What Is DePIN in Crypto?

What is DePIN, and how does it work? With the growing interest in decentralized solutions and the rise of blockchain, DePIN has sparked current interest.

This promising new trend emerged in 2023, and the interest in DePIN has become even stronger this year. Although in its early stages, DePIN is believed to have the potential to revolutionize existing infrastructure models across many sectors.

Let’s begin explaining this concept and discuss its functionalities.

What Is DePIN in Crypto?

A Decentralized Physical Infrastructure Network, or DePIN, is a P2P crowd-sourced network that allows people to contribute physical infrastructure resources like wireless connectivity, data storage, sensors, or even energy grids. In exchange, providers of these services gain rewards based on the protocol’s incentive mechanism, typically in the protocol’s native token.

DePINs utilize blockchain to distribute authority across networks, applicable to various fields such as energy, supply chains, telecommunications, data storage, transportation, and real estate. Smart contracts automate transactions, promote efficiency, and encourage renewable energy use. In some cases, users receive cryptocurrency rewards to incentivize participation and growth.

So, cryptocurrencies play a key role in building the DePIN community. DePINs utilize crypto token rewards to attract and motivate real-world physical infrastructure operators to join their networks.

How Does DePIN Work?

As mentioned, DePINs are used to decentralize services, which are usually centralized in traditional settings. Despite these services being centralized, new entrepreneurs face high entry barriers. DePINs eliminate this problem because the whole network can become self-sustainable if there are enough participants.

DePINs use the distributed networks’ core principles to tackle the issues of physical infrastructure management. With more people participating, the network’s value usually increases. Incentivized people share their resources, improving the overall infrastructure’s value and encouraging additional participation.

What Are the Advantages of Decentralized Physical Infrastructure Networks (DePINs)?

So, what is DePIN crypto good for? It offers many advantages, so let’s explore the primary ones.

Community Control — Decentralization

Like DeFi, DePINs are decentralizing infrastructural systems that move from corporations to a collective of individuals who commit their resources to build a facility. They allocate the facility’s control to different providers, resembling miners in a PoW network.

The DePIN Web3 integration removes the need for intermediaries, allowing for a direct P2P interaction. In a system in which every provider has equal capacity, DePIN becomes an excellent decentralized system. Such decentralization fosters transparency, trust, and autonomy in the network.

Horizontal Scalability

DePINs enable facilities to increase their capacity more flexibly. Instead of increasing the capacity of each resource, networks can increase resources. So, facilities built using the system can scale in and out based on demand. The blockchain can ration demands and control the available resources.

When there’s low demand, specific providers may experience a lower workload. If there’s high demand, the network can activate unused resources by adding more instances and increasing the whole network’s capacity with no shifts. Based on the rationing DePIN system and the available dormant resources, such systems can scale infinitely.

Protocol and Consensus

Blockchains are an excellent fit for decentralized networks partly because they have set protocols designed explicitly for governing P2P networks, including the consensus mechanism. This is a crucial part of every blockchain protocol, allowing network participants to agree on the network’s state in a trustless manner.

Since DePIN blockchain technology is used, the mechanisms are already in place. So, DePINs don’t need to have their methods for determining network state, managing and defining network roles, and enabling cooperation among users.

Accessibility and Affordability

Suppose you want to build apps and online services. In that case, you will need a substantial investment upfront to cover equipment, development, and time resources and make the required infrastructure to support your product.

DePINs use P2P and crowd-sourcing infrastructure models to make the beginning phase more manageable. Also, these networks are usually permissionless and open, so anyone can participate and start contributing.

Cost-Efficient Operation

The DePIN network requires little to no cost to get started and allows providers the flexibility to offer their services to many networks. Moreover, users pay a reasonable price for the services they receive from the network. In fact, DePINs are created to offer the best possible service for the lowest possible cost.

They are substantially more cost-efficient than traditional centralized infrastructure models. With no intermediary and low overhead costs, users can obtain services at lower prices, making them more accessible to a wider audience.

Disadvantages of Decentralized Physical Infrastructure Networks (DePIN)

To better understand the DePIN meaning, you should be aware of its downsides.

Scalability Challenges

These challenges can primarily be seen in network congestion and managing large transaction volumes. Scalability problems may arise when more people join the network, resulting in increased costs and slower transaction speeds. These limitations represent a significant obstacle to widespread adoption.

Regulatory Uncertainty

These systems work in a gray regulatory area, facing uncertainty in legal frameworks and compliance. Regulatory uncertainty may impede investors and innovation in the DePIN space, leading to the creation of barriers to adoption and growth.

Examples of DePINs

Let’s discuss two of the most well-known DePIN projects.

Filecoin

This P2P network provides its users with decentralized data storage solutions. Anyone with the required hardware infrastructure can stake FIL tokens as collateral and become a storage provider. Retrieval providers are other Filecoin network participants who focus on enabling users to access their data quickly.

Filecoin’s native cryptocurrency is the FIL token which users can buy and use as a payment method to ensure honest behavior from service providers and incentivize storage providers. Overall, this protocol sets rules that enable users to interact with storage providers in a trustless, secure, and decentralized way.

Render

This is another popular example of DePIN crypto projects and represents a P2P, GPU processing network. It provides artificial intelligence and machine learning training, near real-time computing power for 3D rendering tasks, complex calculations, etc.

Service providers that have spare computing power can offer the GPUs they use to the network and gain RNDR tokens for handling rendering tasks. To get higher job volumes, GPU providers need to complete tasks timely and accurately, thus building their reputation.

Render users’ reputation scores enable the network to decrease unintended congestion resulting from failed renders or malicious activity. The Render network’s native token is RNDR, created on the Ethereum blockchain. Yet, Render moved to the Solana blockchain in 2023.

Conclusion

So, what is DePIN? It’s a P2P crowd-sourced network that allows people to contribute physical infrastructure resources. It’s used for energy, logistics, and data storage and computing.

These systems offer many advantages, like protocol and consensus, horizontal scalability, cost-efficient operation, decentralization, and accessibility and affordability. Yet, two of its downsides include regulatory uncertainty and scalability challenges. The most well-known examples of DePINs include Filecoin and Render.

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