DePIN: It’s Time for Crypto to Get Real

Why? Before we dive into that, let’s quickly put the spotlight on the “what.”

Demystifying DePIN

Many individuals, including crypto veterans, raise their eyebrows in puzzlement upon hearing the term DePIN for the first time, as it has not yet become widely recognized. To provide a clearer explanation, DePIN refers to Decentralized Physical Infrastructure Networks. Essentially, this concept involves real-world applications that utilize tokens as incentives for individuals to establish and operate physical infrastructure providing various services. Examples include car-sharing platforms, peer-to-peer solar power trading, 5G or WiFi connectivity, street mapping, electric vehicle charging stations, and environmental data collection through smartphones.

In this opinion piece, we delve into the future of decentralized infrastructure as part of CoinDesk’s latest initiative called “DePIN Vertical.”

For instance, take Silencio, an app that lets users record noise pollution levels using their smartphones and receives token compensation in return. Similarly, Wingbits awards tokens to individuals who establish private antennas for tracking plane location data broadcasts. The concept underlying Decentralized Privacy-preserving Incentive Networks (DePINs) is not novel; the term was merely introduced by Messari towards the end of 2022.

At first, the name drew some amused reactions – a common occurrence in the world of memes for Web3 projects – yet it ignited a significant shift with an underlying promise to transform the digital landscape. Remarkably, this transformation is not one-sided; it not only alters how we interact and generate income through devices but also challenges us, as Web3 pioneers, to reevaluate our perspectives on this evolving technology.

Introducing cryptocurrencies into the physical world presents an intriguing prospect, even a unique chance. This is what the public has been anticipating: practical applications of blockchain technology that cater to everyday needs and usage. However, this opportunity comes with additional challenges compared to launching yet another cryptocurrency based on a trendy meme theme. It requires more effort and specific attention.

Why DePINs aren’t regular dApps

What sets DePINS apart from other technologies? To clarify this question, consider a hypothetical DePIN system that rewards you with tokens for measuring temperature using a smart thermometer. Immediately, we encounter one of the significant challenges: the hardware component.

How do we go about the thermometers? Do we let users connect any third-party devices capable of recording and sending data? Sure, and let’s applaud our own open-source spirit while we’re at it. But let’s not forget to write the code that will support the widest variety of smart sensors and will feature a simple user interface that will make adding them a breeze. And that’s no easy task, mind you.

token economics.

As an analyst, I recognize the significance of factoring in all related costs when designing token economics. Regardless of whether users will acquire a thermometer or other hardware from us directly, it’s crucial to consider these expenses when structuring rewards and incentives. Users aim for returns on their investments in hardware, which is only natural. Consequently, we are no longer drafting token economies solely for human users as typical dApps do; instead, we cater to both human users and intelligent, value-generating machines that continue evolving into economic agents.

See how significant this distinction is? And that’s only the supply side so far.

Being real ain’t easy

Let’s explore another aspect of the situation now. Unlike a crypto token, which can thrive on hype, memes, and wild speculation characteristic of the Web3 world, a Decentralized Pin (DePIN) requires real-world demand for its offerings. In our scenario, this means weather companies, researchers, and other potential buyers of temperature data we collect. However, there are other possibilities such as devices leveraging its IoT connectivity network or drivers searching for charging stations. The underlying message is that DePINs depend on tangible market needs for their practical applications. They must break free from the Web3 bubble and frequently challenge Web2 competitors.

The good news is, they are up to the challenge. When they’re armed with a solid idea and execution, DePINs have several unfair advantages over their Web2 incumbents. For example they can bootstrap their way to scale – fast – and they can undercut virtually any centralized competitor. You read that right; Uber, the undercutter of all undercutters, may have met its match. The bad news is, crypto isn’t as used to this business model as it thinks. Thus, solid enterprise ties are a must for any aspiring DePIN ecosystem, as they help with securing this demand, and with various other headaches, such as hardware manufacturing.

we mustn’t overlook the importance of gaining support and acceptance from new communities for DePINs. Unlike many other crypto projects, DePINs aim to reach audiences previously undervalued, such as IoT and tech enthusiasts, as well as individuals who can host and operate hardware, ranging from hobbyists to small businesses. This marketing challenge underscores the distinctiveness of DePINs within the Web3 sector.

In simpler terms, although none of these issues are lethal to the industry’s continued growth, they do present significant challenges that require a fresh perspective, new designs, and innovative communication methods.

As a researcher exploring the deployment of Decentralized Personal Information Networks (DePINs), I focus on being more mindful of the practical challenges that these systems face in addressing real-world issues. By staying attuned to these challenges, I aim to develop a savvier approach when it comes to overcoming hurdles such as product marketing and user experience. This will allow DePINs to effectively compete with their Web2 counterparts.

In the realm of architecture, consider integrating smart contracts with edge computing and direct device-to-device communications. This approach takes into account the practical complexities that arise in such a system.

As a newcomer to the world of cryptocurrencies, I understand that the terminology and jargon can be quite intimidating. So, let me explain one way to invest in crypto using simpler terms, focusing on real-life applications and practical benefits.

As an analyst, I’m drawn to the distinctive nature of Decentralized Pinch Points (DePINs) in the crypto landscape. DePINs provide us with a valuable opportunity to assess digital assets based on their practical applications in the real world. By connecting to genuine market dynamics, DePINs offer more transparent and meaningful indicators for evaluation.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.