As the digital asset class gains legitimacy following the launch of the first spot Bitcoin (BTC) ETFs in the U.S., the investing world is looking for real-world applications of blockchain technology that move beyond a simple store of value or means of payment.
The tokenization of real-world assets is one area that is quickly gaining traction, as it enables anything that exists in the physical world to be digitized and put on a blockchain for more efficient management.
BlackRock CEO Larry Fink alluded to this during a recent interview with CNBC, saying the launch of the Bitcoin ETF, and the potential launch of an Ethereum (ETH) ETF, are “stepping stones towards tokenization of every financial asset.”
As a subset of tokenization, Decentralized Physical Infrastructure Networks (DePINs) are an up-and-coming class of projects that put blockchain to use in ways that can benefit society and bring a greater level of efficiency to systems as the world moves toward greater sustainability.
According to a report from on-chain data firm Nansen, “DePIN refers to decentralized physical infrastructure networks that use token incentives to coordinate a network of resources for consumption.”
“DePIN is based on the premise that leveraging a network of distributed and incentivized participants can create better and more cost-efficient outcomes than a centralized entity,” Nansen said. “It differs from the traditional method where companies would handle the entire process of building and maintaining their infrastructure.”
One of the most exciting applications of DePIN networks involves integration with another technology that has been receiving significant attention lately – artificial intelligence (AI).
“The integration of DePin with AI is a fascinating subject,” said Raullen Chai, co-founder and CEO of web3 infrastructure platform IoTeX (IOTX). “AI is fundamentally built on three pillars: data, models, and computing power – all of which can be supplied through DePIN mechanisms.”
“Starting with computing power, there are several projects on the market focused on decentralized GPU compute, leveraging DePIN concepts to provide the necessary resources for AI operations,” he said. “Similarly, there are initiatives aimed at crowd-sourcing data which can feed into AI systems, enhancing their intelligence. Additionally, there are projects that work on models – they employ numerous models to compute against each other, thereby competing to develop superior AI models that can be applied to solve real-world human problems.”
“I predict that in 2024, DePIN and AI will become even more closely integrated, particularly in these three areas,” Chai said. “As a provider of Modular Infrastructure for DePin, at IoTeX, we have already observed the embryonic form of such integration within our ecosystem. By utilizing DePin to source computing power, gather data, and even develop models, we have laid the groundwork for a flourishing synergy between DePin and AI.”
According to Martin Lee, a data journalist at Nansen, “AI and DePIN are complementary technologies and not competing ones.”
“DePIN aims to fill the role that centralized providers – cloud storage, cloud computing, telecommunications, etc. – fulfill in the current internet/communications setup,” Lee said.
Touching on the likelihood that people will use blockchain technology in the future without knowing it, Lee said, “If they do scale and get adopted, it’ll likely be as hidden as AWS is from an average user.”
“The majority of the internet and apps we use today run on a small handful of cloud providers,” he said. “Your average person doesn’t need to know that fact, let alone how the cloud networks work, but can use the applications built on top of them just fine.”
The idea that DePIN and AI can serve as complementary forces was also put forward by Jeff Owens, co-founder of Haven1, who told Kitco Crypto that “Rather than competing, DePIN and AI are poised to work in tandem to enhance the capabilities of blockchain networks and solve many of the issues decentralized finance (DeFi) faces today.”
“DePIN projects, like decentralized wireless networks, extend blockchain’s applications into the physical world, creating a more interconnected and efficient infrastructure,” he said. “Meanwhile, AI can augment these networks with intelligent data analysis, predictive maintenance, and enhanced security. Together, they can create more robust, efficient, and secure blockchain networks.”
Owens noted that “blockchain data still isn’t easily understood or accessible,” but said that AI can help change that.
“AI tools that can gather, organize, and analyze vast amounts of blockchain data allow decentralized projects to identify and mitigate security risks faster, while AI allows builders to quickly make sense of this data and its useful applications,” he said. “This makes the combination of AI and DePIN particularly useful for mitigating the security risks prevalent in the DeFi space.”
“AI can provide advanced threat detection and system optimization, while DePIN can facilitate real-world applications and services that are secure, transparent, and decentralized,” Owens said. “AI’s capability in real-time monitoring and threat detection, when applied to DePIN’s physical infrastructure, can significantly enhance overall network security.”
“Another area where DePIN and AI can play a significant role is in promoting the mass adoption of digital assets,” he noted. “DePIN projects can offer tangible, user-friendly applications that integrate seamlessly into everyday life. At the same time, AI can simplify the user experience by automating complex processes and providing intuitive interfaces. This means end-users can benefit from these technologies, even if they lack a deep understanding of the underlying blockchain mechanics.”
Solving data centralization
“AI holds great promise, but relies too heavily on centralized Big Tech data centers,” said Aaron Rafferty, CEO of StandardDAO, in a note to Kitco Crypto. “This is not only an issue of control and who holds the keys to all of the models that are developed, but also a potential existential risk if we are to see AGI unlocked in the next decade.”
