This article is from Medium, the original author is Mohamed Fouda & Qiao Wang, and translated by Odaily Planet Daily translator Katie Gu.
Web3 recognizes the contribution of everyone in the network and provides a new way to coordinate human activities on a global scale. Decentralized wireless networks such as Helium, Pollen, and Nodle, as well as decentralized maps such as Hivemapper and Spexigon, are representative products of decentralized networks. These projects gather the power of users around the world and gradually develop into one of the largest retail applications of Web3. This type of network is also called Physical Proof of Work (PoPW) network.
In this article, we’ll dive into the characteristics of successful PoPW networks and which ideas can more easily scale and achieve product-market fit.
PoPW Definition and Advantages
PoPW networks are collaborative networks where network participants create a decentralized two-sided market. One party contributes work to the network and the other party benefits from the services provided by the network by paying.
In the best case, these networks would resemble decentralized exchanges where service requests are automatically matched with service provider quotes. The network would only charge a transaction fee that would be used to reward the infrastructure nodes that run the network. This may be the long-term goal of current PoPW networks such as Helium. However, in the initial stages, a centralized entity would be needed to develop the system and guide its growth through partnerships and marketing. This entity would also need to develop a sound token economy, bootstrap the supply side of the network, and create a network that is attractive to customers.
Similar to Amazon, the goal of the PoPW network is to create a global marketplace. The marketplace initially operates at a loss while building the business infrastructure and bootstrapping the supply side. When the supply side grows and the marketplace successfully provides high-quality services to buyers, the market economics shift to profitability. The key difference from Amazon or any centralized marketplace is that when the PoPW network successfully attracts customers, the economic value will flow back to the network participants through the appreciation of the native token, rather than to a centralized company.
Advantages of PoPW networks also include cost benefits from reduced reliance on intermediaries and the ability to scale infrastructure more quickly.
Five standards for implementing PoPW networks
How the PoPW network can produce similar effects to centralized solutions and the cost-effectiveness of PoPW will be discussed below from the five basic features that realize the PoPW network.
1. Contributors can quickly get started
For PoPW networks to operate globally, service provider contributions should be as simple as possible to expand the pool of potential contributors and achieve faster scalability goals. Some current PoPW networks require complex operations and multiple levels of planning and coordination, which may significantly limit their user base.
Decentralized mobile networks are one example.
Operating a mobile network is much more complex than deploying “micro” cell towers. The nature of mobile coverage needs is dynamic, and the structure of a decentralized network cannot adapt quickly to changes in demand. In addition, mobile networks require a lot of technical work in planning, deploying infrastructure, services, and maintenance, which is difficult for decentralized players to complete. XNET, a decentralized mobile network project, estimates that for every $1 of network revenue, $0.6 will be used to support complex backend operations and $0.4 will be used to reward the deployment of cell towers. This complexity suggests that there needs to be a centralized entity to coordinate these activities, which will be more difficult to achieve with decentralized PoPW.
2. Contribution Standardization
Spexigon’s contribution criteria are more precise, with the system’s software controlling the movement of drones to create standardized aerial images. Standardization also ensures fairness and neutrality among service providers. Service providers can receive different rewards based on metrics related to network goals, such as coverage, recency, or customer demand.
3. “Reliable” Oracle
In a PoPW network, off-chain contributions of network participants need to be proven on-chain. These proofs allow contributions to be rewarded with the network's native token. Before these contributions are submitted to the chain, Oracles need to prove the authenticity of the contributions. This Oracle problem is one of the most difficult challenges of PoPW networks. Malicious actors have an incentive to manipulate Oracles to extract maximum value from the network. Such as the malicious behavior of some participants in the Helium network. Because the network rewards them through the proof of coverage mechanism, malicious behavior has emerged to fake hotspots or spoof their locations. Network participants have taken measures to combat, including creating blacklists and using a hotspot challenge system. Despite this, proving the authenticity of Helium hotspot locations remains a challenge.
