEALTH tokens for completing health challenges, providing data, and adopting healthy habits. 

Similarly, MediBloc fosters health data sovereignty and interoperability by storing patient records on the Panacea blockchain. It collates fragmented patient data and rewards users who share their medical information with MED tokens. 

5. Decentralized sensors

DePINs can serve as powerful tracking systems by leveraging blockchain technology and the distributed nature of physical sensors. Whether you want to monitor geolocations, traffic, or health, DePINs can operate as decentralized sensors to collect real-world data.

For example, Robonomics has built the Altruist outdoor sensor, a device that encourages open participation in an environment monitoring ecosystem. It is mounted on Robonomics’ IoT stack that combines Web3 technologies, embedded systems, middleware, and network connectivity. 

Best DePIN Crypto Projects

1. Filecoin ($FIL)

Filecoin is a decentralized storage marketplace that helps users preserve critical information. It verifies that storage providers securely store data by requiring them to submit cryptographic proofs with new blocks. Only the correct blocks are approved, ensuring the safety of your data. 

Storage providers are the participants who rent out the unused storage space on their computers. Filecoin compensates them with FIL tokens for the storage capacity and retrieval services they offer.

This project combines the strengths of blockchain technology, cryptocurrencies, and decentralized networks. By democratizing data storage, it allows anyone with surplus storage space to participate and earn rewards. With Filecoin, users can bid adieu to centralized data centers and instead store data efficiently and hyper-locally. 

2. Theta Network ($THETA)

The Theta network is a top DePIN project in the decentralized bandwidth sector. It is an agentic AI system powered by decentralized Graphics Processing Units (GPUs). The network comprises two key components: an Ethereum Virtual Machine (EVM)-compatible blockchain and the Edge network.

While the Theta blockchain manages smart contracts, Edge handles the storage and delivery of multimedia content. To incentivize participants contributing resources or sharing bandwidth on various devices, the network offers THETA or TFUEL as token rewards. 

3. Render Network ($RNDR)

The Render Network is the pioneer DePIN project, enabling users to provide decentralized GPU capacity for powering creative workflows. Participants offering GPU computing power receive RNDR tokens as rewards. 

Creators and developers can access these rendering resources for various virtual and augmented reality projects at affordable rates. This way, Render bridges the gap between decentralized infrastructure and high computational requirements. It also fuels the growth of the gaming, design, and entertainment industries. 

4. The Graph ($GRT)

The Graph is a DePIN project that offers an innovative solution to users’ data indexing and retrieval requirements. Touted as the “Google of blockchains”, the Graph helps you organize on-chain data for decentralized applications (dApps). 

The Graph network comprises delegators, curators, and indexers who provide services and data to Web3 applications. They are awarded with GRT tokens in proportion to their contributions. By decentralizing data recovery and organization, the Graph makes blockchain ecosystems more efficient and transparent.

5. Hivemapper ($HONEY)

Hivemapper is a crowdsourced platform that maps the world in real-time. Users can provide manual mapping resources or record their surroundings by mounting a camera on their dashboard while driving. Using these videos and images, Hivemapper creates decentralized maps, visualizations, and location data to help communities navigate places seamlessly. 

You can also contribute resources to the network by playing Hivemapper’s AI trainer games to enhance live map quality. Most importantly, you earn HONEY tokens for every contribution, whether capturing imagery, collecting geospatial data, or verifying AI outputs. 

Key Challenges of DePIN

Regulatory issues

DePINs often face significant challenges when adhering to complex regulatory frameworks. Moreover, crypto laws vary across jurisdictions, making legal compliance more daunting. In some countries, governments may reject decentralized infrastructure. Therefore, DePINs must assess legal requirements for data security, energy distribution, and other use cases to ensure long-term sustainability.

Adoption and scalability

Active participation from communities and network resource providers is crucial to DePINs’ functioning. Since DePINs are a relatively new concept and difficult for laypersons to grasp, their adoption is currently limited. Only a few blockchain enthusiasts and facility owners are willing to partake in such systems. 

While this scenario may change in the future, DePINs struggle to build designs that entice new participants. Thus, their revenues are low, which further inhibits a network’s growth and adoption. 

Scaling DePIN projects is equally challenging. As networks rapidly expand or new participants join to meet growing demand, maintaining infrastructure, performance, efficiency, and security becomes harder. Sharding and Layer 2 scaling are plausible solutions for these problems. 

Network security

Decentralized networks and underlying smart contracts are vulnerable to security threats like Sybil, reentrancy, or denial of service attacks. Thus, implementing cutting-edge security protocols and auditing DePIN projects regularly is imperative. 

Interoperability

Lack of interoperable solutions to integrate various technologies hinders DePIN adoption. Furthermore, without interoperability, achieving seamless data exchanges between centralized systems and DePINs is tough. 

