How will the Proof of Physical Work (PoPW) network achieve success?

Original Title: 《How can PoPW networks win?》

Written by: Mohamed Fouda, Qiao Wang

Translated by: aididiaojp.eth, Foresight News

Web3 has opened up new ways to coordinate human activities on a global scale. Web3 networks have the unique characteristics of being borderless and free from regional bias, recognizing only individual contributions to the network. Due to this feature, Web3 networks can be used to create decentralized solutions as alternatives to centralized companies, such as decentralized wireless networks like Helium, Pollen, Nodle, and decentralized mapping applications like Hivemapper and Spexi. These projects demonstrate that participants from around the world can work together to contribute to a fair and open market accessible to everyone. As such networks grow to become one of the largest applications of Web3, they have the potential to showcase the true power of decentralization. The industry often refers to these networks as Proof of Physical Work (PoPW) networks. Although this term does not cover most of the activities these networks can perform, we will stick to using it.

In this article, we will delve into the characteristics of successful PoPW networks and the ideas that can facilitate scaling and product-market fit.

What is PoPW, and why is it important?

PoPW networks are collaborative networks where participants can create decentralized two-sided markets. Participants in the network are typically divided into two categories: those who contribute work to the network and service buyers who pay to benefit from the services provided by the network.

Ideally, these networks should operate similarly to decentralized exchanges, where service requests (inquiries) are automatically matched with service providers' offers (bids). The network only charges transaction fees to reward the infrastructure nodes that run the network. This may be the long-term goal of current PoPW networks like Helium. However, in the initial stages, a centralized entity is needed to develop the system and guide its growth through partnerships and marketing. This entity also needs to develop a well-designed token structure to guide the supply side of the network and create a value network that can attract customers.

We can use Amazon as a simple example to illustrate how PoPW develops. Similar to Amazon, the goal of PoPW networks is to create a global marketplace. During the process of building business infrastructure and guiding the supply side, the market initially operates at a loss. When the supply side grows and the market successfully provides high-quality services to buyers, the market economy shifts to profitability. The main difference from Amazon or any centralized marketplace is that when PoPW networks successfully attract customers, the economic value flows back to network participants through native token appreciation, rather than to a centralized company.

There has been much discussion about the advantages of PoPW networks compared to existing centralized models. This article will not repeat that discussion but will reference an article from Multicoin that lists some of these advantages, such as cost-effectiveness due to reduced reliance on intermediaries and the ability to scale infrastructure more quickly due to decentralized deployment and a larger pool of contributors.

How do PoPW networks achieve success?

Few have discussed how PoPW networks can produce practical effects similar to centralized solutions, making the cost-effectiveness of PoPW meaningful. This section discusses five essential characteristics required for the success of PoPW networks.

Simplified Contributor Operations

For PoPW networks operating globally, the way service providers contribute should be as simple as possible. This simplicity increases the potential contributor pool and enables faster scalability. Networks that require contributors with specialized experience or training are also feasible, but the contributor base may be smaller.

Some current PoPW networks require complex operations and multi-layered planning and coordination, which significantly limits their user base, with decentralized mobile networks being one example. Operating a mobile network is much more complex than deploying "micro" base stations. The nature of mobile coverage demand is dynamic, and the structure of decentralized networks cannot quickly adapt to these changing demands. Additionally, mobile networks require substantial technical work in planning, deploying infrastructure, services, and maintenance, which decentralized contributors find challenging to accomplish. To illustrate the scale of this complexity, the decentralized mobile network project XNET estimates that for every $1 of network revenue, $0.60 goes to support complex backend operations, while $0.40 rewards deployment nodes. This complexity indicates the need for a centralized entity to coordinate these activities, making decentralized PoPW harder to achieve.

Standardization of Contributions

Another important factor for the success of PoPW networks is the standardization of work contributions, as the contributions of service providers 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 ones requires complex systems that cannot be implemented on-chain. PoPW projects that collect complex data, such as images, have recognized the importance of standardizing contributions; for example, Hivemapper requires dashcams with specific specifications. Spexi goes further by controlling the movement of drones through system software to create consistent 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, new accuracy, or customer demand. It is important to remember that rewards should not be tied to subjective opinions about the contributions.