Other PoPW platforms, such as Hivemapper, combat oracle manipulation by relying on hardware attestation. The Hivemapper dashcam uses GPS positioning and connections to a Helium hotspot as part of the proof-of-location protocol to prove the correctness of mapping contributions. In addition, Hivemapper adds a human-operated quality assurance layer that checks the authenticity of submitted images. While human review works, it complicates the process and can create opportunities for malicious coordination between contributors and reviewers.
Effective PoPW oracles remain an open problem and a potential area for innovation. Currently, there is no general solution to this problem. Hardware authentication can provide some protection for specific use cases, as hardware is generally more difficult to manipulate. However, more resilient and general oracles are needed to support a wider range of use cases.
4. Avoid monopoly
Decentralized PoPW networks also need to avoid single points of failure to succeed. Failure points include reliance on proprietary technology or specific software or hardware vendors. Instead, the network should adopt contributed standards that can be supported by multiple vendors and applied to any hardware or software required by the network. By eliminating any opportunities for centralization and monopoly, the network becomes more secure and reliable. For example, Helium produces the LoRaWan hotspots required for the network from more than 20 vendors.
5. Conservative and flexible token design
A major factor in the success of a PoPW network is token design. Good token design can attract network contributors, balance supply and demand, and prevent malicious extraction of value from the network.
Balanced Token Design Principles:
Design a token economy that is difficult for the demand side to crack;
PoPW development entities should change the token design based on actual data from the project's mainnet. It is best to provide conservative rewards for the supply side from the beginning and launch it as an initial product. As network usage increases, the token design can be changed to improve network economics.
PoPW Development Status
A common requirement for PoPW networks is the need to scale quickly to compete with centralized solutions. The main limiting factor in acquiring participants is the cost of participating in the network. A network with low participation costs can quickly attract more users, achieve better supply quality, expand decentralization, and test product-market fit faster. PoPW participation costs are usually divided into upfront investment costs and ongoing participation costs. Below, PoPW projects are categorized according to these participation costs.
Entry costs (capital expenditures)
The “Cost of Entry” is the upfront cost that a user must pay to become part of a network. Examples include the cost of a Helium hotspot or the cost of a Spexigon Protocol drone, also known as capital expenditure. The higher the capital expenditure, the harder it is to acquire users for the network. High “Cost of Entry” is usually associated with specialized equipment required to participate in the network. In addition to the cost, specialized equipment also takes longer to manufacture and distribute to network participants, which slows down adoption. PoPW networks that require simple or common equipment, such as mobile phones, are more likely to attract users.
Ongoing engagement costs (operating expenses)
This is the ongoing operating cost that users pay for actively participating in the network. For example, the energy cost and time required to map a region using Hivemapper or Spexigon are called operating costs. High operating costs mean that participants need to be rewarded for their contributions faster and more frequently. This also means that participants will need to sell a portion of their token rewards to cover their operating costs, creating constant selling pressure on the token price. This pressure needs to be balanced by demand, i.e. buying pressure on the native token, to protect the price of the native token from entering a downward trend, thereby stabilizing participants' confidence in the network. Networks that require high operating costs can often benefit from a gradual growth strategy that balances both supply and demand.
PoPW Entrepreneurship Direction
1. Infrastructure and tools for PoPW networks
Examples of infrastructure needs include innovative manipulation-resistant oracle solutions, either based on hardware or crypto-native technologies, that ensure the authenticity of contributions and eliminate fraudulent attempts.
Another tool is an SDK that can launch modular PoPW networks as L2 or application chains with custom token economic models. PoPW networks generally do not need to be launched as L1 as they are currently. These SDKs need to focus on modularity by creating separate modules, such as token utility, reward mechanisms, oracle solutions, and storage solutions (in the case of data-related PoPW). This modularity allows PoPW developers to tweak each module independently to achieve optimal customization for a specific use case. The availability of such SDKs can greatly simplify the work required to launch a PoPW network.
