Compared to Web3’s financial use cases, which are dominated by speculation, PoPW networks facilitate a wide variety of services that touch our daily lives.
By Mohamed Fouda and Qiao Wang
Compiled by: aididiaojp.eth, Foresight News
Web3 opens up new ways to coordinate human activities on a global scale. The Web3 network has the unique characteristic of being borderless and non-geographically biased, and it only recognizes individual contributions to the network. Due to this characteristic of the Web3 network, it can be used to create decentralized solutions that replace centralized companies, such as decentralized wireless networks Helium, Pollen, Nodle, and decentralized map applications Hivemapper, Spexi, etc. These projects show that participants from all over the world can work together to contribute to a fair and open market that everyone can access. As such networks grow into some of the largest applications of Web3, they have the potential to demonstrate the true power of decentralization. The industry often refers to these networks as Physical Proof of Work (PoPW) networks. Although this term does not cover most of the activities that these networks can perform, we will stick with this term.
In this article, we’ll dive into the characteristics of successful PoPW networks and which ideas can more easily achieve scale and product-market fit.
What is PoPW and why does it matter?
A PoPW network is a collaborative network where network participants can create a decentralized two-sided market. Network participants are generally divided into two categories: those who contribute work to the network and service buyers, those who pay to benefit from the services provided by the network.
In the best case, these networks would operate similar to decentralized exchanges, where service requests (asks) are automatically matched with quotes (bids) from service providers. The network would only charge transaction fees, which are 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 design to bootstrap the supply side of the network and create a value network that can attract customers.
We can use Amazon as a simple example of how PoPW can develop. Similar to Amazon, the goal of the PoPW network is to create a global marketplace. The marketplace is initially loss-making 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 main 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 the centralized company.
There has been a lot of discussion on the advantages of PoPW networks over existing centralized models. This article will not repeat that discussion, but reference the Multicoin article which lists some of these advantages, such as cost benefits due to reduced reliance on intermediaries, and the ability to scale infrastructure faster due to decentralized deployment and a larger pool of contributors.
How do PoPW networks succeed?
There is little discussion of how PoPW networks can produce similar utility effects as centralized solutions, making the cost-effectiveness of PoPW meaningful. This section discusses the five essential characteristics required for PoPW networks to succeed.
Simplify contributor operations
For a PoPW network to work globally, it should be as simple as possible for service providers to contribute. This simplicity increases the pool of potential contributors and enables the goal of faster scalability. Networks that require contributors with specialized experience or training are also viable, but the contributor base may be smaller.
Some current PoPW networks require complex operations and multiple levels of planning and coordination, which can significantly limit their user base, decentralized mobile networks are an example of this. Operating a mobile network is much more complex than deploying "micro" base stations. The nature of mobile coverage needs is dynamic, and the structure of decentralized networks cannot adapt quickly to these 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 contributors to complete. To understand the scale of this complexity, the decentralized mobile network project XNET estimates that for every $1 of network revenue, $0.60 is used to support complex backend operations and $0.4 will be rewarded for deploying nodes. 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.
Standardization of contributions
Another important factor for the success of the PoPW network is the standardization of work contributions. Service providers’ contributions cannot be subjective. Subjectivity in contributions can lead to low-quality contributions that affect the overall functionality of the network. Evaluating such contributions to exclude low-quality contributions requires complex systems that cannot be implemented on-chain. PoPW projects that collect complex data such as images have recognized the importance of standardized contributions, for example Hivemapper requires dashcams with specific specifications. Spexi goes a step further and creates consistent aerial images by controlling the movement of drones through system software. Standardization also guarantees fairness and neutrality between service providers. Service providers can receive different rewards based on metrics related to network goals, such as coverage, new accuracy, or customer demand. Remember that rewards should not be related to subjective opinions on the work contributed.
