What are Decentralized Physical Infrastructure Networks (DePINs)?
A DePIN is a service-providing infrastructure built upon two things: a decentralized network of independent operators (a “peer-to-peer” or P2P network) and blockchain technology. What bonds them together is a token economic protocol (cryptocurrency tokenomics), incentivizing and rewarding good service.
The DePIN concept has gained traction recently, but DePIN projects have actually been around since the very early days of blockchain technology, with many emerging during the heyday of altcoins in 2014. Early DePIN projects include Swarm and Filecoin for distributed storage, Helium for wifi connectivity, Solarcoin and Prosume for distributed energy production, and more recently BitTensor, Akash, Theta, and Gensyn for machine learning compute. And this is just to name a few!
In order to more easily understand how DePIN systems work and why they are now gaining traction, let’s consider how similar and well-known Web2.0 platforms operate.
The (centralized) physical infrastructure networks of Web2.0
The idea of a platform which brings together independent suppliers to provide a service is not entirely new, nor is it unique to Web3. This was very much at the core of the Web2.0 business model. Think of AirBnB, where people put up their homes to form a network of available spaces to rent, or people driving their own cars to provide taxi services through Uber. And in many senses, services like AWS (Amazon Web Services) are also a part of this mode. Platforms like these make available a distributed network of physical resources and services: a car sitting in a driveway, or a room unoccupied, or distributed computer resources and data centers (aka “the cloud”).
The successes of these platforms, of course, meant undermining more traditional services like private hotels or unionized cab companies. But as we will see, they ultimately fell back into conventional and centralized models. The aim of DePIN projects has from the very beginning been to achieve full decentralization, including at the level of value, governance, and ownership. And it can do this by employing blockchain and token economics.
The idea that blockchain technology would unleash the next era of decentralization took hold not long after its invention through Bitcoin in 2008. The model of Web2.0 platforms had promised to empower everyone by becoming their own creators, vendors, and providers. But it turned out that the real winners would be the platforms themselves: the value of all this online activity was centralized into the Big Tech platforms we know today (Google, Facebook, Amazon, Uber, AirBnB).
The problem of centralized infrastructures
Web2.0 platforms have certainly empowered a wider and previously unactivated network of people with things to offer and share. However, their economic centralization ultimately undermined their true revolutionary potential. This phenomenon has been referred to as “the failure of the sharing economy.”
While a platform like Uber allows anyone with a physical resource (a car) to provide a service (a ride), the platform’s way of centrally monetizing the service is far from new. Individual providers do receive payments for their services, but these are ultimately based on what the central platform decides to allocate after taking their own profits and fees off the top. As it turns out, the platform model has increasingly proven itself to be a way to centralize profits while distributing risk out to service providers. Monopolies are the inevitable result.
Can decentralized technologies improve upon this centralized economic model, giving more to those whose work makes a service system possible?
The DePIN flywheel
The key difference between these well-known 2.0 platforms and the new wave of 3.0 DePINs is how token economic models truly enable equitable distribution of the value created. Furthermore, they encode real decentralized ownership at the core of the solutions.
The flywheel effect of DePINs seeks to accomplish this. The power of bringing together distributed assets and efforts is already evident in platforms like AirBnB or AWS. These enable normal people to profit from their unused resources and businesses to benefit from economies of scale and coverage. But with good token economic design, a decentralized community of contributors can grow to become equal partners in a communal enterprise. The more they contribute, the more they can benefit. With something like Uber, you only benefit from the minutes you drive, not from the total profits Uber makes. Community contribution is what drives the flywheel of a DePIN, leading to the potential of an “exit to community” where full ownership is distributed to the ecosystem.
Diagram of Nym privacy DePIN
It is important to note that what drives the DePIN flywheel is not simply some technical feature or architecture. It is first of all the communal adoption of a vision and protocol. DePINs are only successful if a community recognizes the value of this vision and takes it up as their own, invests in it, and helps to generate further enthusiasm. Further investment and capital follow can only flow with this collective effort.
The protocol and token economics can then be launched, attracting infrastructure operators and service providers to form a strong operator community. With the DePIN then fully operational, an ecosystem of apps, dapps, and other services can be built on top to enable end users to take full advantage of the utility and services provided. This drives value back into the network.. In short, the DePIN flywheel is powered by community, coordinated via a protocol, and rewarded through good token economic design.
Does this mean everything should be decentralized and run as a DePIN? There are mixed opinions on that matter, but one thing is certain: decentralization serves an important function to enable actual online privacy. And this makes DePIN a great model for privacy infrastructure, enabling a new era of privacy and security for the entire internet. This is where Nym mixnet comes in, reaching a stage of maturity for dapps and apps, with the NymVPN being the first commercial app to run on the privacy DePIN.
Optimizing DePINs for privacy
Digital privacy and security are real-world problems for everyone. As our lives become increasingly digital, this opens people, businesses, and institutions up to surveillance, cyber attacks, and security breaches.
As it turns out, decentralization, and therefore the DePIN model, is an excellent solution for a number of these risks. Here is why: one of the biggest privacy problems today is the traceability of internet traffic. When traffic leaves your device, it can be traced across the internet to a website you might be visiting, a person you might be chatting with, or a service you are using. This allows unwanted observers to link your identity to your online activities: browsing, chatting, shopping, and so on. This can potentially reveal a lot of highly sensitive information about yourself, your income, your relationships, and even your state of mind. Even when the content of traffic going in and out of your device is encrypted, the traceability of traffic frequency and linkability between sender and receiver can reveal as much as the content itself.
