answering-vitaliks-question-why-are-the-conditions-for-depins-boom-now-satisfied

Is It Time for DePIN to Shine?

On March 8, Vitalik posed a question on the Warpcast platform, expressing his confusion about the DePIN concept’s “ten years of existence without taking off.”

The buzz around DePIN has been high, from the concept’s introduction by Messari in Q1 2023 to the surge in several DePIN project valuations in Q4 2023. DePIN has become one of the most watched tracks in 2024 and this new bull market cycle. However, this has not eliminated the industry’s skepticism about new concepts, and Vitalik’s doubts are also a major background question for practitioners entering the field.

In this article, we will explain why DePIN has met the conditions for a breakout from three directions.

Three Directions Are:

1. Blockchain and Web3 Market Education is Well-Established.

The awareness and understanding of blockchain and Web3 technologies have reached a mature stage among the market participants. This foundational knowledge is crucial for the adoption and growth of new concepts like DePIN.

1. The Maturity of the Hardware Industry, Rich Product Choices, and Low-Cost Construction Solutions for DePIN Networks.

The hardware industry’s maturity has led to a variety of product options, enabling the emergence of cost-effective solutions for building DePIN networks. This accessibility is key to the widespread implementation and scalability of DePIN projects.

1. Diversification of Blockchain and Cryptocurrency Business Models, Providing Real-World Scenarios for DePIN Implementation.

The blockchain and cryptocurrency sectors have evolved to include a diverse range of business models, offering numerous practical applications and scenarios for DePIN. This versatility supports the integration and utilization of DePIN in various industries, contributing to its potential for explosive growth.

Blockchain and Web3 Education for the Market Has Taken Shape

In the DePIN report authored by Messari, the development timeline of DePIN is outlined, with the earliest project being the distributed storage project Filecoin, which appeared in 2014 (at that time, it was merely a concept). However, the development related to the Internet of Things (IoT) can be traced back even further, to 2005-2008. After the publication and launch of the Bitcoin white paper, blockchain and cryptocurrencies began to educate users. Both have experienced long-term industry development and user education to this day.

Cryptocurrencies, relying on their cyclical performance in secondary markets, have spurred a wave of innovators bringing projects and ideas into the cryptocurrency and Web3 markets. With the entrance of traditional financial capital, cryptocurrencies have become a component of the global financial market.

Over the years, the blockchain industry, represented by cryptocurrencies, has continually broken new ground, giving rise to cases of integration with multiple industries. Some of these industrial cases formed part of DePIN in Messari’s 2023 research report, including distributed storage, distributed computing, wireless networks, AI, sensor networks, etc. The process of continually integrating with cryptocurrencies is the result of the external market’s attempts to understand the financial logic of cryptocurrencies themselves.

Looking back, we can see that several events within the industry’s development cycles have also influenced DePIN.

Firstly, there’s the mining industry formed by Bitcoin and other cryptocurrencies, which is related to the development of the global computing hardware industry. However, after 2020, due to energy issues leading to restrictions and adjustments in the mining industry, as well as the increase in mining costs, and then Ethereum’s complete transition to Proof of Stake (PoS) in 2022, the mining industry has trended towards moving from mining rigs to more common types of devices.

Secondly, with the emergence of NFT technology, the market’s understanding of blockchain applications has returned to a recognition of its technological applications, becoming the first step for mainstream companies and institutional organizations to accept blockchain.

Following that, there’s the breakthrough in compliance issues related to cryptocurrency financial regulation. Bitcoin’s superior transaction liquidity and returns have won the favor of Wall Street financial capital. After multiple confrontations between cryptocurrency enterprises and regulatory bodies like the SEC, the approval of a Bitcoin ETF has led to a significant recognition of the value of cryptocurrencies in the financial domain.

Most traditional businesses have seen the positive effects of the cryptocurrency economic model and have begun exploring the Web3 model to address industry momentum issues, becoming the backdrop to the DePIN track development we see today, where real-world hardware combines with cryptocurrencies.

The hardware market is mature and the cost of building DePIN network is low enough

The hardware market has matured, making the cost of setting up a DePIN network sufficiently low. The concept of distributed storage within the cryptocurrency industry emerged in 2014. At that time, it was challenging to consider distributed storage as part of the DePIN track. Back then, storage and IoT were different fields, with IoT still in its early stages. The prices and costs of smart devices were high. For instance, smart speakers could not perform offline voice recognition and were not widely available on the market. From a production capability perspective, IoT devices were in the era of “larger volume devices,” requiring many hardware components for a computing device to achieve connectivity. There were few ordinary smart devices available for sale, and the industry chain was not yet mature.

However, with the mobile device boom that began after 2017, within a few years, smart speakers, smartwatches, and other smart wearable or home devices rapidly emerged and developed maturity. The corresponding global industry chains thrived, with continuous updates in standards, technological iterations, and smart devices entering a phase of becoming smaller, faster, and more intelligent.

Today, various IoT and smart wearable devices maintain the cost of a device with DePIN communication and computing capabilities at a stable and low price. In this hardware context, the further reduction in the technical cost of integrating physical computing devices into Web3 allows many more entrepreneurs to join the cryptocurrency concept based on smart device models, exploring the DePIN concept track.

After deconstructing the network building process of projects involving distributed storage, distributed computing, distributed AI, or wireless networks, it’s evident that the requirements for the devices forming these networks are high. Many still retain the characteristics of the early cryptocurrency mining industry, with high hardware investments forming a significant barrier.

