What innovations will AI combined with DePIN bring?

Original Article Title: "AI+DePIN: Collaboration or Conflict?"

Original Article Author: Fishery, Biteye Core Contributor

DePIN, short for Decentralized Physical Infrastructure Networks, refers to a network system that connects and manages physical hardware devices in a decentralized manner.

While the concept was officially named DePIN through a Twitter poll by Messari in November 2022, the underlying idea and practices have been around for many years.

In the two years since the unified name DePIN was established, despite significant industry promotion, it must be acknowledged that we have not seen many remarkable emerging projects.

On the contrary, many projects have been short-lived, some even turning into pump-and-dump schemes. However, this performance does not negate the value and potential of the entire track. In fact, the concept represented by DePIN has a fairly long development history.

Before the name "DePIN" gained widespread acceptance, this track was referred to by various other names, such as:

1. TIPIN (Token Incentivized Physical Infrastructure Networks): Token-incentivized physical infrastructure networks

2. PoPW (Proof of Physical Work): Proof of physical work

3. EdgeFi: Edge finance, emphasizing the deployment of hardware resources at the network edge

4. MachineFi: Machine finance, first proposed by the IoTeX project in November 2021

While these names have different emphases, they all essentially point to the same concept: using blockchain technology and crypto-economics to build and manage a physical-world infrastructure network.

In this field, some projects have already achieved significant success, with the most classic examples being Filecoin and Helium.

Filecoin is dedicated to building a decentralized storage network, while Helium focuses on a decentralized wireless network. Both of these projects emerged during the earlier bull markets and remain strong to this day.

The success stories of Filecoin and Helium demonstrate that combining blockchain technology with real-world physical infrastructure can create disruptive solutions.

These projects have not only innovated on a technical level but have also successfully applied cryptoeconomics to solve real-world problems, showcasing the feasibility and potential of the DePIN model.

Through this historical perspective, we can not only comprehensively understand the concept and value of DePIN but also provide important references and insights for the future development of projects.

This article will delve into the development history of Decentralized Physical Infrastructure Network (DePIN). By reviewing successful DePIN projects in history, summarizing their success stories, we will outline the development opportunities for future DePIN projects. Additionally, we will pay special attention to the new directions and potential brought by the combination of AI and DePIN in the AI era.

01 DePIN Value Proposition

Successful DePIN projects typically share several common points:

First, they have support from an open-source community at the software level, and the hardware is open to third-party manufacturers to produce mining-capable products;

Second, the products have practical use cases that meet real-world needs;

Third, based on the business scenarios of DePIN, the design of the blockchain algorithm is targeted to ensure fair incentive measures that are not controlled by the project team. It is not merely issuing a token on the public chain.

Let's discuss these three points one by one.

Open Source Community and Hardware

Successful DePIN projects rely on support from an open-source community at the software level and allow third-party manufacturers to produce hardware, rather than monopolizing the production of mining hardware.

Support from an open-source community can attract global developers to participate, accelerate technological innovation, and enhance software security and stability. The open-source spirit is also highly in line with the decentralized philosophy, helping to build community trust and expand the ecosystem.

Moreover, the prosperity of an open-source community behind a project guarantees the solidity and reliability of the project's technology. It is important to note that projects with fake concepts cannot attract open-source developers to "contribute out of love."

Allowing open hardware production by third-party manufacturers can reduce costs, promote hardware innovation, and mitigate centralization risks. This approach enhances the network's decentralization and resilience, while also expanding the participant base.

This hardware-software open strategy has created a virtuous cycle, attracting more participants, driving continuous innovation, ultimately forming a strong, diverse ecosystem, ensuring the project's long-term sustainable development.

Take Helium and Filecoin as examples. Both projects rely on a strong open-source community to drive their technological advancement and network expansion.

Helium leverages the open-source LoRaWAN protocol, which provides a low-cost, low-power solution for long-range communication for IoT devices. Through open-source, LoRaWAN has attracted a large number of developers and enterprises, demonstrating its practical need in IoT communication.

Likewise, Filecoin builds on the open-source InterPlanetary File System (IPFS), storing and sharing data in a peer-to-peer manner, addressing many issues of traditional centralized storage, such as single points of failure and data censorship.

The open nature of IPFS has attracted widespread participation from global developers and enterprises. Even before the launch of Filecoin, IPFS was widely used by software developers, reaching 1 EiB of storage across the network in 2020.

Blockchain Consensus

Any successful DePIN project must be closely integrated with blockchain technology, designing algorithms for specific use cases rather than separating DePIN business from Web3 and simply issuing a token on a public chain.

When it comes to the core technology of blockchain, proof of work and consensus are unavoidable and one of the most challenging issues at the DePIN technical level.

At the heart of the problem is how the workload of user devices is counted and who is responsible for distributing the related rewards to users.

It involves designing a targeted proof of work algorithm.

Helium cleverly integrates the "Proof-of-Coverage" (PoC) consensus mechanism, which combines with the IoT hotspot business. Its challenge-response model simulates actual IoT data transmission, validating the communication capability of hotspots.

The multi-hop validation reflects the extensive coverage requirements of IoT networks, ensuring network stability.

The space-time proof aligns with IoT's geolocation services, providing a reliable foundation for location-based applications.

Filecoin also has a targeted design in terms of consensus. Through its innovative Power Fault Tolerance (PFT) consensus mechanism, it converts the storage used by miners in the network and the generated space-time proof into voting weights, electing leader nodes to create new blocks.