Reliable Oracles

In PoPW networks, off-chain contributions from network participants need to be proven on-chain. These proofs allow participants to earn native token rewards for their contributions. This is the classic oracle problem, where oracles need to prove the existence, correctness, and authenticity of contributions before they are submitted on-chain. The oracle problem is one of the most challenging challenges for PoPW networks. Malicious actors have incentives to manipulate oracles to extract maximum value from the network. For example, there have been malicious behaviors from some participants in the Helium network, where the network benefits from expanded geographic coverage and rewards mechanisms based on coverage proofs, leading to incentives for creating fake hotspots or deceiving their locations. Various measures have been initiated to combat these behaviors, including creating blacklists for untrustworthy participants and using hotspot challenge systems. Despite these countermeasures, the existence and accuracy of hotspot locations remain a challenge.

Other PoPW platforms like Hivemapper rely on hardware verification to combat oracle manipulation. Hivemapper dashcams use GPS locations and connections to Helium hotspots as part of a location proof protocol to verify the correctness of mapping contributions. Additionally, Hivemapper adds a layer of manual quality assurance to check the authenticity of submitted images. While effective, the manual review of contributions adds a layer of complexity and may create opportunities for malicious coordination between contributors and reviewers.

Efficient PoPW oracles remain an unresolved issue and a potential area for innovation. Currently, there is no universal solution to this problem; hardware verification can provide some protection for specific use cases. Examples include anti-fraud GPS modules for location-sensitive PoPW contributions. However, there is a need for more resilient and universal oracles to support a broader range of use cases.

Anti-Monopoly

To ensure the success of decentralized PoPW networks, single points of failure should be avoided. These failure points include reliance on proprietary technology or specific software or hardware vendors. Instead, the network should adopt contribution 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 becomes more reliable and secure. For example, the Helium network has over 20 vendors producing the LoRaWan hotspots required for the network.

Conservative and Flexible Token Design

A major factor in the success of PoPW networks is token design, which can successfully attract network contributors, balance supply and demand, and prevent the extraction of useless or malicious value from the network. Balancing token design is a vast topic that may require a separate article to explore, but some important guidelines are:

• It is more challenging for demand-side participants to get it right than for supply-side participants.
• It is nearly impossible to achieve the correct design on the first attempt.

Therefore, PoPW developers should be clear and transparent about the inevitability of changing token designs based on actual data from the project's mainnet. The best approach is to provide conservative rewards for the supply side with well-thought-out designs from the beginning and launch them as the initial product.

The Current State of PoPW

A common requirement for PoPW networks is the need for rapid scaling to compete with centralized solutions. A major limiting factor for participants is the cost of joining the network. Networks with low participation costs can quickly attract more users, achieve better supply, realize significant decentralization, and test product-market fit more rapidly. The participation costs of PoPW are typically divided into upfront entry costs and ongoing participation costs. In this section, PoPW projects are categorized based on these participation costs.

Entry Costs (Capex)

Entry costs are the upfront costs that users must pay to become part of the network. For example, the cost of Helium hotspots or the cost of drones for the Spexi protocol. We can refer to this portion of the cost as Capex. The higher the Capex, the more difficult it is for the network to acquire users; high entry costs are often associated with the specialized equipment required to participate in the network. In addition to costs, specialized equipment also requires longer manufacturing and distribution times to network participants, slowing down adoption. PoPW networks that only require simple or generic devices, such as smartphones, are more likely to attract participants.

Ongoing Participation Costs (Opex)

These are the ongoing operational costs that users pay to actively participate in the network. For example, the energy costs and time required to map areas using Hivemapper or Spexi. We refer to these as Opex costs. High operational costs mean that participants need to be compensated more quickly and frequently for their contributions. This also means that participants will need to sell a significant portion of the tokens they earn to cover their operational costs, creating ongoing selling pressure on token prices. This pressure needs to be balanced by demand, i.e., buying pressure for the native token, to protect the token price from entering a downward trend that could undermine participants' confidence in the network. Networks with high operational expenditures can typically benefit from a gradual growth strategy that balances supply and demand.

