Understanding Guide

While many consider this aspect sufficient, the decentralization in DePIN projects is sometimes different, resulting in different governance or security concerns for users. The adoption of this technology comes from the difficulties of clearly distinguishing the differences between a centralized provider and a decentralized network. Additionally, considering the risk associated with the centralization of DePIN, having the granularity to assess the DePIN solutions efficiently seems mandatory.

Be Aware of "De"PIN

Decentralized networks are designed to offer a level of trust, transparency, and security that traditional centralized systems often lack. However, significant risks can emerge when decentralization is not thoroughly implemented or if certain network elements are centralized. Here’s a breakdown of these risks based on the lack of decentralization in DePIN protocols

Governance

When a decentralized network has centralized governance structures, a single entity or a small group of entities can wield disproportionate influence over the network’s decisions and policies. This can lead to biased or unfair outcomes, where the interests of a few dominate over the broader community.

This centralized control can undermine the core principles of decentralization, such as democratic participation and equal representation. It may also result in censorship, where certain services or participants are unfairly excluded or restricted based on the governing body’s preferences.

Security

If a few entities control the physical infrastructure or blockchain nodes, this can create single points of failure, making these centralized nodes more vulnerable to attacks, failures, or malicious behavior.

Compromising these critical nodes can jeopardize the entire network’s security, leading to potential data breaches, loss of integrity, and disrupted services. A more centralized infrastructure reduces the resilience and fault tolerance that decentralization aims to provide.

Trust and Transparency

Transparency and trust can be lacking in networks where the consensus mechanism is not fully decentralized. If the consensus is influenced by human actions or pseudo-automation, it might be less reliable and secure than a purely cryptographic proof-based system.

This can erode trust among participants, as decisions might be seen as biased or manipulated. It can also lead to issues with fairness, where certain participants might be unfairly advantaged or disadvantaged based on their influence over the consensus process.

Financial and Reward

When a central entity controls the reward mechanisms for infrastructure nodes or is not fully decentralized, it can create imbalances in how rewards are distributed. This can lead to inequities where some nodes or participants receive disproportionate rewards.

Centralized reward mechanisms can discourage participation and investment in the network. It may also create dependency on the central entity, reducing the network's efficiency and fairness.

Evolution and Innovation

If a few entities or central authorities control a network’s evolution and feature updates, it can stifle innovation and limit its ability to adapt to new challenges or opportunities.

A lack of diverse input and on-chain proposals can result in slower progress and missed opportunities for improvement. It can also hinder the network’s competitiveness and relevance in a rapidly changing technological landscape.

The Levels of Decentralization

These risks can be mitigated by the right design of the DePIN protocols. In the following, you will find a list of decentralization levels that allows to assess efficiently the protocol or to consider the future DePIN you want to build on.

Level 1: Open and Unrestricted Service Deployment

At this level, service providers can deploy their services directly on the network without restrictions. They can fully control and adapt their business models according to the network's inherent parameters, ensuring flexibility and autonomy in their operations.

Importantly, the network is decentralized, meaning that no single third party can censor or restrict a service's usage of the network, guaranteeing an open and free environment for innovation and service delivery.

Level 2: Open Participation for Infrastructure Providers

At this level, physical infrastructure providers can freely contribute to the network by setting up and operating their blockchain nodes. Providers can seamlessly integrate their infrastructure into the network using open-access documentation, ensuring that participation is transparent and accessible.

The income for these providers is directly generated from the network itself, governed by predefined rules encoded within the blockchain. This automated system ensures that compensation is fair and transparent, free from the influence or control of any third party. No external entity can limit access to the network or interfere with the income generated, allowing infrastructure providers to operate independently and securely within a DePIN.

Level 3: Cryptographic Proof-Based Consensus for Decentralized Integrity

At this level, the network relies on a robust, permissionless consensus mechanism grounded in cryptographic proofs to certify and reward honest workloads that align with its core purposes, such as cloud storage or cloud computing. This consensus mechanism is critically important as it ensures that network validation and rewards are independent of human intervention or pseudo-automation, relying solely on verifiable cryptographic evidence. This approach enhances security and fosters a high degree of decentralization.

