Multicoin Capital: Discussing Why We Invested in the Decentralized Mapping Project Hivemapper from the Perspective of "Proof of Physical Work" Theory

Original Author: Tushar Jain, Managing Partner at Multicoin

Original Title: “Proof of Physical Work”

Compiled by: Gu Yu, Chain Catcher

One of the most powerful features of crypto-economic protocols is their ability to create incentive structures that allow anyone in the world to contribute to a set of shared goals without permission. These incentive structures can be fine-tuned to facilitate large-scale coordination to achieve specific objectives.

This represents a step-function improvement in capital formation.

So far, the vast majority of crypto innovations have focused on coordinating digital communities and economies. However, tokens also create opportunities for innovation in capital formation and human coordination that extend beyond the digital world and into the physical world.

We call this theory "Proof of Physical Work." Protocols that align with this theory incentivize people to perform verifiable work to build infrastructure in the real world. Compared to traditional forms of capital formation used to build physical infrastructure, these permissionless and trustlessly neutral protocols:

1. Can build infrastructure faster—often 10-100 times quicker
2. Are more adaptable to hyper-local market demands
3. Can be more cost-effective

Our first investment in this theory is Helium, a crypto-economic protocol that incentivizes people to build and manage physical telecom networks. The Helium network is built by "hosts" mining HNT (the native token of the Helium protocol) in exchange for creating coverage and transmitting data through the network. Launched in August 2019, the Helium network has grown to over 600,000 hotspots in just two and a half years, providing connectivity and coverage globally.

As of now, the entire U.S. telecom industry has 417,000 base stations, with estimates of the total number of base stations in the world ranging from 3 million to 8 million. The Helium network has reached a similar scale in just 30 months because it created a powerful incentive mechanism that encourages people around the world to build the network. While centralized companies build their networks through top-down and rigid processes, decentralized crypto-economic protocols can grow faster and simultaneously in a bottom-up manner anywhere.

Helium hotspots differ in size or power from enterprise base stations because they do not need to. The Helium network compensates for this by having more hotspots, with the deployment cost of all hotspots being only a fraction of that of their enterprise competitors. Even if a single network node is less reliable, permissionless crypto-economic protocols rely on redundancy to provide network-level reliability. Building new base stations increases labor costs for traditional telecom networks, while the labor cost for the Helium network is $0. This asymmetrical advantage allows Helium to compete on vectors where traditional telecom cannot: the Helium network consists of higher-density, smaller antennas.

We recently announced our investment in Hivemapper, another protocol that uses crypto incentives to extend beyond the digital space into the physical realm. Hivemapper is a decentralized map built by people using dashcams, representing a fundamental shift in how maps are constructed.

Every street view photo in Google and Apple Maps is taken by Google or Apple employees in dedicated cars equipped with 3D cameras. These cars drive for over 12 hours a day, yet Google and Apple Maps are outdated in many cases. The cost of these cars and drivers is too high for Apple and Google to justify adding more of these resources. Therefore, there is no real-time mapping or anything close to it.

Hivemapper creates a new way to update maps more frequently and at a lower cost by outsourcing mapping to individuals who already have "good enough" hardware. Hundreds of millions of people drive every day. Imagine if only 1% of them mapped the roads around them while driving. These maps would include every new highway ramp, small business, neighborhood street, pothole, etc., within hours or days. This is made possible by Hivemapper's native token HONEY, which rewards mappers for continuously contributing fresh, updated information to its maps.

Hivemapper is not limited to street maps, although that is its starting point. The same network can collect and map other types of data, such as air pollution, wireless coverage quality, noise, weather, and more. It is clear how Hivemapper can create maps at a lower cost than Apple and Google. With this in mind, proof of physical work will naturally extend to other use cases.

Helium and Hivemapper are just two examples of protocols using crypto incentives to connect the physical world and the digital world. At Multicoin Capital, we are fascinated by this space and believe there is significant design space. We also believe it offers one of the best opportunities to disrupt capital-intensive business models with a novel form of capital formation.

Some may argue that this coordination model can be replicated without crypto—stock protocols and bonuses for consensus actors already exist in most centralized organizations. However, crypto-economic protocols unlock five key advantages:

1. Rapid scalability—permissionless and borderless protocols can develop in parallel around the world, crossing many legal jurisdictions.
2. Trustless neutrality—trustlessly neutral networks provide assurances to their stakeholders that rules cannot be arbitrarily changed from below.
3. Collective ownership—user-owned systems can create loyalty, align incentives, and drive growth.
4. Frictionless payments—blockchains enable peer-to-peer micropayments that traditional payment systems cannot support.
5. Integration with DeFi ecosystems—DeFi ecosystems can be used to guide liquidity through automated market makers. Over time, we also expect proof of physical work networks to leverage other composable DeFi-native tools, including NFT markets, social tokens, derivatives, and more.

Given society's collective experience of centralized capital formation over centuries, there is a natural tendency to consider solving such problems in a centralized manner, where a single company decides who, when, where, and how to be compensated. We believe this model is outdated in the internet age. A company that makes centralized planning decisions and unilaterally determines compensation for its stakeholders will never be as effective as a well-designed permissionless network that uses the supply and demand concepts of the free market to scale and compensate its most productive participants.

So far, small individual operators have never been able to compete with large companies on large infrastructure (e.g., telecom, maps, power grids, third-party logistics, etc.). Proof of physical work represents a paradigm shift in how businesses operate and scale. Crypto-economic protocols allow people to coordinate their economic activities without a centralized, rent-extracting party and will help these industries transition from corporate feudalism to elite capitalism and freer markets.