Hi all,

Do you even remember where data was stored before we just used 'the cloud'? Consumers and companies have become pretty comfortable with the concept.

One potential problem with cloud services is hard to address though. Physical infrastructure in the background has massive economies of scale. Huge providers like Microsoft or AWS therefore have large – and growing – market shares. With AI models becoming increasingly popular, the trend is set to accelerate further.

Decentralized physical infrastructure networks or DePINs may solve that.

So what’s up?

We'll help you to understand:

• key parts of DePINs

• potential advantages

• current challenges.

Let’s get started! 🤓

Back in 2006, Amazon was already a household name as on online shop. Selling stuff on the internet required a lot of technical infrastructure in the background though. Amazon Web Services (AWS) was a way to commercialize that expertise, leading to the S3 cloud storage launch in March 2006. 

The launch was followed by many other services over the years. In the fourth quarter of 2023, those services generated revenues of more than $24 billion. That's a market share of about 30% in the cloud infrastructure market.

AWS didn't invent cloud computing. Providing easily accessible – and cheap – infrastructure, however, helped to make the concept popular. From private blogs to large-scale enterprise solutions – you can offer virtually any kind of application without investing in your own servers.

But what about using hardware owned by a community instead of a big corporation?

Key parts of DePINs

Decentralized physical infrastructure networks sound complicated. The idea is simple though. It involves a blockchain to run and maintain a network of physical devices in a decentralized manner.

Devices could be computational infrastructure to train AI models. They could be hardware to provide wireless coverage, or electric vehicles for a decentralized car sharing service. There's no shortage of opportunities.

Overall, DePINs allow a network to be decentralized and owned by a community. Participants are rewarded, usually in some form of cryptocurrency or crypto token. (It doesn't have to be crypto-based, but it often makes sense to combine decentralized technology with decentralized financial incentives.)

Why would something like this be successful? Because infrastructure requires a lot of human and financial resources. Established corporations or governments have the capital, but they may not have the most innovative ideas.

 DePINs activate a community to build a project. The community is also needed for day-to-day operations. In a nutshell, successful DePINs have four components:

• Hardware or physical devices to provide easily-accessible infrastructure

• Hardware contributors with an incentive to purchase and maintain their part of the network

• End users for the infrastructure provided

• Means of payment, often a project-specific crypto token which goes hand-in-hand with the underlying blockchain technology; users may pay with tokens which are then distributed to hardware contributors.

Obviously, there are some challenges. There must be enough potential demand for the infrastructure – and you need to encourage individuals or companies to actually use it. Some characteristics of DePINs help with the business case.

Potential advantages 

Compared to centralized infrastructure, DePINs have important advantages.

1. Redundancy and resiliency

Centralized infrastructure may be highly efficient – until something goes wrong. It usually includes single points of failure. When a popular service is unavailable, thousands of websites are unavailable or thousands of – physical and digital – shops unable to process payments.

DePINs are designed to use multiple nodes. When one of those nodes is disrupted, the network re-directs ongoing tasks. Even when that results in slightly less efficient day-to-day operations, it enhances network reliability which is a key selling point.

2. Flexibility and scalability 

Infrastructure networks often struggle with demand spikes or changing requirements. How many people in rural areas have fast broadband access? How do energy grids cope with new patterns of power production?

DePINs are modular by nature. They can seamlessly integrate additional infrastructure or even technology. They can also quickly expand based on growing demand.

3. Efficient cost and development structure

Building centralized infrastructure requires significant up-front investments, limiting the list of potential providers.

DePINs have low overheads for development and operations. Spreading work and sharing resources also allows networks to minimize resource bottlenecks, both internal and external. Ideally, bootstrapping DePINs takes weeks instead of months or months instead of years.

4. Community engagement

Decentralized networks democratize infrastructure development. Individuals or small organisations can participate and benefit. Communities can shape the network progress and help to attract additional users and contributors.

None of the potential advantages appears out of thin air. Realising them is hard work. Still, the potential is obvious – so why don't we see more DePINs in our daily lives?

Current challenges

One obvious issue is that blockchain technology is young and rapidly developing. Most benefits have simply not been exploited yet. In addition, DePINs face some other hurdles.

1. Regulation and compliance

In many countries, regulations around decentralized networks are nascent at best. For example, who is responsible when a user hosts illegal content on a service that provides decentralized file storage?

Even with clear rules, regulatory compliance in different jurisdictions would require a lot of resources. Organisations behind DePINs must consider how to address these issues now and in the future.

2. Privacy vs. transparency

Blockchains are traditionally open and transparent. Both individual and corporate users, however, require a significant amount of data privacy. Data protection is also part of the regulatory landscape. Balancing these aspects is complex. 

3. Concerns about security

As mentioned above, decentralized networks can be much more resilient than centralized alternatives. Nevertheless, they are subject to security threats. The larger a DePIN becomes, the more attractive it becomes for attackers. Countering such threats is another resource-intensive task.

4. Technical complexity

Decentralized infrastructure requires specialized technical skills, both during implementation and daily operations. Physical infrastructure may be relatively simple to maintain yet connecting it to a blockchain network involves specific expertise. Considering how complicated it is to find any highly specialized IT professionals, it's no surprise that blockchain developers are in short supply.

5. Lack of adoption

Change is always hard. While DePINs may have advantages over centralized alternatives, are they good enough to overcome the resistance to change? This particular problem can only be solved by compelling use cases.

Summary 

They are still an emerging trend, but there is a large number of real-world applications which could be improved or even enabled by DePINs. At their core, however, DePINs are based on a simple idea: using blockchain technology to crowdsource infrastructure development.

In other words: When people collaborate, they can achieve almost anything.

That’s the end for today! 😢