Today, a small number of companies have a stranglehold on internet control, benefiting from their size and regulatory protection. These companies oversee the crucial infrastructure of the internet, providing services such as telecommunications and digital resources like compute power. Unfortunately, their dominance has stifled competition in their respective industries, resulting in higher prices and limited choices for consumers.
However, a new wave of platforms called decentralized physical infrastructure Networks (DePIN) is aiming to shift control of the internet’s infrastructure back to the people it is meant to serve. Built on public blockchains, these networks empower individuals to own, monetize, and improve the infrastructure around them, taking the disruptive innovation of companies like Airbnb to the next level.
In simple terms, DePIN allows individuals to contribute their own resources, such as electricity and internet connection, in exchange for micropayments. This enables protocols to create extensive infrastructure footprints without bearing the entire financial burden.
DePIN makes it feasible to start businesses in sectors that traditionally have high barriers to entry. By relying on networks of contributors instead of hiring employees and investing in infrastructure, companies can build capital-intensive businesses through crowdsourcing, without the need for significant upfront capital. This concept mirrors the success of companies like Uber, which operate with a capital-light approach, allowing for rapid scalability.
Unlike Uber, DePIN companies enhance this model by rewarding contributors not only with cash but also with ownership through tokens. By mobilizing internet-connected communities, DePIN introduces a novel approach to building networks, leveraging a variable cost structure to deliver value to customers. This model is becoming increasingly relevant due to various factors shaping the world today.
A significant number of companies, over 1000, are now utilizing DePIN to challenge established incumbents. One of the pioneering projects at scale is Filecoin, which enables verification, storage, and retrieval services for third parties offering cloud services. Filecoin’s disruptive model creates a competitive storage marketplace financed through fees earned by storage providers, incentivizing suppliers with its native currency. By joining the Filecoin network, any business with excess storage capacity can compete with Amazon’s centralized scale in terms of cost, security, and access.
Other DePIN networks have emerged to provide digital resources like compute power and bandwidth. For instance, Akash Network allows individuals with GPUs to lease resources to developers in need of compute power, operating with a similar token mechanism as Filecoin. On the other hand, Helium aims to crowdsource bandwidth by incentivizing people to deploy routers and provide internet services. This project has created the first crowdsourced telecommunications network. Each of these projects focuses on a different digital commodity and leverages communities of willing contributors.
The DePIN business model disrupts the traditional approach of incumbents in creating digital commodities. Incumbents have historically used their market power to impose long-term contracts on customers, limiting their choices under the software-as-a-service (SaaS) model. These contracts enable incumbents to recoup their substantial upfront costs. However, the “one size fits all” subscription economics of these contracts may not always align with the preferences of end customers, who increasingly seek pay-as-you-go solutions (Infrastructure-as-a-Service model). DePIN projects, with their ability to crowdsource supply and avoid the need to recoup upfront costs, are well-suited for the IAAS model.
DePINs have the potential to strategically incentivize capacity, countering the historically large fixed upfront costs associated with cloud services. While DePIN is still in its early stages, the mentioned projects have the unique potential to challenge major incumbents in terms of cost. For example, Filecoin already offers storage services at a fraction of the cost of Amazon’s cloud services.
Although crowdsourced infrastructure is still developing, DePIN provides a pathway to compete with dominant incumbents without the need for significant central financing.
DePIN has the potential to transform infrastructure in the same way software revolutionized commerce. Cloud services is a winner-takes-all market where the end resource is often commoditized, and success depends on sustaining the lowest price. DePIN’s advantage lies in incentivized communities that can significantly lower production costs by contributing excess capital and labor. The internet plays an increasingly integral role in various aspects of our lives, from education to remote work. If Filecoin’s model scales successfully, it may serve as a capitalist example of how returning the means of production to workers can create substantial economic value.
By reducing the price of digital commodities, DePIN incentivizes broader usage of internet services with fewer barriers to entry, resulting in increased societal welfare.
Disclaimer: This article is for informational purposes only and should not be considered legal or investment advice. The views expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.