- Proof of Physical Work (PoPW) is a novel token distribution mechanism that rewards participants for performing verifiable physical work in the real world.
- Many protocols are leveraging physical proof-of-work frameworks to incentivize supply-side participation in building hardware networks. These include wireless, mobile, environmental, computing and storage networks.
- Cryptoeconomic protocols are very powerful at incentivizing and coordinating human activity, making them useful for developing real-world decentralized infrastructure and hardware networks.
- Using a physical proof-of-work framework, the protocol can incentivize participants to build its network so that users find it attractive.
Amid the market decline, cryptocurrency critics have become active, slamming whether the industry has any real use cases. Beyond innovations in capital formation and use cases for non-sovereign currencies, removing middlemen, and breaking monopolies, their arguments seem to make sense. But in reality, cryptographic protocols have been so successful at coordinating activity in the digital realm that projects have begun to use cryptography for real-world infrastructure.
Cryptoeconomic protocols can incentivize the development of real-world infrastructure and hardware networks through the coordination capabilities of blockchain technology. Rather than relying solely on a single centralized entity, millions of individuals can join forces to deploy and operate infrastructure in a trustless, permissionless and programmatic manner.
Multicoin Capital refers to this mechanism as Physical Proof of Work (PoPW). PoPW rewards users for performing verifiable physical work, such as deploying 5G hotspots. The protocol algorithm verifies the state of the device and rewards the owner according to a predetermined set of rules. Many PoPW protocols are already coordinating hundreds of thousands of participants around the world, covering areas such as wireless networking, mobility, environment, computing, and storage.
proof of physical work
There are two main types of infrastructure networks: replaceable and non-fungible. The hardware devices used by alternative infrastructure networks are location-independent, and compute and storage protocols fall into this category because their services do not depend on where servers/nodes are hosted. 1 TB in Hong Kong is exactly the same as 1 TB in Singapore. The location of the wireless network hotspot is very important, which makes it defined as an irreplaceable type of infrastructure network.
Many communities are building in the PoPW space, many of which are still in the early stages. Most of these protocols build applications based on existing L1. So far, applications in the PoPW track can be divided into the following categories:
- wireless network
- logistics network
- natural environment
- compute and storage
Helium and Pollen Mobile are two well-known protocols operating in the decentralized wireless (DeWi) space. Helium currently consists of IoT and 5G networks, with Pollen Mobile focusing on 5G. These protocols incentivize supply-side participants (hotspot operators) to provide network coverage in exchange for token rewards. Additionally, participants earn fees for routing data through their hotspot service.
Logistics networks refer to the industry that transports people and goods, and two emerging networks are Hivemapper and DIMO. Hivemapper is a decentralized map built by participants using dash cams. The protocol rewards supply-side participants (map miners) for driving or using dashcams to move around and contribute to the network map.
DIMO allows users to take ownership of their mobile data to provide services in areas such as auto finance , insurance, maintenance, and more. Supply-side actors (data miners) are rewarded for connecting hardware devices to their cars and contributing this data to the network.
WeatherXM is a decentralized weather network powered by a distributed network of hardware devices. It allows supply-side participants (weather station operators) to earn rewards for deploying small weather stations and providing accurate weather services.
PlanetWatch is a decentralized global network of air quality sensors. The protocol rewards supply-side actors (sensor operators) for streaming real-time air quality data back to the network.
compute and storage
The compute and storage category includes the most mature protocols in the PoPW space in terms of network usage and revenue. Filecoin and Arweave are storage networks of different models. Filecoin uses a contract-based storage model, while Arweave uses a permanent storage model. Both protocols incentivize supply-side participants (storage providers) to dedicate physical storage drives to store data in exchange for token rewards.
Render Network is a distributed GPU rendering platform. Its token economics are designed to reward supply-side participants (node operators) for dedicating GPU hardware to the network and rendering work.
Why use blockchain?
Because large physical networks require large capital injections and complex assurance systems, large companies are often required to build them. This often results in a few companies controlling the pricing structure and conditions of users, preventing a free market from forming.
