Decentralized Physical Infrastructure Networks (DePIN) aim to provide decentralized, blockchain-based alternatives to traditionally centralized physical infrastructure. While this is an area of significant interest and investment, building effective DePIN systems requires addressing various security challenges.
This article provides a brief introduction to DePIN through the lens of decentralized power generation and distribution. Then, it explores some of the primary requirements of DePIN and the associated security requirements and considerations.
How DePIN Works
A classic example of DePIN is the power sector, where the vast majority of homes and businesses receive their power from privately owned power plants that route electricity over centrally managed and proprietary distribution links. This centralization of critical infrastructure places consumers at the mercy of power providers both in terms of cost and access to reliable power.
However, the power sector doesn’t need to operate this way. As consumer-grade solar panels become more efficient and readily available, consumers have the ability to generate their own power, moving off the grid. Additionally, those who have excess capacity could sell it to other consumers, both providing the opportunity to make a profit and increasing the reliability of power generation. Currently, this often involves selling power back to the power provider, who can then make it available to other consumers.
DePIN provides the infrastructure and formal agreements needed to remove the centralized power provider as an intermediary. A decentralized network, like a blockchain, offers an integrated and decentralized platform where power providers and consumers can enter into agreements and manage payments without relying on a centralized system or working through an intermediary.
While decentralized power generation has its advantages, it also has security considerations. When allowing individuals to buy and sell power from one another on-chain, the system needs to ensure that sellers actually provide purchased power, that buyers can’t steal services without payment, and that payments are only accessible to the intended recipient. All of these require careful design and implementation of smart contracts and secure use of blockchain wallets.
4 Key Elements of DePIN
A research report published by Onyx by J.P. Morgan explored the applicability of blockchain and DePIN for electric vehicle (EV) charging infrastructure. This report identified four key elements needed for a functional, scalable DePIN EV charging ecosystem, including:
Blockchain network
Decentralized identity
Smart contract wallets
Offline transaction and payment support
While not all of these are required for every DePIN use case, they highlight key elements of a DePIN ecosystem. Each of these also comes with potential security concerns and considerations that must be addressed for a scalable, sustainable system.
1. Blockchain Network
A blockchain or similar distributed ledger technology (DLT) solution is key to the decentralization aspect of DePIN. A blockchain offers the ability to perform calculations and digital payments on a fully distributed and decentralized network of nodes. Without the blockchain, an aspiring DePIN system would need to rely on some type of centralized system to track agreements and payments.
Smart contracts are a key element of implementing complex DePIN systems on the blockchain. While it’s possible to build something similar on a blockchain like Bitcoin, smart contracts make it easier to build these systems and support more complex interactions.
However, the use of blockchain and smart contracts also introduces security concerns. Blockchain hacks are commonplace, and many of them are related to smart contract vulnerabilities. When building a complex and high-value system on the blockchain, it’s important to follow secure coding best practices and perform a comprehensive smart contract audit before every code launch to minimize the risk of exploitable vulnerabilities in smart contract code.
2. Decentralized Identity
DePIN is built around creating agreements between providers and consumers of various products and services. For example, in the power sector example above, a power generator and a power consumer make an agreement about the volume and price of electricity transferred between them.
For these types of agreements to work, some level of identity management needs to exist. This may be necessary for delivering the service and can be valuable for contractual enforcement. However, most traditional identity management systems rely on centralized providers and systems. This increases the risk of data breaches and may introduce friction into the process.
Decentralized identity solutions allow users to manage their own identity on a blockchain or other DLT system. Blockchains already have built-in identity management through the private keys used to sign transactions, so any transactions or messages sent from a particular account can be assumed to come from that user.
The main challenges associated with identity management are identity verification and account security. For example, if an on-chain identity needs to be linked to a real-world identity, then someone needs to verify a user’s credentials. Often, this is accomplished by various organizations that perform Know Your Customer (KYC) validation, but this introduces a level of required trust and centralization. If real-world identity doesn’t need to be known, then this issue doesn’t exist.
The other major challenge is ensuring that only the legitimate owner of an account can digitally sign transactions from that account. If a private key is stolen, then the thief can forge valid signatures, which is problematic. The use of hardware and multi-signature wallets can help to reduce, if not completely eliminate, this threat.
3. Smart Contract Wallets
The use of smart contract wallets is designed to improve the accessibility of DePIN. Ideally, each user in a blockchain network manages and secures their own private key. However, the complexity of doing so and the potential for permanent loss of access to a blockchain account if a key is lost create a barrier to entry and drive many users toward custodial solutions.
Smart contract wallets allow users to adopt traditional mechanisms of authentication, such as using biometrics for authentication. Additionally, key recovery mechanisms can be built into these systems, reducing the risk of permanent lockouts. This creation of a bridge between Web2 and Web3 enhances the scalability of DePIN systems.
4. Offline Transaction and Payment Support
Blockchains are an inherently “online” technology. For transactions to be recorded on the distributed ledger, they need to be submitted to the blockchain network and included in a block. These blocks become part of the blockchain and are built upon by other blocks, which helps with blockchain immutability and protection against double-spend attacks.
DePIN solutions may need to offer support for offline transactions. This can help to expedite transaction processing and offer support in areas where reliable Internet service is unavailable.
Layer 2 solutions already offer methods for implementing off-chain transactions that are later summarized and secured on the blockchain. The main challenge for DePIN is ensuring that transactions are authentic and that offline transactions can later be recorded on-chain without allowing double spends.
Conclusion
DePIN has the potential to revolutionize how physical infrastructure is managed and services are delivered to consumers. However, these complex, blockchain-based systems also come with significant security considerations. When designing, implementing, and operating a DePIN project, a robust security program is essential to protect against potential theft or threats to solution availability.