For example, distributed storage and computing require projects with large storage space, demanding significant storage capacity in their hardware components. Some storage or AI projects may also require computing power, further increasing costs with CPU and GPU requirements. Even for most wireless network projects (such as low-power LoraWAN networks), a device is needed to build an entry node, with a single device’s access cost being at least $100.

For ordinary users and hardware brands, these are the costs of entering the web3 world. However, today, lower-cost solutions have emerged. For hardware brands, such as smart lights, smart switches, smartwatches, and other devices, their integration into the Web3 network can now be achieved through low-cost means.

The smallest and most commonly used smart home or wearable devices can join the web3 network at the lowest cost of $3, requiring certain computing capabilities while ensuring trustworthiness, with costs controllable at around $10.

There are scenarios for DePIN’s business implementation

In the contexts mentioned above, DePIN has potential for business implementation in the industry after 2024, driven by the extensive business needs within the Crypto market.

Firstly, Crypto is capable of assimilating the resources brought by DePIN in its hardware mode. These resources revolve around the data generated by users. Applications such as Defi, Gamefi, Socialfi, and others can directly integrate with the user identity and data provided by DePIN to create various business functions or features, such as device DID authentication, computational power sharing, bandwidth sharing, as well as oracles, data markets, data mining, or NFTs and gaming. Besides these applications, exploring capabilities like providing computational power and storage, or even delving into federated learning, are possible directions for today’s DePIN network.

Beyond the technical support, smart hardware inherently possesses significant functionality, with an economic model for sales and operations that forms a closed loop. Beyond its utility, cryptocurrency can confer more financial characteristics. Most DePIN projects aim to use cryptocurrency incentives to create a full cycle from using the hardware, supporting market value, to obtaining token rewards, and trading in the secondary market.

From products similar to DePIN, such as Worldcoin, one can see the potential. Amidst the AI surge, Worldcoin’s valuation has significantly increased, and its advocacy for personal iris data and a distributed network model could serve as a case study for DePIN.

Growth drivers for the DePIN industry

The growth momentum of the DePIN industry has been unleashed with the fulfillment of background conditions for an explosion, leading to an increase in the industry’s volume. Identifying the growth drivers within the DePIN track is crucial.

Firstly, in the face of the continuous growth in market capitalization during the bull market, global capital needs to find corresponding project carriers, and DePIN stands as one of the essential tracks in the new bull market cycle. Most of the DePIN projects we currently see have been transformed from projects in various existing tracks, exhibiting diversified properties, serving as models that can be emulated. Furthermore, subsequent projects can also try corresponding models under the condition of enjoying new, lower access scheme conditions. Currently, several projects can quickly establish those wishing to enter DePIN through standardized and modular technological frameworks. This represents an intrinsic developmental force within the industry.

Throughout 2023, the number of DePIN track projects increased by several hundred, with a total market value of about $200 billion (full market value, not trading market value). However, this number is still insufficient. Among the new projects that have emerged, those offering technological frameworks and solutions in the form of middleware will play a vital role during the growth period. Historical development has seen numerous examples of this, such as the rapid growth of the Cosmos ecosystem facilitated by the Cosmos SDK, the surge in the number of parallel chains enabled by Polkadot’s Substrate, the rapid replication of successful models by Optimism’s OP Stack, and the equivalent replication of capabilities like zkVM by RiscZero.

Industry middleware is already reducing various costs and accelerating industry growth. Currently, projects like W3bstream and DePHY, which possess modular frameworks and solutions, are focusing their goals on this aspect.

A DePIN project can be roughly divided into three parts: DePIN devices, a messaging network, and a blockchain network. The hardware part requires ensuring that the hardware can connect to form an IoT network under the premise of guaranteeing computational conditions, with the hardware’s requirements changing according to network function demands. The IoT network mainly completes the data transmission of hardware devices, ensuring stable transmission efficiency, while the blockchain network is responsible for computation and maintaining the overall state.

W3bstream and DePHY can provide standard technological solutions in a modular manner in several areas, with these modular functions jointly forming the core Hub of the two projects. Upstream are hardware device brands and manufacturers, while downstream is the web3 network. When development teams want to quickly set up a DePIN project, they can use modular components to quickly realize the corresponding parts.

Interestingly, W3bstream does not mention assistance for the device side in its documentation; it seems to focus more on device access to the blockchain network and interactions with various web3 networks. On the other hand, DePHY mentions low-cost open-source hardware solutions in its technical architecture, covering the entire process of IoT network communication and blockchain network interaction, and will use TEE to achieve device trustworthiness.

In Conclusion

At present, we can boldly predict the project development trends of DePIN.

1. The category of IoT devices that can be connected to the blockchain network will extend from computing devices with high computing power and high storage (such as mining rigs, computers, high-performance routers) to smaller, less powerful but more common smart devices (such as speakers, desk lamps, switches, watches, mice).

2. Hardware devices can quickly connect to the Web3 network and interact seamlessly with current chains such as Solana and Ethereum, conducting business with ecosystem applications.

3. Cryptocurrencies begin to engage in bi-directional technical and economic model interactions with the real world.

In Messari’s industry size prediction, DePIN is expected to contribute trillions to global GDP growth within the next decade, and its trend of development is undeniable. At this juncture where DePIN’s development is unstoppable, the question posed by Vitalik hits the nail on the head. It is precisely because of this that it is time to awaken the industry to think and confront the background problems of this “multi-attribute project” track.

With all conditions such as technology, user education, market enthusiasm, and development trends in place, “background problems” are no longer issues. As the bull market progresses, DePIN’s fire will only burn brighter. As of the time of writing, on Coingecko, the market cap of the DePIN track has just exceeded $30 billion, with a growth of over 30% in 7 days. It’s time for DePIN to shine.

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