Reliable Oracles
In PoPW networks, off-chain contributions of network participants need to be proven on-chain. These proofs allow contributions to be rewarded in the network's native token. This is the classic oracle problem, where oracles need to prove the existence, correctness, and authenticity of contributions before submitting them on-chain. The oracle problem is one of the most thorny challenges of PoPW networks. Malicious actors have an incentive to manipulate oracles to extract maximum value from the network. For example, there are malicious behaviors of some participants in the Helium network. Since the network benefits from extended geographic coverage and rewards them through proof of coverage, there is an incentive to fake hotspots or spoof their locations. Since both behaviors were observed and reported by network participants, multiple measures were launched to combat them, including creating a deny list for untrustworthy participants and using a hotspot challenge system. Despite the existence of combat measures, the existence and correctness of hotspots remains a challenge.
Other PoPW platforms, such as Hivemapper, rely on hardware authentication to combat oracle manipulation. The Hivemapper dashcam uses GPS location and connectivity to a Helium hotspot as part of a proof-of-location protocol that is used to prove the correctness of mapping contributions. Additionally, Hivemapper adds a human-operated quality assurance layer to check the authenticity of submitted images. While it is effective, human review of contributions adds a layer of complexity and can create opportunities for malicious coordination between contributors and reviewers.
Efficient PoPW oracles remain an open problem and a potential area for innovation. Currently, there is no general solution to this problem, and hardware authentication can provide some protection for specific use cases. Examples include spoof-resistant GPS modules for location-sensitive PoPW contributions. However, more resilient and general oracles are needed to support a wider range of use cases.
Anti-monopoly
In order for a decentralized PoPW network to be successful, single points of failure should be avoided. These points of failure include depending on proprietary technology or specific software or hardware vendors. Instead, the network should adopt contributed standards that can be supported by multiple vendors, including any hardware or software required for the network. By eliminating any potential risks of centralization and monopoly, the network will become more reliable and secure. For example, the Helium network has more than 20 vendors producing the LoRaWan hotspots required for the network.
Conservative and flexible token design
A major factor in the success of a PoPW network is a token design that successfully attracts network contributors, balances supply and demand, and prevents useless or malicious value from being extracted from the network. Balancing token design is a large topic that may require its own article, but some important guidelines are:
The demand side is harder to get right than the supply side
It is almost impossible to get the design right from the first try.
Therefore, PoPW developers should clearly and transparently understand the necessity of changing the token design based on the actual data of the project mainnet. The best way is to provide a well-thought-out design with conservative rewards for the supply side from the beginning and launch it as an initial product.
The Current State of PoPW
A common requirement of PoPW networks is the need to scale quickly to compete with centralized solutions. A major limiting factor faced by participants is the cost of participating in the network. Networks with low participation costs can quickly attract more users, achieve better supply, achieve great decentralization, and test product-market fit faster. PoPW participation costs are often divided into upfront entry costs and ongoing participation costs. In this section, PoPW projects are categorized based on these participation costs.
Capex
Entry costs are the upfront costs that users must pay to become part of a network. Examples include the cost of a Helium hotspot or the cost of drones for the Spexi protocol. We can call this part of the cost Capex. The higher the Capex, the harder it is for the network to acquire users. High entry costs are 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 only require simple or common equipment such as mobile phones are more likely to attract participants.
Ongoing participation costs (Opex)
These are the ongoing operational costs that users pay for actively participating in the network. Examples include the energy costs and time required to map a region using Hivemapper or Spexi. We refer to these as Opex costs. High operational costs mean that participants need to get paid for their contributions faster and more frequently. This also means that participants will need to sell a significant portion of their earned token rewards to cover their operational costs, creating ongoing selling pressure on the token price. This pressure needs to be balanced by demand, i.e. native token buying pressure, to protect the price of the native token from entering a downward trend that could shake participant confidence in the network. Networks that require high operational expenses can often benefit from a gradual growth strategy that balances both supply and demand.
