What the hell is a DePIN and how does it work? (2024)

DePIN stands for decentralized physical infrastructure. DePINs function by using blockchain technology to disperse authority and management throughout a network instead of concentrating it in one location. Put another way: "DePIN is the Frodo Baggins of crypto. Unassuming, even endearing at first glance. But with it comes the potential to unite Web3’s most promising fields: Internet/Economy of Things, energy, telecoms, mobility, environment, smart cities, smart homes, and more -- behind one term." accprding to Peaq.Network's blog.

DePINs have huge benefits across many industries: AI and high performance computing, energy systems for peer-to-peer renewable energy trading, supply chains for increased transparency and efficiency, telecommunications for resilient internet access, data storage for secure data management, transportation for decentralized mobility solutions, entertainemnt facility for better security and enhanced user experiences and real estate for expedited property transactions and management.

To understand how DePINs work, it helps to separate the idea of virtual vs. physical. There are already many virtual DePINs - like Filecoin one of the most successful distributed virtual networks where people pay to store their data on other people's hardware that can be anywhere and any type. Then there is physical DePINs which are now exploding as systems owned by a distributed group of owners (often as an NFT or token) satisfy demand with a consistent optimized hardware. That physical infrastructure is scaled and maintained by a central management authority - a great example of this is the Helium Network. Helium is a blockchain-based, decentralized wireless network that allows people and devices to connect with the Internet, based on a piece of hardware that is designed, maintained and improved by a central technology team. This allows a rich partner eco ssytem to exist because they trust Helium's DePIN will be well maintained and optimized. Everyday people who deploy wireless hardware on behalf of the network are rewarded with Helium's native token, HNT, as an incentive for maintaining and expanding the network's coverage. This very successful model for 5G deployment will soon expand to other critical infrastructure areas, especially since hyperscale data centers are slowly losing the performance and environmental battles. DePIN physical infrastcture has huge advantages over large data centers used today.

Imagine a DePIN application for the energy industry, such as a decentralized energy grid with microdatacenters at Tier 0 - right where energy is produced. In this setup, individual solar or wind-powered businesses can produce their own electricity and resell extra energy to the grid or neighbors directly, or even use their excess energy to power AI learning or Bitcoin mining if that is more lucrative. They can completely bypass the need for a typical centralized utility provider or power purchase agreement (PPA).

Every transaction — whether it involves the production, consumption or sale of energy — is documented on a blockchain, ensuring openness and confidence between parties. When particular criteria are met, like when excess energy is available for sale, smart contracts automatically carry out these transactions, ensuring efficiency and reliability in energy distribution.

DePINs can democratize energy production and distribution in the energy industry by allowing people to become producers and consumers. This makes energy more accessible and equitable at a time when entire courntries or states (Ireland, Virginia) are runing out of electricity because of massive data center projects.

In the cryptocurrency realm, virtual DePINs can show up as DeFi platforms that use blockchain technology to provide financial services, including lending, borrowing and trading, without the need for conventional financial intermediaries. This is great news for the more than two billion people across the world who are unbanked - they currently can't get a car loan, earn interest, get a mortgage. Smart contracts and DeFi will bring them to an entire new level or financial freedom thans to DePINs and DeFi. Soon the virtual and real will also merge together. Tokenization, in which tangible assets (such as real estate, artwork or commodities) are represented as digital tokens on a blockchain to enable decentralized ownership and trading, is one way these platforms might interact with actual assets.

Decentralized Physical Infrastructure both virtual - when laptops, servers and all kinds of computers host networks like Filecoin - and physical where the hardware is consistent, efficient and highly distributed will change the way computing is done. AI and Bitcoin mining are the two biggest energy hogs in the computing world, they're housed in massive facilities often sucking power off the grid and in the past causing blackouts and rationing. The massive data center strategy will soon change to hundreds of thousands of small instances that distribute the computing to many more renewable sites, while putting AI computing on the edge where it is most needed.

Think of one of the original physcial DePINs - banks 30 years ago created them. You might remember you had to trek across town, stand in line, and interact with a person, just to cash a $20 check. It wasn't long before micro-banks, known as ATMs, started to crop up on every street corner. ATMs are phycial DePIN. High performance computing will go the same route - hyperscaler data centers have reached their peak and are now declining in performance, viability and cost, so the only logical solution is distribute the demand through DePINS.