To be honest with you, as much as I’m convinced blockchains are the future of several industries, we are much closer to failing than to succeeding, at least from a risk management perspective.

We have the neverending risk of extremely hawkish regulation, the distrust of the majority of society that doesn’t believe in our vision, and the continuous surge of scams that destroy the financial well-being of many.

It isn’t pretty.

However, one new trend has been brewing for some time that, finally, seems ripe enough to bring insane growth and opportunities to Crypto.

Its name, DePIN.

Its mission, the decentralization of the Internet.

Blockchains and the proliferation of economies

My vision of blockchains may come as oxymoronic at first.

While I’m a firm believer of the uber-powerful features that make it the supreme solution in many cases, I do also feel their capacities are overstated by many — and understated by many more others.

You see, many in the Web3 movement are convinced that Blockchain will be the foundation of the future Internet. In other words, the entire Internet data will be stored in blockchains.

And, in all sincerity, I don’t believe in a million years it will be that way, but in a much more elegant manner.

Simple is, ironically, perfect

Blockchains are meant to be simple, as staying simple is the only way they can stay decentralized, with Bitcoin or Ethereum being prime examples of this approach.

The two most simple blockchains are, logically, also the worst at scaling, which means that they are easily overloaded when demand peaks.

But the fact they are simple is, funnily enough, what makes them superior to any other blockchain, simply because no other blockchain can be as decentralized as these two are for that same reason.

In simple terms, blockchain is a race where the most decentralized will prevail and the rest will die.

Decentralization and scaling are inversely proportional

Bitcoin, the first blockchain, was conceived to be run by millions of computers around the world.

For that, Satoshi, its creator/s, severely limited blockspace — a block being a group of transactions introduced into the chain.

This meant that the number of transactions added into the chain every ten minutes was small, so that ordinary computers like the one I’m using to write this article right now would be able to run the network and secure it.

Consequently, as few transactions were approved every ten minutes meant that the performance of the blockchain was — and is — in all honesty, not great.

As demand increases and transactions pile in, the longer it takes for your transaction to get processed. Also, the more computers — nodes in blockchain terminology — participate in consensus, the longer it takes to reach that consensus.

Thus, a decentralized system is, by design, bad at scaling.

However, some very relevant progress has been made in the field of scaling, with the Lightning Network in the case of Bitcoin and what to me is the holy grail of blockchain scaling, rollups.

Sadly however, I still don’t feel that blockchains will ever be capable of handling the transaction throughput required to run the entire Internet on top of them.

Assuming this, one has to ask, “ok, but what’s the point of blockchains then?”

To me, the answer is as clear as a cloudless day; blockchains are meant to create peer-to-peer economies at scale.

But before delving into what I mean by that, we need to assess: why are blockchains the real deal?

Blockchains are just distributed ledgers… and that’s fine

When you trim down the concept of blockchain you realize how exaggerated some claims are.

A blockchain is a distributed database, period.

It really is that simple. And what most people fail to understand is that blockchains, without decentralization, don’t bring anything to the table that improves actual centralized systems.

Absolutely nothing. But why?

Simple, all blockchain benefits are only valid if the network is decentralized.

Thus, have you ever wondered what blockchains really offer?

Securing. Data.

You’ve probably read multiple articles and tweets where the writers simply repeat overused mantras using complex terminology even they fail to understand.

Trustless, immutable, decentralization… fancy words yet no explanation.

It’s actually quite simple.

What makes — truly decentralized — blockchains superior is their capacity to protect data integrity (immutability) by not having single points of failure or governance, while relying on cryptography to operate thereby requiring no human intervention (trustless).

And that’s… basically it.

That’s it?

Yeah, that’s it.

Amazingly, that alone is insanely powerful, as data secured by blockchains achieves the highest threshold for data integrity (while still respecting anonymity).

But there’s an issue.

As we mentioned earlier, blockchain’s distributed nature makes them particularly unsophisticated systems for high-demand use cases.

Therefore, there’s a need for a compromise.

Securing the data that matters

Does all the data in the world require blockchain-level security?

Of course not.

Do we need the entire Internet data to be stored on blockchains?

Of course not.

Do we need everything in the future to be decentralized?

Not even Satoshi would claim that. But some data does require that level of security and integrity.

Okay, but which one?

And such question leads us to the main character of today’s story, DePIN.

The rise of the decentralized Internet

DePIN stands for Decentralized Physical Infrastructure Networks.

But what is this fancy word and why is it such a big deal?

Understanding the Internet

Although we take it for granted today, the Internet can be very complex behind closed doors. You need procedures to distribute content, systems to store information, pathways to secure communications, etc.

This complex architecture, running 24/7 and accessible to almost everyone in the world, is almost entirely run by a handful of companies that offer these services with what we describe as the ‘cloud’.

These companies, the likes of Amazon, Google, or Microsoft, offer all types of services to companies (data storage, computing, web hosting, VPNs, and even AI).

Naturally, as cloud computing allows companies to simplify their operations (focusing less on IT and more on the business side of things) and cost models (moving from a CAPEX model to an OPEX) while enabling almost instant access to the Internet with guaranteed maintenance and virtually no downtime, has made these cloud models literal ‘cash cows’ for these companies.

Adding insult to injury, as these models require insane amounts of investment, these companies had literally no competition… until now.

The Blockchain, creating peer-to-peer economies at scale

As we discussed earlier, assuming that not all data needs to be stored in blockchains, what data does?

If we think about blockchains and their capacity to safeguard data integrity, we quickly come to the conclusion that blockchains are excellent places to store transactional data, data that requires extremely high protection and trust on it.

Specifically to this case, Blockchains offer a unique opportunity to disrupt the cloud computing industry by offering the possibility for layman people like you and me to lease their home hardware in exchange for money.

In other words, DePIN systems work by having a network of service providers that use a blockchain as a single source of truth, a guarantor to store transactional metadata so that services provided by participants are rewarded.

To me, this is the true raison d’être of blockchains; providing the necessary trust and economic incentives required for the creation of peer-to-peer economies that allow people like you and I to provide any digital service to others with the guarantee that you will be rewarded for it.

I know you want an example, so here you go.

Decentralized storage

For instance, let’s take Filecoin.

Filecoin is a blockchain created by the same people that developed IPFS, the InterPlanetary File System. Filecoin allows you to rent storage from your own home hardware while getting paid with $FIL, Filecoin’s native cryptocurrency.

As the Filecoin blockchain keeps a full history of all events occurring in them, participants in the blockchains can guarantee that their efforts will get paid.

Now take this concept and apply it not only to storage but also to computing, Wi-Fi, or VPNs… As an example, the image below shows different examples of actual blockchain projects in the DePIN space:

Source: Messari Crypto

Note: Please take note that you can’t assume the projects in the photo are good or bad investments (because I don’t know); they are simply examples of what DePIN is.

This article is for educational purposes, never to be used as financial advice. As for transparency purposes, I don’t own any of the cryptocurrencies shown in the image.

Creating real value

Up until now, the only thing blockchains were disrupting was the financial markets.

Now, with DePIN, you can also add the disruption of the actual Internet as a very potential outcome, to the point that many are claiming an addressable market for DePIN of $3.8 trillion dollars by 2028, a market almost as big as Germany’s entire GDP.

Excited much?

https://medium.com/@ignacio.de.gregorio.noblejas/cryptos-biggest-opportunity-for-2023-depin-4b72d88b83c2