DePIN: Crypto's Biggest Sector of 2024

As markets thaw and more institutional money pours into Web3, there is one facet of the industry that is particularly well-positioned to take center stage: Decentralized Physical Infrastructure Networks (DePIN).

DePIN captures the value of real-world data and resources generated from physical devices and verifies it for use. Demand for enterprise use of verified data is massive, but that's only one side of the DePIN equation (the demand side). The supply side includes both institutions, enterprises, and applications as well as individuals—retail users with apps and devices generating data and contributing physical resources every day, minute, and millisecond.

The ability for individuals to generate passive income from the tokenization of the real-world data generated by their devices and apps is an equally enormous opportunity. Combine the supply-side and demand-side of real-world data verified by blockchain, and you unlock a $2.2 trillion market that incorporates blockchain, AI, and real-world value in Web3.

DePIN, still a relatively unknown term, is poised to become bigger than DeFi for three main reasons:

1. Explosive growth of DePIN projects
2. Massive untapped potential for new applications
3. And a major influx of VC investment

Success of Existing DePIN projects

There are multiple categories of DePIN projects that have laid the groundwork for the sector's coming exponential growth. These include server networks, wireless networks, sensor networks, and energy networks. Server network projects like Filecoin and Arweave decentralize computer storage, enabling users with excess storage to monetize that resource and make it available to those who need it. Wireless network projects like Helium perform a similar service but for sharing 5G/Lorawan via hotspots.

Sensor networks like Hivemapper and DIMO reward drivers with attached devices for sharing collected data, which is then used to create maps or data applications, providing Uber and Lyft drivers with a novel form of passive income. Energy networks like React or Powerpod enable the sharing of surplus battery or renewable energy power, respectively.

Additionally, the rise of AI startups has created an enormous demand for computing power for data processing, which cannot be sufficiently met by centralized computing and cloud infrastructure providers. For example, DePINs allow node operators to monetize idle GPU compute power, and in return, individuals utilizing these resources no longer need to rely on cloud networks. These decentralized AI and compute platforms like Render, Theta and Bitensor offer publicly owned and community-incentivised networks with a clear differentiator from centralized providers.

As of Q4 2022, Amazon Web Services (AWS) serviced 32% of cloud infrastructure needs. Microsoft, Alibaba, Google Cloud, and IBM Cloud comprised the other major providers. These centralized providers have the ability to terminate service at any time and for any reason. Decentralized GPU and cloud providers do not have that drawback, increasing their attraction.

Additionally, the entire Bitcoin industry, which is leading the way into another bull cycle with the Halving and likely spot ETF approvals coming in 2024, is part of DePIN, given the need for physical hardware devices for Proof-of-Work mining. The Bitcoin network itself stands as the largest decentralized machine network for digital money, boasting the most powerful and publicly verifiable consensus mechanism.

Untapped potential for new applications

There is immense potential for disruption of the existing sharing economy by DePIN that has yet to be fully explored. The Web2 business models that revolve around connecting those with a resource to those who need it, such as Uber, Lyft, and Airbnb, are all fair game to be decentralized and join the DePIN ecosystem. DePIN projects eliminate the need for the tech giants as third party moderators between transactions and instead empower suppliers to make more from their resources.

As an example, you might connect your car to a Web3 device application to lower your costs by providing data to insurance companies who are willing to pay for it. Or you might have a smart clock that tells you the average room temperature of your bedroom. What if you could earn passive income by selling that surplus power to someone who needs it, or sell that data on your bedroom's temperature to a company developing temperature-moderated mattresses? The possibilities are near-infinite.

In this way, personal devices become communal economies. Siloed data owned by tech giants is now being reclaimed by its contributors who previously did not have access to their data insights or the ability to choose what to do with that data.

DePINs therefore have created a new business model, built from the ground up by its bootstrapped communities opting into this new decentralized framework. Data is powerful in mass, so the more people that join the networks, the greater the reward for every individual to collectively benefit.

These networks eventually will overlap and intersect to create sectors never before possible, thanks to the decentralization of generated device data. Device owners become business owners as they have a brand new ability to create networks and data pools that will disrupt traditional economies.

VC Interest in DePIN is already strong

DePIN has become a major area of focus for VCs curious about exploring the potential of this rising new sector. Already, DePIN projects have reached a $29B market cap. Given Bitcoin's market cap is currently $757B and BTC has been around since 2009, DePIN's early showing is pretty impressive. Additionally, VC money continues to pour into the sector, with firms like Pantera, Multicoin Capital, Coinbase, Blockchain Capital, and Digital Currency Group all focused on DePIN project investments.

These firms all recognize the massive growth opportunity implicit in the 15 billion devices worldwide – all containing troves of data and monetizable potential. Combine the ubiquity of devices with the advantages of community ownership, public verifiability, and incentivized sharing implicit in Web3, and it's clear the opportunity for DePIN is almost incalculably broad.

And with data-dependent industries like RWAs, AI, ML, and high-performance computing just getting started, we can expect DePIN's influence to be 100x greater than DeFi, making it the biggest crypto trend of 2024.

Raullen Chai is the cofounder and CEO of IoTeX.