Introduction
The world of decentralized technology has seen remarkable advancements in recent years, disrupting traditional industries and opening up new possibilities. We reviewed one such development in our previous blog post and, after exploring the fascinating world of decentralized finance (DeFi) and its immense impact on the financial landscape, we are ready to embark on the second part of our journey.
Let's dive in again, to assess the convergence of emerging technologies with the physical world: Decentralized Physical Infrastructure Networks (DePIN).
Evolution of the Decentralized Market
Now that we have grasped the implications of DeFi within the financial sector, it's time to explore another facet of decentralization that expands beyond virtual borders. One emerging technology that is gaining traction is Decentralized Physical Infrastructure Networks (DePIN).
This is a concept that might seem at first glance unfamiliar and complex, but diving into this space reveals just how much these tech advancements are everywhere around us!
How DePIN is setting new benchmarks in the tech world
What is it about?
DePINs leverage blockchain, the Internet of Things (IoT) and the Web3 ecosystem to coordinate the construction, operation and maintenance of real-world physical infrastructure.
DePIN networks, are basically a kind of "proof of physical work"— cutting-edge innovation, merging blockchain and IoT technologies to streamline real-world physical infrastructure. In contrast to traditional centralized models, DePINs take a decentralized approach, owned and governed by a global community of participants. Embracing permissionless protocols, these networks by definition are open to everyone, eliminating the need for prior approval.
The overarching mission of DePINs is to revolutionize traditional physical infrastructure like communication, energy, and transportation, transforming these into public resources accessible to all. The secret sauce lies in incentivizing supply-side participants to deploy and maintain physical hardware, rendering capital-intensive infrastructure more cost-effective and efficient to operate. For their contributions, participants are handsomely rewarded with network tokens, a digital currency that can be traded, sold, or exchanged for a range of network services.
This ingenious incentive mechanism tackles the "cold-start problem" head-on, fostering early network effects even when demand for network services is limited.
Real-world examples of DePINs
Over the last five years, DePINs progress has been gaining ground, notably within innovative startups challenging traditional infrastructure industries. Startups in this diverse universe are building innovative solutions such as cloud and data storage systems, relational databases, content delivery networks (CDNs), virtual private networks (VPNs), wireless networks like 5G and LoRaWAN, electric vehicle charging infrastructure, solar grids, weather stations, mapping services (similar to Google Street View), and much more.
According to PitchBook, the current landscape of DePINs primarily consists of four segments:
- Decentralized cloud: redefining the way data is stored and processed, using blockchain to bolster privacy and data security.
- Decentralized wireless (DeWi): inserting a paradigm shift in the realm of communication networks by incentivizing operators to deploy and maintain telecom hardware in exchange for token rewards.
- IoT networks: setting up an ecosystem of devices (sensors, gadgets, appliances and software), that communicate autonomously, exchanging information and data, without the need for human oversight.
- Distributed grid and environment: aggregating distributed energy sources to provide a more flexible and efficient energy grid network for climate and transportation solutions.
A starting point and its horizon
Picture this: towards the end of 2021, a historic moment unfolded as President Biden signed a monumental $1T infrastructure bill into law. Billions will be poured into bolstering roads, ports, and power lines.
Specifically, this bill allocates substantial funds, including more than $42B for enhancing high-speed internet access nationwide. Such initiatives reflect the U.S. government's push to bridge the digital divide and increase connectivity.
This pressing need to upgrade the physical infrastructure of the United States, presents an extraordinary environment for the emergence and expansion of DePINs. Decentralized Physical Infrastructure Networks have the potential to break down traditionally capital-heavy hardware infrastructure into smaller, more manageable subsets. This innovative approach taps into the power of decentralization, making it possible to optimize and distribute resources more efficiently.
To sum up, this enables individuals to become infrastructure providers and unlock traditionally illiquid markets through tokenization and peer-to-peer marketplaces.
Results?
- Physical infrastructure democratization created by a more equitable access to essential services and resources that can boost innovation and drive economic growth.
- Secure infrastructure solutions due to a high level of integrity and accountability in its management.
- Community ownership that leads to a more robust infrastructure network.
From 2021 to 2022, DePIN VC deal activity showed a very substantial increase from $195.2M to $578.5M. In the coming decade, Pitchbook anticipates the DePIN landscape to expand significantly, encompassing critical physical infrastructures such as tollways, parking systems, pollution monitoring, and supply chain logistics.
How can Finalis help you?
We understand that the tech environment is rapidly and dynamically changing. We know that you, as dealmakers, cannot miss the wave and lag behind in grasping a challenging landscape. Our mission is to empower our community with actionable and comprehensive knowledge, enabling them to identify and seize opportunities.
Finalis equips you with valuable insights on industry trends, guiding your path through the ever-evolving tech industry. Get in touch with the Finalis Insights Team at insights@finalis.com to learn how.
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