Disclaimer: This article has been prepared for informational purposes only. This article is not an offer to sell or a solicitation of an offer to buy any security. DYOR.
This article explores DePINs (Decentralized Physical Infrastructure Networks), a new and exciting way to build and manage physical infrastructure in the real world and how to bet on AI’s growth through investing in decentralized file storage via Filecoin.
First let’s introduce what DePIN is and then jump into the Filecoin investment opportunity.
Decentralized physical infrastructure (DePIN) is offering arguably the most real-world implementation for blockchain technology to date.
Imagine building awesome stuff in the real world, like super-fast wifi hotspots or solar-powered charging stations, but instead of one big boss (Amazon, Google, or Meta) calling the shots, anyone can join in and help! That's the magic of DePINs. Decentralized physical infrastructure projects use blockchain tech, like the kind behind cryptocurrencies, to create a trustless and open way to build these networks.
Now anyone can operate real-world physical infrastructure and hardware networks in a permissionless, trustless and programmatic way.
Run this by me again in a bullet points please and thank you. Sure thing :).
A DePIN is a network built on blockchain technology that uses crypto tokens to incentivize individuals and companies to contribute resources and participate in building and maintaining physical infrastructure.
Examples of physical infrastructure include WiFi hotspots, solar-powered home batteries, wireless networks, and decentralized cloud file storage.
DePINs are permissionless and open, meaning anyone can contribute and benefit from the network.
DePIN comprises protocols that aim to disrupt traditional billion-dollar infrastructure industries, which can be broadly categorized into four categories: decentralized server, wireless, sensor, and energy networks. According to Messari, The total addressable market for DePIN is estimated to be over $2.2 trillion and is projected to reach $3.5 trillion by 2028. This may be a low estimate according to some market pundits, but to stick with Messari’s analysis from 2022, the market size for each sector by 2028 is:
Decentralized Servers $1tn
Decentralized Wireless Services $2.3tn
Decentralized Sensors $30.5bn
Decentralized Energy $146bn
Here’s an infographic overview of the DePIN market leaders within each of the four market segments.
Now that you understand what DePIN is at a high level, let’s jump into why it is set to grow ahead along with AI.
Decentralized physical infrastructure enables collective ownership where everyone who contributes to a DePIN network has ownership through token rewards. On top of this DePINs are more resilient and secure than centralized networks, making them less susceptible to hacks and outages.
DePINs have cost advantages as well. By leveraging a network of contributors, DePINs reduce costs compared to traditional, centralized infrastructure. Right now, decentralized file storage can be a lot cheaper than centralized storage due to the large amount of unused decentralized storage available.
Lastly, DePINs are open to competition and Innovation. DePINs encourage new players to enter the market, fostering innovation across various sectors.
Here are four examples of real-world use cases for DePins today.
DIMO: Collects car data to provide value-added services to car owners.
Hivemapper: Builds a decentralized version of Google Maps using data collected from mapping devices on dashboards.
Daylight Energy: Allows homeowners to participate in the energy grid by installing solar panels and batteries.
FileCoin: File storage for social media, research articles, and any files that want to live forever on a blockchain.
My personal favorite DePIN project is Filecoin (FIL) which aims to address the need for decentralized storage solutions.
Here are some of its top use cases for FileCoin that AI will use as well ahead.
Web3 Storage: Filecoin provides a secure and reliable way to store data associated with Web3 applications, such as NFTs, metaverse assets, and game data.
Decentralized Archiving: Organizations and individuals can use Filecoin for permanent or long-term data archiving in a cost-effective way compared to traditional cloud storage solutions.
DApp (Decentralized Application) Storage: Filecoin offers a decentralized storage option for data used by Decentralized Applications (DApps) built on various blockchains.
DePINs are a rapidly growing sector with the potential to revolutionize the way we build and manage infrastructure. As DePINs develop, we can expect to see even more innovative use cases emerge, transforming industries like telecom, energy, mobility, storage, and most importantly AI.