Private facilities

DePINs require providers to incur the costs of maintaining physical infrastructure like storage facilities, specialized hardware, GPUs, etc. As private setups are unlikely to receive external financial assistance, some providers may struggle to operate them. 

Profitability

DePIN projects can attract providers only if they offer rewards that are at least equal to the network’s operating costs. A network’s appeal is also directly proportional to the gains generated by it during every running cycle. Since the density of users (demand) and providers (supply) is low for DePINs, they often struggle to remit lucrative incentives. Consequently, a network’s adoption falls further, posing a threat to its sustainability. 

How to Build a DePIN Network?

Step 1: Define clear objectives

Begin the process by defining a goal, like enabling video transcoding, providing wireless connectivity, or integrating renewable energy. You can also specify the focal points of the DePIN project, such as minimizing costs, democratizing resource access, etc. 

Step 2: Choose a blockchain platform

Select blockchain platforms that align with your specific requirements. First, specify the features you need, like transaction speed, governance protocols, interoperability, scalability, smart contract compatibility, etc.

Second, look for blockchains with high throughput, burgeoning communities, streamlined consensus mechanisms, energy efficiency, and low latency. 

Third, opt for robust platforms with advanced security and compliance features and efficient verification procedures. Additionally, check if the blockchain supports the programming language in which you want to code the smart contract. 

Last, evaluate the blockchain’s cost-efficiency. Explore the costs of building a DePIN, like transaction fees, gas charges, hosting expenses, maintenance costs, and hidden fees.

Step 3: Token economy design

Generate the DePIN project’s native token for transactions and rewards. Define the token’s utility, total supply, burning mechanism, and other specifications. Set up a decentralized governance mechanism, such as token-based voting systems, for decision-making. 

Step 4: Smart contracts

Develop and deploy smart contracts to automate transactions and resource allocation among participants. Audit the smart contracts for bugs or other vulnerabilities to prevent hacks, asset losses, and unintended outcomes. In addition, ensure they are capable of handling variable inputs and outputs. 

Step 5: Secure hardware deployment

For the proper connectivity and functioning of a DePIN, you must deploy physical infrastructure, including hardware resources. These include GPUs, routers, energy sensors, IoT equipment, smart meters, and storage drives. You can register or lock the physical devices on the chosen blockchain, linking assets to on-chain identities. 

Step 6: Set up network participants

Bring network participants such as consumers, providers, energy producers, and developers together. Offer economic incentives in the form of token rewards, exclusive perks, or revenue-sharing to expand the DePIN ecosystem. 

Step 7: Security measures

Implement security protocols to preserve network integrity, safeguard user data, and protect the DePIN from cyber threats. These include on-chain identity verification, cryptographic proofs, slashing mechanisms, etc.

Conclusion

Despite the regulatory, technological, security, and sustainability challenges facing DePINs, they offer numerous advantages over centralized systems. They are revolutionizing infrastructure development by merging real-world assets with blockchains. Moreover, their integration with AI and Web3 is expected to drive cutting-edge innovations in the digital world. 

By incentivizing resource providers and offering cost-efficient services to users, DePINs create a self-sustaining cycle of growth, called the DePIN flywheel. As the network grows, the value of their tokens increases, attracting more contributors and investors. However, joint efforts between developers, communities, and regulators are necessary to navigate challenges and unleash the true power of DePINs. 

FAQs

What is an example of DePIN?

Xnet is a decentralized wireless network that has transformed cellular network connectivity across the US. It cost-effectively bridges network coverage gaps in rural and urban areas, where deploying 5G infrastructure is expensive. It also helps mobile carriers offload excess traffic to a decentralized mesh. The network compensates node operators who deploy passpoints in high-traffic areas with XNET tokens. 

Does DePIN have a future?

DePINs can redefine infrastructure development by making it more resilient, efficient, transparent, secure, and sustainable. They are also more cost-efficient than centralized systems. Hence, they can boost the development of decentralized physical infrastructure, including software, hardware, and high-performance commercial-level facilities. 

What is DePIN used for?

DePINs are used to build decentralized real-world infrastructure by motivating communities to provide the necessary resources and services. It also transfers control among a network of participants and minimizes single points of failure by fostering censorship resistance. Moreover, DePINs use blockchain technology to create inclusive marketplaces where anybody can share or access resources securely.

What are the best DePIN crypto projects to invest in?

The best DePIN crypto projects to invest in are Filecoin, Theta Network, Render Network, The Graph, and Hivemapper. Other DePIN projects worth exploring are Bittensor (TAO), Arweave (AR), Helium (HNT), Iota (IOTA), and Storj (STORJ).