Why DePIN Matters

If a16z says something matters, it matters!

This, of course, refers to the famous a16z article Why Decentralization Matters, which gained significant attention and was widely quoted. Now, there’s a new piece titled Why DePIN Matters, and the ICN team has enjoyed reading it. The article confirmed many of our theses and provided new insights. So, we’re happy to see DePIN officially recognized—though we’ve believed in its concept for years, even before it had a name.

Let’s dive in and explore how DePIN enables competition On the Rails, breaks the CAPEX spell and ultimately: Why DePIN matters. Also we’re applying practical examples to the cloud industry, which we are disrupting.

What is DePIN?

“A Decentralized Physical Infrastructure Network (DePIN) is any sufficiently decentralized network that uses cryptography and mechanism design to ensure a client can request physical services from a set of providers — breaking the natural monopoly and providing the benefits of competition.”

DePIN Enables Competition On the Rails, Lowering Prices and Unlocking Innovation

First and foremost, this definition is solid. A set of providers—in the case of cloud infrastructure, hardware providers supplying e.g. cloud storage servers—forms the backbone of every DePIN network. Usually, users can then request services through the DePIN’s Protocol. The most important takeaway? “The benefits of competition”.

Competition is a fundamental feature to every industry, and arguably to life itself. If we look at evolution through a Darwinian lens, competition is what drives progress. In this light, monopolies and other competition-restricting mechanisms are a major bug.

Now, how does this relate to the market ICN operates in? Today’s cloud industry is dominated by a handful of major players—so-called Hyperscalers. These companies have perfected the “attract, extract” model, making it nearly impossible for users to leave their walled gardens. Data ingress (storing data) is often free or inexpensive, but once your data is there, moving it comes with exorbitant egress fees and ever-rising costs.

As the article states:

“Importantly, just as blockchains are helping to break the ‘attract extract’ cycle of monopolistic big tech companies, DePIN protocols can help break utility monopolies in the physical world.”

How does DePIN break this cycle? 

By fostering competition On the Rails, preventing monopolistic players from dictating prices. Sure, there have been various attempts to rival Hyperscalers, but building a single company, at that scale while managing both hardware and software innovation is nearly impossible. DePIN changes that equation.

Through decentralization, costs are significantly reduced, and competition On the Rails is introduced.

In a decentralized and truly open cloud ecosystem, users of the ecosystem are able to tap into a large layer of hardware resources and offer their services on top of these hardware Rails to their customers. This is unique and introduces competition between these users, allowing the best cloud product to win and innovation to flourish. This is why we’re also calling ICN as it’s striving to become the truly open cloud ecosystem: The Foundational Layer for the Next-Gen Internet.

DePINs are Breaking The CAPEX Spell! ‍

Of course the inability to compete On the Rails can't be viewed in isolation from the second reason why DePIN matters: Breaking The CAPEX Spell! 

There’s a natural inclination for an entity, like a hyperscaler, to utilize the infrastructure Rails it has heavily invested in developing, naturally seeking to reap the rewards of its efforts, even if this approach is far from the most efficient use of resources and may involve excluding all others. This pattern has been observed in various sectors, such as telecommunications, and, of course, the railway industry itself.

However, with DePIN, the fractionalization and democratization of CAPEX investments can ultimately result in it being used much more efficiently. Breaking the CAPEX Spell enables large infrastructure networks that are being constructed by multiple independent third-party actors who aren’t required to monetize their infrastructure investments directly but are instead rewarded by the protocol and its users for the efficient use of their provided resources. This shift enables open access for many hardware providers to join this market, pooling their resources into a substantial layer capable of rivaling the massive investments of established monopolies. 

Due to the networks underlying incentive mechanisms, these hardware providers are focused on maximizing the efficient usage of their resources, making them receptive to innovation while also facing market competition themselves, which leads them to thoughtfully evaluate their investment decisions. So ultimately DePIN is not only enabling competition On the Rails, but also enabling a far more efficient construction and use of infrastructure. 

“Through decentralization, DePIN protocols enable permissionless innovation, the same composability and permissionless innovation that have allowed Ethereum and Solana to thrive. Deploying a network for physical infrastructure is expensive and traditionally has required a centralized company, but with DePIN, decentralized ownership spreads out both the cost and the control.”

Final Thoughts

DePIN is here to stay, and its impact will be transformative. By fostering competition and enabling permissionless innovation, DePIN has the potential to reshape industries—including the cloud sector. As we continue to disrupt this industry, we’re excited to see how DePIN evolves.

‍