This mechanism not only enhances network efficiency but also significantly reduces energy consumption. Through token incentives, Filecoin effectively drives network expansion while also strengthening the position of the IPFS protocol in practical applications.

Thus, the consensus algorithm specifically designed by the DePIN project delivers the greatest benefit in ensuring fairness and guaranteeing the security of the economic system. This design not only ensures that users receive accurate and fair incentives commensurate with their actual contributions but also effectively prevents potential abuse by project teams.

By tying contribution assessment and reward distribution to consensus directly on an immutable blockchain, the transparency and immutability of incentive distribution are ensured.

This means that project teams cannot maliciously withhold users' deserved rewards and also cannot covertly increase their own allocation.

Looking back at the recently launched VC-linked DePIN, the current results are less than ideal, possibly due to this reason.

Many of these projects chose to issue tokens on the Solana or Ethereum public chains, with high token emissions and significant chip concentration, leading the incentives to deviate from consensus constraints.

Real Demand

Another key factor not emphasized in the success of the DePIN project is the combination of long-term development with real demand.

This aspect has been fully demonstrated in the development journeys of Filecoin and Helium. Filecoin is built on the open-source IPFS (InterPlanetary File System) protocol, which was born to address many issues with current centralized storage systems. The existence and widespread application of IPFS prove the practical demand for decentralized storage.

Filecoin further expanded the scope of IPFS's application and participation through the introduction of a token incentive mechanism, creating a virtuous cycle.

Similarly, Helium is based on the open-source IoT communication protocol LoRaWAN. The extensive application of LoRaWAN has already demonstrated the significant market demand for IoT connectivity, and Helium's incentive mechanism has greatly accelerated the deployment and expansion of the LoRaWAN network.

This integration of open-source protocols with the DePIN project not only proves the existence of market demand but also demonstrates how DePIN drives further development and application of open-source technology through economic incentives.

In conclusion, a successful DePIN project has significant advantages in terms of open-source community support, hardware openness, long-term development, and meeting market demand, and through its close integration and innovation with blockchain technology, it has further solidified its position in the industry.

Helium and Filecoin, as successful examples, have demonstrated how the DePIN project achieves long-term sustainable development through the effective combination of technology and market demand.

02 AI + DePIN: Value or Speculation?

Value Proposition

The integration of AI and Web3 is still in the exploratory stage, and the industry has not yet established a mature roadmap. However, from the perspective of asset attributes, the AI field involves both hardware and algorithms, two key elements that align closely with the characteristics of the DePIN track.

DePIN projects typically involve a decentralized network of physical hardware and smart contract-driven incentive mechanisms, providing an ideal use case for AI.

When discussing the prospects of integrating AI and DePIN, we must address a key challenge: the mismatch between the demand for decentralized AI training and technological development.

Currently, the mainstream open-source AI suites used in academia and industry are still primarily designed for centralized server setups, reflecting the lack of scalability in decentralized AI training demand.

In fact, forming genuine decentralized demand is often a lengthy process.

Looking back at past successful DePIN cases, we can identify a relatively healthy developmental path: first, the emergence of decentralized demand, then the driving of community development of the corresponding open-source decentralized framework, and finally, the injection of incentives into the ecosystem.

However, the current trend in the development of the AI+DePIN field seems somewhat backward. Many projects are eager to launch incentive mechanisms, but due to a lack of real decentralized demand support, these incentives are often captured by "rent-seeking players" rather than flowing to genuine demand and contributors.

This incentive-first model not only fails to effectively stimulate the generation of real demand but may also lead to a disconnect between technical development directions and actual market needs.

In the absence of clear demand guidance, projects may overly focus on short-term benefits, overlooking the technical accumulation and ecosystem building required for long-term sustainable development.

Therefore, for AI+DePIN projects, the top priority is to patiently nurture the genuine demand for decentralized AI while driving open-source community development of decentralized AI frameworks.

Only with a community-driven demand foundation can the introduction of reasonable incentive mechanisms truly be effective in promoting the healthy development of the entire ecosystem.

This requires the project team, developers, and investors to maintain patience, focus on long-term value creation, rather than short-term gains.

Only in this way can we expect to see truly successful AI+DePIN projects emerge, opening up new possibilities for the future of decentralized infrastructure.

Actively Engage in the New AI Narrative

Based on the analysis above, the path of short-term value investment may not be viable, but that does not mean the AI + DePIN market is bleak. Looking at the bigger picture, AI remains the hottest sector for investment.

Currently, the mainstream approach of AI + DePIN is to provide a distributed computing resource network for AI, aimed at reducing the cost of AI training and inference, while also leveraging idle compute power globally, especially GPU resources.

During the early stages of this bull market, it was profitable to participate in such projects using existing hardware. However, as time goes on, more similar projects emerge, leading to a gradual weakening of the leaders.

This indicates the need to actively engage in the new AI narrative, where participation in each sub-narrative under each AI is appropriate (long-term holding is not a safe decision). Note that it must be a new narrative!

For example, Xai pioneered the sale of nodes, and as an early adopter, the returns were quite substantial, with a payback period of less than half a month.

03 Final Thoughts

At this time, the market sentiment is not very positive, with general low morale.

We must have patience and confidence in the development of the AI+DePIN sector. The growth of this emerging field may take time, but its potential should not be underestimated.

During market downturns, it is advisable to review existing projects more, look for those with genuine decentralized needs, strong open-source community support, open hardware production, and projects with purpose-designed consensus algorithms.

Finally, closely monitor the trends in the open-source community, identify projects worth participating in, truly innovative in technology, and contribute to the healthy development of the AI+DePIN ecosystem.

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