Problems with different types of traditional infrastructure networks
The digital infrastructure required to support modern business activities and service provision can be intensive to implement and operate – high speed internet, computing power, file storage and IoT are all central to many industries today. Many existing infrastructure systems are centralized, exposing systems to potential challenges including:
Cost: Digital infrastructure such as broadband internet can be costly to implement and maintain. “Last mile” connections—the portion of an infrastructure network that physically reaches the customer’s location—may not generate enough revenue for internet service providers to invest in building them. This holds true not just in rural areas, but also in major cities like New York.
Risk: Centralized data transmission and storage (e.g. the cloud network) can present vulnerabilities to attacks by hackers.
Size and scale: Some industries (e.g. video production) require large amounts of computing power, which is costly. This capital intensity can marginalize smaller operators, preventing them from developing.
What can decentralized infrastructure offer that’s different?
Companies and users are beginning to create on-chain infrastructure networks using Web3 tools. To make this possible, a community of individual participants can form a large decentralized network by running specialized devices from their homes or businesses. These devices enable participants to provide services (e.g. internet connectivity or data collection from sensors), governed by and compensated for by transactions recorded on the blockchain. For an example, see our explainer on Helium, which uses blockchain and tokenomics to encourage people to own and install hotspot devices, join the Helium network, and offer network auditability and proof of coverage.
Beneficiaries of decentralized networks can wirelessly connect to the internet or to smaller networks without the direct use of satellite location hardware or cellular plans. Other computing uses—such as new models to track and incentivize the distribution of server storage or computing capacity—are also becoming possible as this technology evolves.
Advocates assert that blockchain-enabled tooling can help to address issues of access, cost, and security. Emerging on-chain networks seek to decentralize the sharing, storing, and transmission of data and provision of other web services by removing intermediaries.
How It Works
To support the efficient development of networks at scale, many decentralized infrastructure projects go to market offering hardware paired with Web3 tooling. Infrastructure in the form of connected devices is sold, rented, or provided free of charge to individuals, who operate and maintain network devices.
Networks can achieve scale using Web3 tooling and tokenomic design to incentivize adoption and maintenance of network devices by:
Compensating people who provide network coverage with tokens.
Compensating people who verify that those who claim to be network coverage providers are actually providing coverage.
Tracking coverage providers, network users, and fees so that network providers, coverage verifiers, customers, and general audience can verify that everything is working.
What’s next for this space?
Many decentralized infrastructure projects currently serve enterprise clients (particularly IoT, sensor networks, and computing support). However, decentralized network projects may also lower barriers to acquiring and deploying wireless infrastructure for a broader base of users. It is possible that cost savings could be reinvested to expand network coverage at a faster rate, creating indirect benefits for network users through the ability to search for jobs, work remotely, sell goods, promote their rural businesses to wider audiences.
To realize the full potential upside of such interventions, policymakers and industry operators should keep the following in mind:
Internet connectivity is a critical infrastructure concern, particularly in the U.S. which has some of the highest internet costs in the world. Policymakers have the opportunity to explore IoT networks as low-cost alternatives to traditional internet services.
Decentralization isn’t an affront to existing industry. Legacy network providers are increasingly interested in expanding last-mile coverage via partnership with decentralized operators.
Net neutrality may be critical to the success of decentralized networks to help ensure that providers do not block network access. With decentralized infrastructure, IoT hotspot providers rely on wireless service they must acquire themselves.
Network managers need to consider how to make their tokenized structure design sustainable, versus allocating most benefits to early adopters which can slow network adoption.