Incentivising Real-World Infrastructure with DePIN

Decentralised Physical Infrastructure Networks (DePIN) are a rapidly growing category of blockchain applications that bridge digital and physical infrastructure. These networks use blockchain-based tokens to incentivise the deployment and operation of real-world infrastructure such as wireless networks, sensors, compute and data storage.

While much of the blockchain ecosystem focuses on purely digital applications like decentralised finance (DeFi), DePIN shows how blockchains can incentivise, govern and fund physical infrastructure. Today there are over 4 million DePIN device locations globally (according to DePIN scan). This article introduces the basics of DePIN and why it matters.

An Infrastructure Coordination Problem

Building and maintaining physical infrastructure networks comes with major coordination challenges. The infrastructure itself, such as a communication network, often must have many access points spread across different locations all maintaining consistent service quality and interoperability.

Making significant investments in physical infrastructure is compounded by a classic chicken-and-egg problem — users won’t join until there’s sufficient coverage, but operators are reluctant to invest in infrastructure until there are users.

The traditional solution to this coordination problem has been through massive upfront capital investment coupled with centralised ownership and management of the network, including by governments. This limits who can build and benefit from new infrastructure. And of course, in some cases, the networks have not been built at all, leaving potential users without a service.

DePIN as a Decentralised Solution

DePINs are blockchain-based networks that incentivise individuals to provide real-world infrastructure services in a decentralised way. Typically, individuals can deploy and run physical infrastructure (e.g. a wireless node) and receive cryptocurrency tokens as a reward.

These networks are built and maintained by individuals and communities rather than governments or centralised companies. This represents a shift from the traditional model where critical infrastructure is primarily developed through state planning and investment. By contrast, DePINs are run by private actors collectively building and operating infrastructure.

The basic model is straightforward. First, people connect their physical hardware (e.g. wireless hotspot or camera) to the network. Then when those people contribute to the network (e.g. data transfer, imagery, compute) they receive token rewards. These tokens can be held as an investment, sold on exchanges, or used to participate in network governance.

Smart contracts automate this process by tracking infrastructure usage and distributing rewards. For example, in a wireless network, smart contracts might record data transfer volumes and automatically reward hotspot operators based on their contribution. Cryptographic proofs verify that operators are actually providing the claimed services, ensuring the integrity of the network.

How Are DePIN Networks Decentralised?

DePIN projects often aim to have decentralised ownership and governance. These characteristics distinguish them from traditional infrastructure networks and create new incentives for participation and growth.

Unlike traditional infrastructure where a single entity owns the network, DePIN participants who contribute infrastructure and services gain network ownership through their token holdings. This decentralised ownership can help to align incentives to reward early contributors who take a greater risk when the network is small.

Decentralisation in DePIN projects also manifests in community governance. Token holders gain the right to participate in network decision-making. These decisions might include technical protocol upgrades and improvements, changing economic parameters like reward rates and fee structures, and choosing between network expansion strategies and priorities.

DePIN in Practice

There are hundreds of DePIN projects in various stages of rollout. We explore just a few of them here. These are just a small representation of a broader class of blockchain applications that help incentivise and run physical infrastructure.

Helium

Helium pioneered the DePIN model by creating a decentralised wireless network. Community members purchase and deploy wireless hotspots that provide coverage. These hotspot operators earn tokens when their infrastructure is used to transfer data. The network has grown to over 500,000 hotspots globally, providing wireless coverage for Internet of Things (IoT) devices.

Filecoin

Filecoin demonstrates how DePIN principles can be applied to data storage. Participants dedicate storage hardware to the network, earning tokens for reliably storing user data. The network uses cryptographic proofs to verify that operators are maintaining stored data properly. This creates a decentralised alternative to traditional cloud storage providers, with over an exabyte of storage capacity distributed across thousands of providers globally.

Hivemapper

Hivemapper is building a decentralised mapping network where participants install dashboard cameras in their vehicles to collect street-level imagery. Contributors earn tokens based on the quality and quantity of mapping data they collect. This creates a constantly-updating map that competes with centralised services like Google Street View. Developers can also earn tokens by producing new products for users of the network.

Akash

Akash Network applies DePIN principles to cloud computing infrastructure. Participants provide their unused computing resources to the network, earning tokens by hosting containerised applications and services for users. The network aims to efficiently match compute providers and users, creating an alternative to centralised cloud providers. Those providers maintain control over their hardware and pricing, helping to create a more competitive market for cloud computing resources.

As the technology matures, we are seeing DePIN networks emerge for other types of infrastructure beyond wireless networks, storage, and mapping. From distributed energy systems to environmental sensors, DePIN is changing how we build and maintain our physical infrastructure.

Some DePIN challenges

DePIN projects also face several challenges. For instance, geographic coordination is crucial. Infrastructure needs to be deployed where it is most valuable, not just where it is cheapest to operate. Some networks have introduced additional incentives for covering high-priority areas. This shows the flexibility of token-based incentives in solving the coordination problems described earlier.

Physical infrastructure requires significant upfront capital investment compared to purely digital blockchain applications. Token rewards must be sufficient to justify these costs while remaining sustainable for the network. That physical infrastructure may also need to be upgraded over time as there are technological advances.

Quality control and verification of physical infrastructure can be complex. Networks need robust systems to ensure contributors are providing the claimed services and maintaining adequate quality standards.

The Future of Decentralised Infrastructure

Historically, large-scale infrastructure development has primarily been driven by governments or large corporations due to the coordination and capital requirements involved. DePIN offers an alternative model where communities can self-organise to build and maintain infrastructure.

DePIN may prove particularly impactful in developing economies where traditional infrastructure investment may be lacking. By allowing local communities to directly participate in and benefit from infrastructure deployment, DePIN networks could accelerate development in underserved regions.

The model also enables more dynamic and responsive infrastructure development. Rather than waiting for centralised planning and funding processes, communities can independently identify needs and deploy solutions.

The success of early DePIN projects suggests this is more than just a theoretical possibility. These networks demonstrate how blockchain technology can bridge the digital and physical worlds, creating new models for infrastructure development that are more dynamic and community-driven than traditional approaches.

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Dr Darcy Allen, Dr Aaron Lane and Dr Max Parasol are with the RMIT Blockchain Innovation Hub, RMIT University.