“Decentralized models hold promise to give individuals control and sovereignty over their personal data,” he said. “This not only leads to greater transparency but also better economic outcomes for people. Blockchain can offer a path here through cryptography, transparency, and alignment of incentives.”
Rafferty noted that while “Some networks today work on a decentralized compute model operationalizing dormant GPUs and acting as a safeguard and albeit slower alternative to centralized infrastructure, these models have not been road tested to take on the vast capacity that is currently handled by Google, Microsoft, and many others.”
Markus Levin, co-founder of XYO, highlighted that DePINs have been rising in stature among the decentralized ecosystem since early 2022, and noted that according to a report from Messari, the sector has the potential to reach a valuation of $3.5 trillion within the next four years.
“With less fear-mongering and hyper-competitive attitudes clouding the conversation, we can finally achieve a reality where these disruptive technologies can complement one another, strengthen blockchain-based tools, and pave the way for innovative new applications – it’s no longer survival of the fittest,” Levin said. “Together, AI and DePIN can be used to improve transactions and interactions on-chain by removing friction, increasing speed and efficiency, and offering more practical data points and insights – all without consumers needing to truly know the technical ins and outs.”
“While the blockchain is ultimately providing AI with more transparent and authentic data sources through DePIN for training while improving the technology’s privacy and autonomy, it’s not a one-sided relationship,” he added. “AI can also help enhance the blockchain’s speed of data queries and provide more actionable insights based on the data it draws in. This integration across technologies will ultimately make the blockchain more comprehensive and usable, and get us one step closer to mainstream adoption.”
Related: Will DePINs be the next big thing in crypto? Multiple analysts say yes
Stefan Rust, CEO of independent economic data provider Truflation, told Kitco Crypto that “AI has the potential to truly decentralize and democratize access to data for consumers, unlocking peer-to-peer communications without the need for centralized choke points,” but said currently, “much of the available data infrastructure is heavily centralized, both from a computing and storage perspective as providers like Azure, Google Group and AWS dominate the space.”
On top of that, “all communications must currently be conducted via centralized entities, like communications service providers, mobile operators, internet service providers, utilities, and telecommunication operators,” he said.
“These critical choke points are controlled by centralized entities that, over the last decade, have experienced a high level of censorship abuse and vulnerabilities,” he noted. “At the same time, they have been commercializing the data they collect from consumers.”
Rust said that advancements in AI have “unleashed a new organism into the world,” and questioned whether “we want this organism to be managed by these centralized organizations.”
“Amid the growing mistrust in their authenticity and concerns over censorship, AI is too powerful a tool to be left under centralized control,” he said. “Against this backdrop, the decentralization of physical infrastructure is a critical component to freeing and unlocking the ability for users to interact peer-to-peer, without having to go through centralized choke points like hosting and communication companies.”
“AI and DePIN can help facilitate the creation of dApps on decentralized networks, powered by AI algorithms,” he said. “This would allow anyone to access the data, development tools, or dApps they require, with the data being maintained by multiple parties in a decentralized database.”
Real-world use case
One possible application of DePIN technology that could be widely utilized was suggested by Israel Mirsky, director of the decentralized drug development (deDev) project Pharma Collective.
“Physical infrastructure networks have the potential to utilize open-source, public ledger systems to document drug manufacturing. This decentralization facilitates participation, transparency, and trust in a supply chain that’s driven by profit incentives rather than societal needs,” Mirsky told Kitco Crypto. “And with AI, we have the potential to optimize these values. For example, AI algorithms can be used to efficiently manage databases of lab results, patient data, and market circumstances, helping organizations like Pharma Collective to make major drug production decisions at light speed.”
“AI and DePIN are more likely to be collaborative rather than competitive and are already poised to be complementary,” he said. “Blockchain projects need to manage the increasing level of complexity created by decentralized networks and the vast amount of data created by a global citizenry. They will need AI to do this. On the other side, DePINs provide practical application possibilities for AI.”
Mirsky said that one of the biggest challenges the sector will face is “scaling decentralized networks and managing all of the technical and non-technical challenges of distributed collaborators.”
“To manage this complexity and maintain their decentralized nature, projects can integrate AI across both their software and operations,” he said. “This will be especially pertinent as DePIN projects will encounter a vast regulatory landscape and be required to report on and comply with regulations in existing industries and those emerging in digital assets.”
“On top of this, DePIN opens the door for innovative business models in legacy sectors that are already being disrupted by both blockchain and AI,” he added. “Industries like telecommunications, energy, logistics, and pharmaceuticals may see the biggest impacts.”
“And finally, AI can drive the evolution of DePIN by enabling smarter, adaptive infrastructure networks that respond dynamically to changing conditions and demands,” Mirsky said. “They have the potential to create decentralized, intelligent infrastructure systems. The collaboration between these technologies is poised to create more resilient, efficient, and user-centric networks, marking a significant leap in how infrastructure and services are delivered and managed.”
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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