Decentralization is key for ensuring unlinkability. When using the Nym mixnet DePIN, instead of your internet traffic going from your device to a central server and service provider, imagine it is bounced around nodes all over the world. These nodes mix your traffic with other people’s traffic, making it impossible to trace. By decentralizing the routes your traffic takes across the internet, and mixing your data up, you can make your online habits unlinkable. This means decentralization is especially effective for enabling true privacy and security for everyone. Add token economics to the equation and you get a DePIN that can incentivize quality and scale while also ensuring economic sustainability across the network.
Real online privacy requires a collective solution. In order to hide effectively, a large network of independent service providers is needed, supplying routing and mixing services. As an increasing number of apps, dapps, wallets, and services begin to make use of the Nym privacy DePIN for traffic routing, more value will flow to the operators, enabling the network to scale and improving security and privacy for everyone. The token economic design of the Nym DePIN is thereby a virtuous flywheel.
How the Nym privacy DePIN works
Nym DePIN stack
The Nym privacy DePIN is a collective solution to the widespread problem of internet traffic surveillance. It is a unique combination of two networks: an L1 blockchain (Nyx) running Nym mixnet smart contracts, and the Nym mixnet itself which provides routing and mixing services to protect user traffic coming from any app or dapp.
Apps which run on the Nym mixnet (including the soon to launch NymVPN) can extend strong privacy protections to their end-users. When traffic leaves a user’s device, it will be wrapped in Sphinx encryption. It is then mixed packet by packet through five nodes in different locations across the world. Each packet takes a different route, and each node only knows where to send it next. When the data packet ultimately arrives at its destination, it is unlinkable to its initial sender. The mixnet thereby provides strong protections for user’s IP address, metadata, and other discernible patterns.
The Nym mixnet ensures that user traffic is unlinkable and secure. By distributing user data through a decentralized network of unrelated nodes or servers, the possibilities of external surveillance, metadata leaks, and hacking are greatly reduced. This is accomplished by eliminating central servers from the equation, along with their single points of attack or failure.
Nym’s flywheel
The token economic design of the Nym mixnet flywheel is designed as a virtuous cycle: operators ‘bond’ NYM tokens in order to enter the network. This serves as an initial reputation score. Anyone holding NYM tokens can stake additional tokens to a node doing a good job and in return receive a share of a node’s operator rewards.
Nodes with good performance tend to earn more rewards, meaning there is an economic incentive for people to stake on well performing nodes. As apps begin to run on the privacy DePIN, a portion of user fees go to operators and delegators. The more users pay to use the network, the more value will go back to its service providers and ecosystem. This stakeholder position will incentivize better mixing and routing performance while also increasing user interest, for instance, with faster network speeds.
Read more about the Nym token economics here.
Use cases and key technical features of Nym mixnet
Here are some key features of the Nym privacy DePIN:
1. Decentralization: Leveraging a decentralized network of nodes, the Nym mixnet ensures the absence of a central authority. This design choice enhances security by eliminating vulnerable central points and fostering network resilience.
2. Unlinkability: The Nym mixnet protects IP address and metadata, thereby achieving unlinkability between sender and receiver by default multi-hop routing and blockchain.
3. Resistance to traffic analysis: The mixnet design actively combats traffic analysis, a method used to deduce information by observing communication patterns. Employing advanced techniques, Nym mixnet makes it difficult for adversaries to analyze network traffic, thwarting attempts to link users to specific transactions.
4. Novel onion encryption: Nym mixnet adopts a multi-layered security approach, incorporating the Sphinx packet format and anonymous credentials. This strategy fortifies the overall security and resilience of the privacy infrastructure, ensuring robust protection against potential threats.
5. Censorship resistance: The Nym DePIN can help resistance to censorship by offering users a means to access information and communicate freely. Its decentralized architecture ensures resistance to censorship attempts, providing a lifeline for those in restrictive environments. Censorship is a continuous game of cat and mouse, however, and is an ongoing R&D topic at Nym.
The Nym DePIN is a general purpose privacy platform, so its use-cases are quite broad. However, it is worth noting that mixnets are particularly effective for protecting message-based traffic and any type of communication (messaging, email, etc.). They are also very effective for protecting crypto transactions in transit and peer-to-peer broadcasts of blockchains and rollups. This helps to prevent things like MEV attacks and to avoid the censorship risks of centralized sequencers.
The concept of “Exit to Community” has emerged in the last few years to counter the Big Tech monopolies. The goal is to present an alternative future for tech start-ups: instead of seeking an exit via acquisition, the decentralization of ownership and value enables an “exit to community.” Strong decentralization, as we see with a DePIN, means that a service can be sustained and value distributed even if the founders and founding company are no longer around. As long as there is a social need for a service, there will be a network of service providers able to meet it and to be remunerated for their work.
Very few projects start off fully decentralized. Bitcoin is a prime exception, a project that was born decentralized pretty much from the beginning, made possible mainly through its protocol design and the disappearance of the inventor “Satoshi Nakamoto.” but for most Web3 projects, there will be a founder(s) who will have a strategy for decentralizing. Decentralization is therefore often a step-by-step journey entailing both technical, token economic, legal, and social efforts. Along this journey, several Web3 projects have adopted the model of splitting into a non-profit foundation to govern the core protocol, and a for profit entity pursuing profitable apps and services (the Ethereum Foundation and Consensys being a major industry example). The Web3 native form of organization however is the DAO (Decentralized Autonomous Organizations) with MakerDAO, Aragon, Uniswap, Aave and Gitcoin being the main examples.
At present, Nym privacy DePIN is decentralized on a technical level, enabling strong privacy. The token economics and governance is partially decentralized, with Nyx blockchain rewards having gone live recently. The next steps are to enable the chain to go permissionless and for the network and community overall to become empowered in their knowledge and understanding of the system. As the Nym DePIN moves towards strong decentralization, this supports the privacy features and value proposition of the apps that operate on the privacy platform, beginning with the NymVPN itself.
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