A decentralized cloud ecosystem, built and owned by many, could effectively address the challenges mentioned above.
In recent years, projects such as Akash, Filecoin, Fluence, and Dfinity have started utilizing blockchain and peer-to-peer technologies to manage physical infrastructure in a decentralized manner. These initiatives, known as Cloud DePINs (Decentralized Physical Infrastructure Networks), feature distributed hardware ownership and geographically dispersed infrastructure. They leverage blockchain-based incentives and are designed to operate in a trustless manner.
Web3 technologies provide the necessary framework of open-source development, incentivization, and distributed ownership, promoting composability and innovation at the edge, and maximizing control and incentives. DePINs also offer a practical solution for the substantial hardware investments needed to compete with incumbents. A decentralized cloud ecosystem, developed through a collaborative effort can represent a superior approach. As Bill Joy, co founder of Sun Microsystems said, “There are always more smart people outside your company than within it.”
Despite the potential benefits of web3 technologies, Cloud DePINs have struggled to compete effectively in the cloud marketplace so far. Their services often fail to meet the demands of the majority of businesses and customers. Simply put, most Cloud DePINs are still searching for product-market fit. A comparison between successful AI compute cloud competitors from both web2 and web3 worlds can illustrate how this lack of product-market fit impacts market acceptance: CoreWeave, a web2 company founded in 2017 reported $465 million in revenue for 2023 and anticipates $2.3 billion in revenue for 2024, whereas the Akash Network, a web3 company founded in 2015 self-reported $0.14 million in Q1 2024 as an all-time revenue record.
How can the promising collaborative approach overcome the barriers posed by current centralized cloud architectures and finally build a robust alternative?
In order to build a successful decentralized cloud ecosystem, there are five main challenges to overcome:
Many DePIN solutions try to build a vertical slice from top to bottom, focusing on specific hardware or a single use case, such as cloud storage or GPU compute. An ecosystem approach is more difficult but essential to create a mass-market cloud product. A diverse range of services is necessary to attract a broad customer base and build network effects that can disrupt incumbents. This ecosystem approach leverages the strengths of web3 in collaboration and open-source resources. Therefore interoperability and standardization are needed in many places.
Data gravity and data locality are crucial. Most services require some form of storage, and it is cheaper and more efficient to run services close to their data. Therefore, starting with a robust storage foundation, similar to Amazon's approach, starting with AWS S3 object storage, is critical for building a comprehensive ecosystem. As data accumulates, it becomes increasingly challenging to move, leading to a concentration of computing resources, analytics, and applications in the same location to minimize latency and improve performance. Starting with storage is essential for the success of the ecosystem and it naturally creates demand for further services.
The enterprise market for cloud services is significantly larger than the consumer market. To win enterprise customers, issues like security, scalability, decentralization, performance, and compliance must be addressed. This requires enterprise-grade hardware operated in high-tier data centers to form the backbone of the network.
While web3 projects have proven they can scale hardware supply, the demand side is critical. Cloud DePIN projects must prioritize usability, security, and market complexity while understanding and meeting user needs. A demand-focused, user-centric approach is essential to persuade customers to adopt new technology and to ensure the growth and sustainability of the ecosystem. Offering customer access to other ecosystem participants is the essential ingredient to creating the network flywheel.
The "DePIN verification problem" refers to the challenges involved in monitoring the reliability and trustworthiness of DePINs. These networks rely on multiple, independently operated hardware nodes to provide services such as storage and computation. Ensuring that these nodes perform their tasks correctly and consistently is critical for maintaining the network's integrity and performance.