Why did DePIN take off at this point in time?

DePIN has gone through several market cycles with early successes in digital infrastructure networks from projects like Helium and Golem. Now, five years later, with a surge in product launches and the emergence of new DePIN-specific funds, DePIN is taking off. But why now?

This article is translated from the CoinDesk article "Why DePIN Is Taking Off Now", which introduces the current status and development direction of blockchain applications in philanthropy, written by Jasper De Maere.

Original link: https://www.coindesk.com/opinion/2024/08/19/why-depin-is-taking-off-now/

The first wave of DePIN projects (around 2019) focused on digital infrastructure, but now we are seeing other types of networks emerging (DePIN refers to Decentralized Physical Infrastructure Networks). Projects centered around data or service networks are becoming more and more common. Therefore, I define DePINs as: 1) Using blockchain-based distributed collaboration to operate infrastructure 2) Projects that rely on or impact physical infrastructure such as servers, sensors, or property. Before we go further into its driving forces, we need to understand that DePIN projects are almost all composed of two-sided markets. These markets have demand sides and supply sides. The demand side is the user looking for services or products that solve a specific problem or need, which can be met by services or decentralized applications (dApps); the supply side is the distributed infrastructure such as nodes, hardware, sensors, etc., which is dominated by the project front-end or decentralized applications dApps. So, what is happening on both sides of the market? The supply side The services provided by DePIN are becoming more convenient, and they are closer to diverse demand sides by providing better and more diverse services. I believe there are two main drivers emerging behind the supply side: 1. Falling Cost Curves In the past, hosting infrastructure required a large upfront capital investment that was often only affordable by large, core businesses. As the cost curves fall, almost anyone can become an infrastructure provider. Recent studies show that memory costs have fallen by 100x and GPU costs have fallen by 100-300x over the past two decades. While demand for these resources is growing (and even in short supply), the barriers to entry for hosting large amounts of compute or memory have been greatly reduced. The capital required to build infrastructure is decreasing, which enables more people to participate, run nodes, and make the network more robust, removing critical points of failure. 2. Improvements in Utility Token Design Utility token design has long been seen as a mysterious art. Knowledge in this area has rapidly improved over the past few years to provide more robust token models. DePIN networks often rely on utility tokens due to their network effects, as these tokens can coordinate incentives between different economic stakeholders. Reasonable token design is essential to create the right game theory and incentivize behaviors that support the network, and reward contributions accordingly. Utility tokens also help to kickstart initial network effects, and now more token engineers use scenario analysis and statistics in the design process. This will make the design more robust and able to withstand time and market fluctuations.

Demand side

In the past, DePIN projects have been limited by demand, that is, although services and applications have been launched, the acceptance rate is low for various reasons. The increase in demand has finally made the DePIN business viable, starting the flywheel of improvement. I think there are three main drivers behind the demand-side launch:

1. DePIN’s usability is improving

It must be acknowledged that there are many Web3 applications today that are unusable for people who don’t spend a lot of time in crypto. Account abstraction and AI-driven user experience (UX) should be able to solve this problem.

2024 is the year when account abstraction (which hides some technical details of blockchain transactions from users) becomes popular in Web3. The realization that the current Web3 UX may not be enough to convince mainstream users to transition from Web2 has gained a lot of attention recently. Today, there are a large number of companies focusing on UX and account abstraction. At the same time, we see that ERC-4337 (the upgrade that Ethereum is focusing on in 2023) is being adopted by a wide range of projects, including DePIN.

Meanwhile, AI has been experiencing a renaissance in the nearly two years since the launch of GPT - models are constantly improving and integrations are developing rapidly. AI assistants developed now on the blockchain will simplify the use of applications and reduce the need for a humanized front end.

2. Privacy and security are growing concerns

Concerns about data protection are proving beneficial to DePIN adoption, as DePIN’s decentralized nature fundamentally improves this.

Although the privacy paradox is an undeniable reality, user concerns are growing as AI becomes more prevalent in society. Especially in terms of data management, privacy and security are a growing concern. Evidence shows that users are increasingly prioritizing alternative solutions to protect their personal information. DePIN, with its decentralized approach, inherently enhances privacy and security, making it a more attractive option for individuals and businesses. After decades of indifference to privacy and security, people’s growing sensitivity has created a good environment for DePIN to develop.

3. Data generation is exploding

It is estimated that approximately 350 million terabytes of data are created every day. Humans are generating data at an unprecedented rate, and this data needs to be stored in memory and processed by computers, which is exactly what DePIN excels at…

We are creating more data than ever before. It is estimated that 90% of the current data was generated in the past two years. With the development of general artificial intelligence (Gen AI), data has truly become the oil of the 21st century, so we need to make sure we store it properly. Previously, many companies and individuals did not care whether their data was stored on bare metal servers or in the cloud; but now, people have more decision-making processes for data storage. As DePIN matures, it gradually becomes a more mature and viable alternative for storing and processing data.

What's next

DePIN has many advantages, which is why users, investors, and the entire community are excited about it. I firmly believe that DePIN will soon redefine the way socio-economically important infrastructure is organized in society, positioning itself at least as important as traditional infrastructure.