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New infrastructure technology related to the crypto currency industry can offer cost savings and resilience better than that offered by cloud computing. As with other blockchain technologies, it also carries an its own brand of risk.

The infrastructure technology is DePIN, short for decentralized physical infrastructure networks, which uses blockchain to create community-owned networks to share infrastructure and technology services. DePINS enable individual contributors to participate in a network environment where they can offer up underutilized hardware, such as storage space or computing power, or sharable data assets in exchange for crypto token rewards to obtain other services.

On the crypto front, DePIN is described as an important part of digital asset strategy by enhancing infrastructure resilience and promoting innovation. DePINs offer benefits toward those goals, but they also bring challenges associated with them. These include scalability, security, regulatory uncertainty and integration challenges.

DePIN is just one of a set of decentralization technologies – often referred to as DecentraTech – that underpin a gradual but steady movement to adopt decentralized business and commerce models. This movement is often in response to the centralization of power and wealth by governments and major businesses.

What is DePIN?

DePINs are decentralized networks that leverage blockchain technology to coordinate the deployment, maintenance, and use of real-world infrastructure, explains Tom Phipps, head of crypto strategy at Flight3Opens a new window  in London, England, a Web3 marketing agency.

As has been seen in the broader crypto and blockchain markets, as the technology is in its infancy, it carries a greater risk of technical vulnerabilities or disruptions.

Rather than relying on a single entity to deploy and maintain a network or a service, DePINs enable individuals and organizations to contribute tangible resources for the benefit of the overall network. Blockchain serves as a coordination layer that cryptographically verifies resources have been provided, and automatically distributes token incentives to the contributors, Phipps explains.

In DePIN ecosystems, blockchain acts as the backbone for transparency, automation and collective decision-making. It records every asset registration, performance metric and token distribution (for incentives and rewards) on a publicly visible ledger, hopefully ensuring full traceability and trust.

Smart contracts then step in to enforce service-level agreements, penalties and reward schedules automatically, removing the need for manual oversight. At the same time, the decentralized identity and governance frameworks invite stakeholders from around the world to vote on protocol upgrades, approve new node types and steward treasury allocations. This eliminates reliance on any single central authority, explains Merlin M. Ostermann, chief strategy officer at Arkreen Network, a public renewable energy asset firm.Opens a new window 

From an investment or financing point-of-view, DePIN’s crowdsource model means that the cost of building infrastructure is no longer a capital expense in advance, but an operating one that follows a usage model. And because the providers already have the infrastructure available to be assigned to a DePIN operator, the time to market is short, compared to building it out in advance.

Where and how DePIN is being used

The top applications of DePIN are those that require substantial infrastructure to deliver a service, and where it’s possible to decentralize the ownership of that infrastructure through crowdsourcing. An incentive model then attracts owners to join and remain in the crowd, explains Pete Harris, principal at Lighthouse Partners Inc.,Opens a new window  a global alternative asset management firm.

The most compelling benefits of DePINs include low capital costs and fast build out for infrastructure. That means lower prices for customers and increased margins for operators, Harris explains. Most DePINs are geographically dispersed which improves the resilience of DePIN services compared to centralized ones. Through thoughtful design, DePIN infrastructure can be located close to customers, reducing the latency of service delivery.

One of the most established DePIN use cases has been wireless connectivity, Phipps says. This was first pioneered by HeliumOpens a new window , starting with IoT coverage before expanding into 5G networks. As one of the earliest DePIN projects, Helium was the proof of concept that heralded in a number of other industries exploring how community-deployed and hosted infrastructure could radically transform traditional infrastructure projects at a fraction of the cost. In this case, the roll out of countless community-deployed hotspots instead of the larger traditional telecom infrastructure.

DePIN risks and the need for regulation

With DePIN being a novel industry that spans countless traditional markets, Phipps says its legal status and classification may present risk from a regulatory standpoint. These risks include enforcement risk, compliance costs, or risks with regard to updates in legal treatment as legislatures and regulators rush to catch-up.

As has been seen in the broader crypto and blockchain markets, as the technology is in its infancy, it carries a greater risk of technical vulnerabilities or disruptions. This can manifest in the smart contracts that facilitate the application layer of the DePIN (application-layer risks), or at a lower level in the network (protocol-level risks). Every additional technical layer that is added to the stack becomes an additional layer of risk.

Despite much enthusiasm for DePIN, the reality is that DePIN projects operate in an unregulated environment, which creates uncertainly among users, developers and investors. In response, governments and industry should prioritize cultivating a truly fertile innovation ecosystem, rolling out incentive programs – grants, tax credits, feed-in tariffs – that treat token-based participation as a recognized pathway to grid modernization, Ostermann says.

DePIN represents a paradigm shift in how we finance, deploy and manage physical infrastructure, Osterman explains. By combining IoT, blockchain and token economics, we unlock new capital pools, drive localized resilience and foster genuine stakeholder alignment. The need is to evolve beyond purely financial instruments and incorporate physical-cyber-economic risk frameworks.