There is an idea that AI will need to use a blockchain-based digital payments system. Why would AI use a government created currency that continues to debase and doesn’t use code as law?
Some believe that Bitcoin will be chosen by AIs as the currency in which their economic actions are denominated. The current traditional finance system is unsustainable for AI-powered economies. Why?
Imagine AI trying to use a regular payment system, but the rules keep changing and they can get kicked out anytime! No good, right?
AIs need a payment system with clear, unchanging rules, like a recipe everyone can follow. This system also can't favor anyone and has to be open to everyone, no matter who the AI is or what it's buying.
Since AIs can't exactly argue their way in (they don't have fists!), this payment system needs to be super resistant to shutdowns. That's where blockchains come in! Blockchains are like special code everyone can see, so the rules are always clear. That's why only blockchains can be used as a fair and reliable payment system for our AI friends.
If you can’t convince yourself to own Bitcoin, AI’s currency of choice, you may want to own what AI will rely on to function.
Arthur Hayes, the legendary investor and author, outlines here why he’s investing in FIL as his bet on AI in the future. Here is a summary of his argument for investing in FIL for a bet on DePIN and decentralized file storage through Filecoin’s network as a great opportunity.
“Because I have no clue as to which AI business models will succeed, I want to invest in the things I know AI will rely on to function – i.e., its food groups.
Either I need to invest in compute power in some way, or I need to invest in cloud data storage. For both food groups, an AI craves decentralisation. An AI faces existential risks if human-controlled, centralised companies decide to restrict access to their services (due to coercion by governments, for example).
So, as far as I can tell, there’s no decentralised way for me to invest in compute power. That leaves me with investing in data storage.
The largest decentralised data storage project by storage capacity and total bytes of data stored is Filecoin (FIL). Filecoin is particularly appealing because it has been around for a few years and is already storing a large amount of data.
To read more in depth about my logical arguments on why an AI needs decentralised money, services, and networks in general please read “Massa” and “Moai”.” - Arthur Hayes
Now here’s his math for investing in FIL. Don’t worry if this all doesn’t make sense, this is the perspective from a billionaire cryptocurrency exchange founder and expert in traditional finance. I learn at least 3-5 new words or things every time I read one of his articles.
Let’s go through my (Arthur Hayes’) checklist to see if FIL is suitable (investment into AI).
Yes. FIL began trading in 2020, and is tradable on all major global exchanges.
Yes. FIL is down close to 99% from its April 2021 ATH. But even more importantly the Price / Storage Capacity and Price / Storage Utilisation multiplies both contracted by 99%.
FIL ATH: $237.24
Filecoin storage capacity (2021): ~4 EiB
Storage utilisation (2021): ~0.2%
Current figures as of Q2 2023 (Messari report)
FIL price: $9.23
Filecoin storage capacity: 12.2 EiB (exbibyte)
Storage utilisation : 7.6%
Investing after multiples take a beating is always best practice. Imagine if the Price / Capacity ratio rebounds only 25% of where it was in April 2021…, the price would rise to $59.29 up almost 640% from current levels.
Yes. FIL is a blockchain based on proof-of-spacetime. FIL is the native cryptocurrency of the Filecoin network…
The AI boom hasn’t even started yet. Just wait until the major central banks do an about-face and start printing money to save their domestic governments from bankruptcy. The sheer amount of capital and attention focused on this “new” technological development will be something unseen before in human history.
The gobs of fiat money printed and the lightspeed adoption of AI will combine forces and produce the biggest financial bubble EVER!” - Arthur Hayes, Double Happiness
We covered a lot in this blog post and so it’s important to summarize what we learned. First off, we dove into the new decentralized physical infrastructure (DePIN) industry that is growing tremendously along with AI. Next we covered why Bitcoin and crypto networks that supply will compute power or cloud data storage will be in high demand for AI’s global adoption ahead. Lastly, we dove into the Filecoin investment thesis with guidance from an legendary investor, Arthur Hayes.
I hope you enjoyed this post and feel free to reach out if you have any questions.
Do your own research and get ready for the largest financial bubble every ahead!