Innovations in PoPW

Infrastructure and Tools for PoPW Networks

Before discussing specific use cases for PoPW networks, it is essential to recognize the general need for infrastructure and tools that support this field. Examples of this required infrastructure include innovative oracle solutions with anti-manipulation features. These oracle solutions need to be based on hardware or cryptographic technologies to ensure the authenticity of contributions and eliminate cheating.

Another needed tool is an SDK for conveniently launching modular PoPW networks as L2 or application chains with customizable token economic models, so that PoPW networks do not need to launch as L1 as they do now. These SDKs need to focus on achieving modularity by creating separate modules, such as token utilities, reward mechanisms, oracle solutions, and storage solutions. This modularity allows PoPW developers to independently adjust each module for optimal customization for their specific use cases. The availability of such SDKs can significantly simplify the work required to launch PoPW networks.

Health Data Sharing

A major challenge faced by public health researchers is the lack of sufficient datasets to test their research hypotheses. One way to address this issue is for individuals to contribute health data in a decentralized manner for research and drug development. For example, individuals sharing DNA data, such as decentralized 23andMe, receive rewards for sharing their DNA data and related health information. Universities, hospitals, and pharmaceutical companies can access this data through a distributed research and commercial application marketplace. Another example is sharing physical activity data, heart rate, sleep data, and other types of data collected by wearable devices, which health-focused companies can use 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 Calls

Voice over Internet Protocol (VoIP) technology can significantly reduce the cost of international calls by routing calls over the internet. In a decentralized manner, the cost of international calls can be reduced by another factor of ten. A PoPW network composed of users connecting local phone lines to the internet creates a global phone network capable of making international calls at the cost of local calls.

Balancing Renewable Energy Distribution

In recent years, sustainability and clean energy have gained increasing attention. By creating an efficient distribution network that balances generation and consumption, the use of solar panels and other renewable energy sources can be improved. Decentralized energy contributions can also be combined with public energy networks to support the network during high-demand periods, reducing the need for fossil fuels during those times. One example project in this field is the React network.

Decentralized Robotics

Amazon MTurk is a platform that allows tasks requiring human intelligence to be outsourced to distributed workers. Due to the diversity of tasks, the current MTurk model is not suitable as a PoPW network. However, with the development of appropriate technological tools, MTurk can be realized as a PoPW network that requires smaller aggregations. In this model, PoPW sub-networks are created on-demand by requesting entities, and workers contribute according to their rules submitted to the sub-network. All sub-networks share the same native token, creating a contributor-owned platform. This platform is flexible enough to serve different niche use cases. In addition to the benefits of reducing costs by cutting intermediary fees, there are:

• Requesters and workers do not need to share PII as currently required by Amazon MTurk.
• The work achievements of requesters and workers are transparently available on-chain for counterparties to review.
• Specific worker qualifications can be verified through SBTs issued by third-party identity providers.
• On-chain reputation can be transferred to other user-facing clients.
• Payments can be settled faster through cryptocurrency payments.

AI Dataset Creation

Training advanced AI models requires large and complex datasets. For computers, these datasets are often labeled images, and a significant amount of manual input is needed during the dataset creation process. For example, to create a dataset for training autonomous driving models, the first step is to capture photos of real traffic conditions at different times and in different scenarios. The second part is to correctly label and annotate these images to train computer vision models. Both steps require substantial human involvement. Therefore, 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 developing and training large AI models.

Green Finance

PoPW networks can accelerate green finance by using tokens to incentivize sustainable activities, generating tokens as rewards for participants executing sustainable activities. These tokens are purchased and burned by organizations seeking to achieve a more environmentally friendly footprint and greater sustainability impact. The system works similarly to carbon credits but can incentivize more challenging activities and goals, such as cleaning waterways, encouraging recycling, and funding better industrial filtration systems.

Conclusion

We believe that PoPW networks can create vast economic networks that showcase the true benefits of decentralization. Compared to speculation-driven Web3 financial use cases, PoPW networks facilitate a variety of services that touch our daily lives. In the use cases mentioned above, PoPW can provide better services at lower costs.