- What is DePIN
- Why DePINs are not ordinary dApps
- It’s hard to be real
- Types of DePINs
- Digital Resource Networks (DRNs)
- What is DePIN Flywheel?
DePIN has huge potential, and it’s bringing Web3 and the real world together.
What is DePIN
The term hasn’t fully caught on yet, but according to CoinGecko, DePINs have a market capitalization of over $32 billion. Decentralized physical infrastructure networks (DePINs) connect physical infrastructure with blockchain technology to create and operate decentralized systems or, simply put, real-world applications. DePINs use tokens to incentivize people to customize hardware to provide real-world services.
An example is the Silencio project, which allows people to record noise pollution levels using their smartphones and get rewarded for doing so in the form of tokens. Another DePIN, Wingbits, uses tokens to incentivize people to install private antennas that track the transmission of aircraft location data.
The introduction of cryptocurrency into the real world is what the masses have been waiting for: real, tangible blockchain use cases that people actually need and use on a daily basis.
Why DePINs are not ordinary dApps
What makes DePINs special is the use of real-world objects. It’s not as easy as it sounds, you need to think through every detail. The program code must provide for interaction and support for the operation of a wide variety of hardware. This is how the cryptosphere starts to intertwine with the real economy, logistics, cost accounting and much more.
It’s hard to be real
A cryptocurrency token can exist through the hype, memes, and outright speculation that Web3 is so rich in. DePIN can’t. The need for companies, buyers, suppliers arises: DePIN requires real demand for real service. They must go beyond Web3 and compete successfully with Web2 competitors.
And they are up to the task. When based on a solid idea and its execution, DePINs have several advantages over Web2. For example, they can quickly begin their journey to scale – and they can undermine the position of almost any centralized competitor. So far, cryptocurrencies aren’t as accustomed to this business model, but strong corporate ties are essential for any budding DePIN ecosystem, as they help supply that demand and solve various other problems, such as hardware production.
Types of DePINs
Messari’s Crypto Theses for 2024 report divides DEPINs into two groups:
- Physical Resource Networks (PRNs)
- Digital Resource Networks (DRNs)
PRNs provide participants with cryptocurrency incentives to deploy location-dependent equipment. This equipment also acts as a resource to provide network connectivity, energy, or geospatial data.
Digital Resource Networks (DRNs)
DRNs, on the other hand, are location-independent, unlike PRNs. Hence, one can utilize its services without any geographical barriers. These include for example digital resources such as storage, computation and bandwidth.
How do DePINs work?
The operation of DePIN consists of four main parts:
Blockchain architecture: Blockchain technology is the foundation of DePIN. As a result, the project relies on its architecture, which consists of smart contracts to execute set rules, charge fees, and provide rewards.
Physical infrastructure network: This infrastructure consists of physical components that help transfer data, resources, or information within the network. The most commonly used components include hardware devices such as switches, routers, and network equipment.
Token rewards: The individual or entity providing the service receives cryptocurrency tokens as an incentive. Participants also receive tokens for their participation, with the reward varying from project to project.
Autonomous network: This network is concerned with data transactions that take place outside the main blockchain network. Here, users buy necessary resources such as processing power, data storage and connectivity from external service providers.
These four principles define the so-called DePIN Flywheel.
What is DePIN Flywheel?
The DePIN Flywheel is essentially a self-sustaining cycle that increases the number of network users and participants.
Growth in usage: As more people use the DePIN network, the demand for its services grows. This can be anything from a need for more storage to the use of additional computing power.
Rising token price: As demand increases, the value of a DePIN token naturally increases. This happens through mechanisms such as token burning (taking tokens out of circulation), buybacks (the network itself buys back tokens), or because users want more tokens to operate the network profitably.
Incentivizing participants: The rising value of tokens makes it more attractive for people to invest resources in the network. They earn tokens that are now worth more. This can apply to individuals sharing their computer storage or companies offering data center capacity.
Network expansion: As resources increase, the DePIN network expands its capacity. This allows it to serve more users and offer a wider range of services.
Investor interest: The growth of the network and the rising value of tokens is attracting investors. This provides additional funding and support, further accelerating the development of the network.
DePIN Flyhweel
