Real-World DePINs In Action: How Do They Work? – Coincu

Decentralized physical infrastructure networks, known as DePINs, represent one of the most promising alternative applications of blockchain. They make it possible to create, manage and support physical devices and infrastructure through a decentralized and incentivized model, empowering individuals to provide the necessary hardware and services in exchange for tokenized rewards. 

With DePIN, participants utilize a decentralized blockchain and cryptocurrency tokens to build and maintain real-world infrastructure and services. They provide a compelling alternative to the expensive, heavily centralized networks that power most of the world’s technology today. 

Decentralized networks are based on an architecture made up of horizontal connections, as opposed to the hierarchical framework seen with centralized networks. By building physical infrastructure on DePINs, we encourage greater cooperation and collaboration. Anyone can participate in these networks by purchasing the specialist hardware needed to host a node, or in some cases they can use their own hardware, such as a laptop or even a smartphone, to provide resources to the network. 

To incentivize this participation, DePIN networks rely on digital tokens, which are paid to anyone who supplies hardware and resources to support the infrastructure and services they host. 

For instance, Datagram’s Hyper-Fabric Network network is designed to support real-time audio and video communications, as well as applications like gaming, artificial intelligence and content delivery networks. To participate, users can purchase hardware that allows them to become a node operator and provide computing power to the network. These resources are distributed via AI algorithms to dynamically balance workloads to ensure maximum efficiency. Communications providers can pay to access the network, taking advantage of its low-cost, high-bandwidth connectivity to support high-performance applications. 

Other DePIN networks, such as Roam Network, allow anyone with a smartphone to become a node operator. In this case, the smartphones are the nodes, and the bandwidth they provide is the product, which is sold to telecommunications operators looking to boost their connectivity. 

The crypto research firm Messari sees a big future for DePINs, and has estimated its total addressable market opportunity at a staggering $3.5 trillion by the end of 2028. 

What’s In A DePIN Network?

There are four main components that make up any DePIN network, with each one playing a fundamental role in its operation. 

Physical Hardware

This refers to the tangible, real-world devices, such as the specialist nodes, servers, smartphones, laptops, GPUs, sensors and networking gear that provides the backbone of the DePIN network. They are essential for DePIN networks to expand geographically and provide global networking capabilities and computing resources. 

Blockchain

The blockchain is the foundation of any DePIN network. It’s a decentralized, distributed ledger that securely, transparently and immutably records all of the transactions involving the decentralized applications that live on the network. 

Blockchains also keep a record of the resource allocations and governance activities on DePIN networks, ensuring that everything can be verified and made resistant to tampering. This transparency is what ensures trust among network participants, so users won’t be overcharged and participants can be rewarded fairly. 

While projects like Datagram are built on existing blockchains (in this case, Avalanche), others have built their own specialized blockchain networks to support their activities. For instance, Spheron, which is building a DePIN for decentralized AI models, operates a Decentralized Compute Network (DCN) and match-making engine that securely connects GPU owners with applications that require access to high-performance compute resources. 

Smart contracts

These automated programs are designed to execute transactions when predetermined conditions are met, eliminating the need for intermediaries. In DePIN networks, they play a critical role in allocating compute resources, monitoring network activity and enforcing the network’s rules in a transparent way. 

Smart contracts can help to ensure flexibility based on the network’s conditions. For instance, Power Ledger, a DePIN that’s designed to support a decentralized energy grid, uses smart contracts to automatically adjust its token rewards in real-time, based on each participant’s energy contributions, ensuring that everyone is compensated fairly. They also facilitate decentralized marketplaces, where participants can trade resources such as compute, storage and bandwidth. 

For DePINs, it’s vital to remove the need for manual oversight, as doing so streamlines their network operations, lowers costs and reduces the risk of human error. 

Digital tokens 

The final essential component of DePIN networks is cryptocurrency, which allows for physical resources and assets to be tokenized, so they can be traded, transferred and utilized on the blockchain network. 

As an example, in the decentralized storage network Filecoin, its native token FIL represents storage capacity, allowing users to be rewarded for sharing their storage resources and enabling them to be transferred among users. 

Helium, which is a DePIN that provides decentralized wireless connectivity through a network of hotspots, the HNT token is distributed to node operators as an incentive, based on their uptime and the bandwidth they provide to the network. 

Some projects use multiple tokens. In the case of Datagram, it guarantees the transparent and tamper-resistant logging of performance metrics and incentivizes participation through a “Burn-and-Mint equilibrium model” that utilizes three tokens. DGRAM is the primary utility token, while DATA is the method of payment for network users, and UDP is paid to node operators as an incentive. By using three tokens and a complex tokenomics model, Datagram ensures the stability of its network economics, enabling it to scale globally with robust connectivity for every user. 

How Will DePINs Change The Future? 

In three year’s time, the world will be a very different place. Let’s fast-forward to 2028 and consider the life of Bob, who drives a ride-sharing car for a living. He jumps behind the wheel and opens the DRIFE app, a decentralized alternative to Uber, on his vehicle’s dashboard. 

Within minutes, Bob is on the way to pick up his first passenger. As this customer settles down in the back, they can’t help but notice the Hivemapper device, which looks a lot like a set-top box, sat on the dashboard. Bob explains that it’s not for watching TV, but rather, an alternative Google Maps, because it maps the roads that he travels on, recording the traffic conditions along the way, earning him some additional income for the data he provides to its network. He boasts that he can earn over $100 a month, in addition to his usual passenger fares. 

The passenger falls quiet and as Bob continues along to his destination, he can’t help but smile to himself. Because Hivemapper is not his only source of extra income. In addition, he has a DIMO AutoPI sensor connected to his vehicle, which keeps track of the health of his car and records any maintenance work done on it. By sharing this data, he earns yet more rewards and can also find more affordable insurance too, because insurance providers use this data to calculate the premiums they offer to customers more precisely. 

For Bob, the connectivity for his car is provided by the Datagram network, which ensures minimal latency and allows him to talk to his passengers in the event he has difficulty locating them. Bob takes heart from the fact that the wireless connectivity it provides is much cheaper compared to the days when he relied on a traditional wireless operator. 

The emergence of DePIN networks has been a game-changer for Bob, who was clueless about crypto before he started driving. With DePIN, he has become an active participant and beneficiary of the rapidly-growing decentralized infrastructure that powers our more connected, near-term future. 

Driving DePIN Growth

The secret sauce of DePIN networks is their tokenized incentives, which encourages the participation of drivers like Bob on the supply side as well as end users on the demand side. Through the DRIFE app, the Hivemapper device and the DIMO AutoPI sensor, Bob earns rewards from multiple sources for providing a physical service and for contributing valuable data and infrastructure to DePIN networks. 

The tokenized rewards structure also helps ensure that supply will always meet the demand. For instance, when Filecoin first launched it, the amount of storage that was available far exceeded network demand. However, as the network grew, demand for the service steadily increased, boosting developer activity and expanding its ecosystem. Slowly but surely, the value of its tokens increased, boosting the incentives for suppliers to ensure sufficient resources are available to support its future growth. 

DePIN networks can be likened to an intricate tapestry where every participant is valued equally, playing a crucial role in its operation and compensated accordingly. They support a world where centralized authorities are no longer able to dictate the terms under which networks can be used. Instead, the dynamics of power shift to the network’s community of users, where everyone can have a say in how its run and where access is available to all.