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It’s Time for Cryptocurrencies to Become Real
Few things excite your average crypto enthusiast like a brand new crypto abbreviation to rally around. In this cycle, the DePIN banner is flying highand compared to some of the fads of the past, this one is actually pretty healthy. Not only that, it’s exciting, has a lot of potential, and marries Web3 and the real world in a way that actually makes sense… All while being a beast that the mainstream crypto world isn’t prepared for.
Why? Before we dive deeper, let’s quickly highlight the “what.”
For now, many people, even crypto natives, raise their eyebrows at the mention of DePIN, as the term has yet to be fully assimilated. So, for clarity, DePIN stands for Decentralized Physical Infrastructure Networks, or in layman’s terms, real-world applications. DePINs leverage tokens to incentivize people to set up hardware to provide and render real-world services. Think car sharing, peer-to-peer solar trading, 5G or WiFi connectivity, road mapping, EV charging, smartphone environmental data collection, and other exciting use cases.
This opinion piece is part of CoinDesk’s new “DePIN Vertical” exploring the future of decentralized infrastructure.
As an example, consider Silencewhich allows people to record noise pollution levels with their smartphones and earn token rewards for doing so. Another DePIN, Wing bitesuses tokens to incentivize people to install private antennas that track aircraft location data transmissions. For the history buffs among us, the fundamental model behind DePINs is not new; only the term, coined by Messari in late 2022, is actually relatively recent.
At first, the name took its a good dose of satisfied smiles — no big deal, memes are the Web3 way — but its introduction has sparked a powerful movement imbued with the promise of change. And that change, interestingly enough, goes both ways, not only targeting how we manage and earn from devices, but also making us, the Web3 natives, rethink how we think about Web3.
Bringing cryptocurrency into the real world is an exciting idea, if not a unique opportunity. It’s what the masses have been waiting for: real, tangible use cases for blockchain that people actually need and use on a daily basis. The downside is that this unique opportunity requires a bit more effort than launching yet another dog-themed memecoin, and it has many of its own specifics.
So what makes DePINs special? To answer this question, let’s imagine a hypothetical DePIN that lets you earn tokens for measuring local temperatures via a smart thermometer. And this is where we run into one of the many, many elephants in the room: hardware.
How do we deal with thermometers? Do we let users connect third-party devices that can record and send data? Sure, and let’s applaud our open source spirit while we’re at it. But let’s not forget to write code that will support the widest variety of smart sensors and have a simple user interface that will make adding them a breeze. And that’s no easy task, mind you.
The alternative is to build the hardware ourselves, which brings us to another beast. Now, we are no longer just building a dApp, we are also building a custom piece of hardware and taking the joys of manufacturing, warehousing, and shipping. Of course, we can always buy a white-label solution, hire contractors, and do a bunch of other reasonable things, all of which brings us to our next truncated beast: the token economy.
You see, the price of all this has to be taken into account in the token economy. Whether or not we expect the community to buy a thermometer from us, we have to be aware of this investment when we set rewards and incentives. After all, people will expect a return on their hardware investment, and quite reasonably so. And with that, we are no longer writing the token economy for people, like regular dApps do, we are writing it for people and for the machines that generate value, machines that are becoming smarter by the day and are transforming from simple tools into economic agents.
See how significant this distinction is? And that’s just the supply side so far.
Now, let’s look at the other side of the equation. A crypto token can live off the hype, memes, and pure wild speculation that we know Web3 for. A DePIN can’t. In our case, it needs weather companies, researchers, and anyone else willing to buy the temperature data we collect. In other cases, it’s devices using its IoT connectivity network or drivers looking for charging spots; the bottom line is that DePINs need real demand for their real service. They need to push beyond the Web3 echo chamber and, quite often, even compete with Web2 rivals.
The good news is that they are. up to the challenge. When armed with a solid idea and execution, DePINs have several unfair advantages over their Web2 incumbents. For example, they can scale their way up, fast, and can undermine virtually any centralized competitor. You read that right; Uber, the weakest of the weak, may have found its match. The bad news is that cryptocurrencies aren’t as used to this business model as they think. So, strong corporate ties are a must for any aspiring DePIN ecosystem, as they help secure this demand and with various other headaches, such as hardware production.
Let’s not forget that we need to win hearts and minds too. DePINs need to appeal to a whole new audience, people who are an afterthought for most crypto projects. Think IoT and tech geeks, but also anyone who can host and run hardware, from drivers (them I really love their world mapping DePINs) to small businesses. This is no easy task, from a marketing perspective, and this further distinguishes DePINs as a unique Web3 industry.
Of course, none of this is fatal, as the industry continues to grow, but it does represent a challenge that requires a new mindset, architecture, and language.
Mindset: More aware of the real-world challenges DePINs may face and more adept at accounting for obstacles along the way, including things like actual product marketing and user experience, to compete with Web2 rivals.
Architecture: Combining smart contracts with edge computing and peer-to-peer device interactions, taking into account real-world challenges.
Language: More accessible to non-Web3, those who haven’t spent the last few years chasing cryptocurrencies, language of business cases and efficient solutions.
The beauty of DePIN is that it gives us all the power to judge cryptocurrency based on its real-world utility. By tapping into real supply and demand, DePINs give us all clearer metrics to follow. How many devices are on a DePIN? How many people are using DePIN’s services? Are their pricing and services better than Web2 rivals? It’s no longer about speculation, it’s about having a positive impact on the world. This is what truly sets DePINs apart from the entire Web3 space as a unique and autonomous industry. Their Layer 1 support backbones should be as cautious about this as the broader Web3 community if we want this space to finally lead to real-world blockchain adoption, this time for real.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.