2. Health data sharing
A major challenge facing public health researchers is the lack of sufficient datasets to test their research hypotheses. One solution to this problem is to decentralize individuals to provide health data for research and drug development. For example, individuals share DNA data, and participants are rewarded for sharing their DNA data and related health information. Universities, hospitals, and pharmaceutical companies can access this data through decentralized marketplaces and use it for research and commercial applications. Another example is sharing physical activity data, heart rate, sleep data, and other types of data collected by wearable devices. Health-focused businesses can use this data to improve their products. In these applications, user contributions are simple and standardized, making them ideal candidates for conversion to PoPW networks. In addition, health data use cases can benefit from privacy-enhancing technologies such as zero-knowledge proofs.
3. Decentralized VoIP International Calling
Voice over Internet Protocol (VoIP) technology significantly reduces the cost of international calls by enabling them to be routed over the internet. By decentralizing, the cost of international calls can be reduced another 10 times. A PoPW network consisting of users who connect their local phone lines to the internet creates a global phone network where local calls cost the same as international calls.
4. Balancing renewable energy distribution
Sustainability and clean energy have received increasing attention in recent years. The use of solar cells and other renewable energy sources can be improved by building efficient distribution networks that balance generation and consumption. Decentralized energy contributions can also be integrated with public energy networks to support the network during times of high demand, reducing the need to use fossil fuels during these times. An example of this is the React network.
Sustainability and clean energy have been a focus of much attention in recent years. The use of solar cells and other renewable energy sources can be improved by creating efficient distribution networks that balance generation and consumption. Decentralized energy contributions can also be combined with public energy networks to support the network during times of high demand, reducing the need to use fossil fuels during these times. An example project in this area is the React Network.
5. MTurk on decentralized chain
Amazon MTurk is a platform that allows outsourcing tasks that require artificial intelligence to distributed job seekers. The current MTurk model is not suitable as a PoPW network due to the diversity of tasks. However, as technical tools are developed, MTurk can develop into an on-demand small PoPW network.
In this model, requesting entities create sub-PoPW networks on demand and submit contributions from workers to the sub-networks according to their rules. All sub-networks share the same native token, creating a contributor-owned platform that is flexible enough to serve different niche use cases. In addition to the benefit of reducing costs through lower intermediary fees, decentralized on-chain MTurk has several other advantages, including:
Employers and employees do not need to share PII as Amazon MTurk currently requires;
The history and achievements of both parties are transparently displayed on the chain for counterparty review;
SBTs issued by third-party identity providers can prove specific job applicant qualifications;
The on-chain reputation gained can be transferred to other user-facing clients;
Payments can be settled faster over crypto rails.
6. AI Dataset Creation
Training advanced AI models requires large and complex datasets. A lot of human input is required in creating datasets. For example, to create a dataset to train an autonomous driving model, the first step is to capture photos of real traffic conditions at different times and in different scenarios. Then, the second part is to correctly label/annotate these images to train the computer vision model. Both steps require a lot of human involvement. A PoPW network can be built to aggregate human contributions to create large datasets for AI and other use cases. These datasets will be used by companies that develop and train large AI models. As the complexity of AI models increases, the PoPW network can continuously modify and expand the datasets to achieve better performance.
7. Regenerative Finance
The PoPW network can accelerate regenerative finance by incentivizing sustainable activities with tokens. Tokens are generated as rewards for participants who perform sustainable activities. These tokens are purchased and burned by organizations that achieve greener and greater sustainability impacts. The system works similarly to carbon credits, but the incentive goals are harder to achieve, such as cleaning waterways, encouraging recycling, and funding better industrial filtration systems.
Summarize
We believe that PoPW networks can create large-scale economic networks that realize the potential of decentralization. Compared to the financial use cases of Web3 (mainly speculation), PoPW networks facilitate services that touch our daily lives. In several cases, PoPW can challenge and compete with monopolies by providing better services at a lower cost. We are particularly excited about decentralized data sharing applications and end-user services, and look forward to seeing more builders in the PoPW network space join the army of builders.