PoPW Innovation
Infrastructure and tools for PoPW networks
Before discussing specific use cases for PoPW networks, it is important to first recognize that there is a general need for infrastructure and tools to support this space. Examples of this needed infrastructure include innovative oracle solutions that are resistant to manipulation. These oracle solutions need to be based on hardware or cryptography to ensure the authenticity of contributions and eliminate cheating.
Another needed tool is an SDK for facilitating the launch of modular PoPW networks as L2 or application chains with customizable token economic models so that PoPW networks do not need to be launched as L1 as they are currently. These SDKs need to focus on achieving modularity by creating separate modules, such as token utility, reward mechanisms, oracle solutions, and storage solutions, etc. This modularity allows PoPW developers to tweak each module independently to achieve the best customization for their specific use case. The availability of such SDKs can greatly simplify the work required to launch a PoPW network.
Health data sharing
A major challenge facing public health researchers is the lack of adequate datasets to test their research hypotheses. One way to address this problem is for individuals to contribute health data in a decentralized manner for use in research and drug development. An example of this is individuals sharing DNA data, a decentralized 23andme, where participants are rewarded for sharing their DNA data along with associated health information. Universities, hospitals, and pharmaceutical companies can access this data through a decentralized marketplace 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, which can be used by health-focused businesses to improve their products. In these applications, user contributions are simple and standardized, making them ideal candidates for PoPW networks. Additionally, health data use cases can benefit from privacy-enhancing technologies such as zero-knowledge proofs.
Decentralized VoIP International Calling
Voice over Internet Protocol (VoIP) technology can significantly reduce the cost of international calls because it routes calls over the Internet. By decentralizing the process, the cost of international calls can be reduced by another 10 times. A PoPW network consisting of users connecting local phone lines to the Internet creates a global telephone network that enables international calls to be made at the cost of local calls.
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 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.
Decentralized Robots
Amazon MTurk is a platform that allows outsourcing tasks that require human intelligence to a distributed workforce. Due to the diversity of tasks, the current MTurk model is not suitable as a PoPW network. However, with the development of suitable technical tools, MTurk can be implemented as a PoPW network that requires smaller aggregations. In this model, PoPW subnetworks are created on-demand by requesting entities, and worker contributions are submitted to the subnetworks according to their rules. All subnetworks share the same native token, creating a contributor-owned platform. The platform is flexible enough to serve different niche use cases. In addition to the benefits of reducing costs by cutting out intermediary fees, there are:
Job requesters and workers are not required to share PII as Amazon MTurk currently requires.
The work achievements of requesters and workers are transparently available on-chain for counterparties to review.
Specific worker qualifications can be demonstrated through an SBT issued by a third-party identity provider.
The on-chain reputation gained can be transferred to other user-facing clients.
Payments can be settled faster via crypto payments.
AI Dataset Creation
Training advanced AI models requires large and complex datasets. For computers, these datasets are usually labeled images and require a lot of human input in the dataset creation process. For example, to create a dataset to train an autonomous driving model, the first step is to capture photos of actual traffic conditions at different times and in different scenarios. Then the second part is to correctly label and annotate these images to train the computer vision model. Both steps require a lot of human involvement. So we can build a PoPW network that aggregates human contributions to create large datasets for AI and other use cases, which will be used by companies that develop and train large AI models.
Green Finance
The PoPW network can accelerate green finance by using tokens to incentivize sustainable activities, generating tokens as rewards to participants who perform sustainable activities. These tokens are purchased and destroyed by institutions seeking to achieve a greener footprint and greater sustainability impact. The system works similarly to carbon credits, but can incentivize activities and goals that are more difficult to achieve, such as cleaning waterways, encouraging recycling, funding better industrial filtration systems, etc.
in conclusion
We believe that PoPW networks can create large economic networks that demonstrate the true benefits of decentralization. Compared to Web3 financial use cases that are dominated by speculation, PoPW networks facilitate a variety of services that touch our daily lives. In the above use cases, PoPW can provide better services at a lower cost.