Zero-knowledge (ZK) cryptography is vital in this context, as it verifies transactions and workloads without revealing sensitive data. This preserves privacy while maintaining trust and transparency across the network. By leveraging zk proofs, the network can achieve a decentralized consensus where no single party can manipulate the system, ensuring that all operations are conducted fairly and securely.

A crucial aspect of this level is the active participation of blockchain nodes and storage providers in the validation process. The more nodes and storage entities involved, the more decentralized and resilient the network becomes. This widespread participation enhances the security and integrity of the blockchain and maximizes the DePIN utility. By ensuring that these contributors are directly involved in consensus and validation, the network can maintain its independence from centralized control, further solidifying its trustworthiness and effectiveness as a decentralized service platform.

Level 4: Self-Managed Network Economy

At this level, the network operates under a fully decentralized and permissionless economic model, where the reward mechanisms for infrastructure nodes are entirely independent of any centralized processes or human intervention. Unlike traditional systems where rewards might be influenced by an operator, business, or organization, this model ensures that all incentives are governed by the network’s protocol, free from external control or manipulation.

The reward system for infrastructure providers is designed to be autonomous, relying on a software-defined scheme rather than network consensus validation. This means that rewards are not regular or predictable; they vary based on the number of active validators participating in the network. This irregular, block-based reward structure ensures that compensation is aligned with each node's true contribution and effort, further decentralizing the network's economic dynamics.

In this model, infrastructure providers are free to define contract-based rewards, setting fees for using their network nodes according to market demand and network utility. This approach encourages competition and innovation, allowing providers to tailor their services to the network's needs without being constrained by a centralized reward distribution system.

Importantly, no liquidity pool or central entity (such as a company or DAO) collects fees from network usage. This absence of a centralized fee recipient ensures that the network’s economy is truly decentralized, with all value generated flowing directly to the participants who maintain and secure the network.

This decentralized economic model is essential for incentivizing participation and maximizing the utility of DePIN. The protocol encourages widespread involvement from infrastructure providers by ensuring that rewards are distributed fairly and transparently, without central oversight. This, in turn, strengthens the network’s resilience, security, and overall utility, making it a robust and reliable platform for decentralized services.

Level 5: Toward Autonomous Network Evolution

At this ultimate level, the network’s evolution is entirely free from the control of any single third party, ensuring that no single entity, organization, or group can dictate the network’s features or determine its future path. This is a critical aspect of maintaining true decentralization, as it eliminates the risk of centralized power influencing the direction of the network.

In the initial stages of this evolution, decentralized autonomous organizations (DAOs) play a key role. DAOs allow the community of network participants to collectively propose, debate, and vote on changes or new features. This ensures that decisions about the network’s development are made democratically, reflecting the majority's will rather than a select few's interests. A DAO establishes a foundation for decentralized governance, where power is distributed across the network’s participants rather than concentrated in a central authority.

As the network matures, governance shifts towards pure on-chain mechanisms, where all proposals and decisions are executed directly on the blockchain. This on-chain governance system defines the rules for network changes in a transparent, immutable manner, reducing the need for human intervention and further decentralizing the decision-making process. By operating entirely on-chain, the network ensures that any changes are automatically enforced according to the consensus of its participants, without the possibility of external influence or manipulation.

Looking towards the future, the concept of purely automated governance comes into play, where advanced technologies like artificial intelligence (AI) could take governance to the next level. In this scenario, AI-driven algorithms could analyze the network’s performance, predict future needs, and autonomously propose optimizations or adjustments. These proposals would still require approval through on-chain consensus. Still, the involvement of AI could significantly reduce the need for human interaction, pushing the boundaries of what decentralized governance can achieve.

This science-fiction-like vision of AI-assisted governance represents the pinnacle of decentralization, where the network becomes a self-sustaining, self-evolving entity. With limited human intervention, the network could adapt and improve continuously, ensuring it remains robust, secure, and aligned with the collective interests of its participants.

By eliminating code ownership and allowing the network’s consensus to drive continuous improvement, this model safeguards the network’s integrity and ensures its evolution is guided by the community rather than any central authority. This approach protects the network from centralization risks and fosters a truly decentralized ecosystem where innovation and progress are driven by the collective intelligence and will of its global participants.