Cryptoeconomic protocols solve this problem completely, allowing globally distributed individuals to jointly guide the network in a permissionless and trustless manner. This is a more cost-effective solution by jointly building and maintaining the network and distributing the full benefits to supply-side participants.
Take the decentralized storage platform Filecoin as an example, which demonstrates the benefits of using a decentralized blockchain approach. In contrast to centralized infrastructure approaches such as Amazon S3, storage providers on Filecoin are rewarded with tokens for supplying storage capacity to the network, which grew to over 17 EiB in two years. Additionally, Filecoin does not charge exorbitant flat rates, but instead allows market participants to set storage prices.
In an article by Evan Conrad, he highlighted that if Filecoin were a centralized entity, it would tend to take a cut of the network’s revenue. As the network has grown in popularity, Filecoin’s network effects have grown. In the case of Filecoin right now, all the value goes to the protocol, making it “the cheapest commodity market where no single middleman can get a piece of the pie.”
The benefits of using encryption for infrastructure
As described by Tushar Jain, Managing Partner of Multicoin Capital, using cryptoeconomic protocols for infrastructure networks has two benefits: being able to rapidly scale the network globally, and being a system that is jointly owned by the participants, rather than by Owned by a small group of shareholders.
Cryptoeconomic protocols allow users around the world to build permissionless networks in parallel. Participants can also focus on deploying infrastructure that meets local market needs. In exchange for establishing the supply side of the network, participants receive an ownership stake in the network, which will incentivize them to drive the network’s growth.
While the aforementioned agreements allow individuals to contribute to the network and earn passive income, they also open doors for franchise-like businesses. Lattice Capital co- founder Mike Zajko describes the entrepreneurial opportunity:
Participating in these networks looks a lot like opening a franchise, and franchising is an important part (more than 10%) of the more economical. You need some start-up capital, physical real estate, some operational knowledge, and the community and protocol will help with the rest.
Hexagon Wireless is one such franchise operating in the DeWi space. The company is currently leveraging their technical expertise and proprietary relationships to deploy hardware for the Helium and Pollen mobile networks, accelerating DeWi’s growth.
Token incentives play a very important role in building real-world infrastructure and solving coordination problems. Helium has proven this theory over the past year. It scales the IoT network from 30,000 to over 900,000 physical hotspots in 170 countries by offering incentives to hotspot deployers.
To start this economic model, the project side first needs to provide users with rewards for completing verifiable physical activities in the real world:
Supply-side participants are incentivized by inflation tokens to target specific activities required to grow the network. These rewards act as subsidies to supply-side participants. Incentives typically support participants in building the network before the network begins to generate sustainable fees from demand-side usage.
As the web grows, developers and product builders are attracted to the web. Additionally, the protocol’s subsidies to its supply-side participants enable them to offer cheaper services, helping attract more users.
End users start paying for network services, which can increase the revenue of supply-side participants and protocols. This creates a positive feedback loop that can attract more supply-side players and investors .
Value is typically captured through a (burn-mint) supply equilibrium (BME) model or a work token model. As the utility of the network increases, supply is either destroyed via the BME model or staked by service providers via the work token model, and the decrease in circulation prompts an increase in the token price. Rising token prices have re-attracted more supply-side participants, creating a virtuous cycle.
The economic model of PoPW fundamentally solves the dilemma of the chicken or the egg. Using token rewards, the protocol can incentivize participants to build the supply side of the network to a level that is attractive to users. This was the initial impetus for cryptographic protocols to compete with Web2 companies.
Physical proof-of-work represents a novel token distribution mechanism. Tushar Jain believes that the new token distribution mechanism could trigger the next bull run.
According to statistics, the change time points of the token distribution mechanism include: PoW tokens in 2013, ICO in 2017, IEO in 2019, DeFi liquidity mining in 2020, and NFT in 2021 . Each new token distribution mechanism coincides with a bull market. If the argument is correct, the next successful token distribution mechanism could lead to a bull run. Considering the success of Proof of Physical Work in various fields and its ability to deliver value by building a global infrastructure, PoPW has a good chance of igniting the next bull market.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/messari-detailed-explanation-of-popw-token-distribution-mechanism-may-ignite-the-next-bull-market/
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