Chainlink launches staking to increase the security of oracle services

Web3 opens up new ways to coordinate human activity on a global scale. The Web3 network is uniquely borderless and free of geographical bias, recognizing only 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 demonstrate that participants from around the world can come together to contribute to a fair and open market accessible to everyone. As such networks grow into one of Web3's largest applications, 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. While this term doesn't cover most of the activities these networks can perform, we'll stick with it.

In this article, we dive into the characteristics of a successful PoPW network, and what ideas can make scaling and product-market fit easier.

What is PoPW and why is it important?

The PoPW network is a collaborative network where network participants can create a decentralized two-way marketplace. Network participants generally fall into two categories: those who contribute work to the network and service buyers, and those who pay to benefit from the services provided by the network.

At best, these networks should operate similar to decentralized exchanges, where service requests (asks) are automatically matched with offers (bids) from service providers. The network only charges transaction fees, which are used to reward the infrastructure nodes that run the network. This may be a long-term goal of current PoPW networks such as Helium. In the initial stages, however, a centralized entity is needed to develop the system and direct its growth through partnerships and marketing. The entity also needs to develop a sound token design to bootstrap the supply side of the network and create a network of value that will attract customers.

We can use Amazon as a simple example of how PoPW has evolved. Similar to Amazon, the goal of the PoPW network is to create a global marketplace. The market is initially at a loss as it builds the business infrastructure and bootstraps the supply side. A market economy turns profitable when the supply side grows and the market succeeds in providing high-quality services to buyers. The main difference with Amazon or any centralized marketplace is that when a PoPW network successfully attracts customers, economic value will flow back to the network participants via native token appreciation, rather than to the centralized company.

There has been a lot of content discussing the advantages of the PoPW network over the existing centralized model. This article will not repeat this discussion, but instead cites the Multicoin article, which lists some of these advantages, such as cost-effectiveness due to reduced reliance on intermediaries, and the ability to The ability to scale infrastructure faster.

How did the PoPW network succeed?

There is little discussion about how a PoPW network can produce similar utility effects as centralized solutions, making PoPW cost-effectiveness meaningful. This section discusses the five essential characteristics required for a PoPW network to succeed.

Simplify Contributor Operations

For a PoPW network working on a global scale, the way service providers contribute should be as simple as possible. This simplicity increases the pool of potential contributors and enables the goal of faster scalability. Networks that require contributors with professional experience or training are also possible, but the contributor base may be smaller.

Some current PoPW networks require complex operations and multi-layered planning and coordination, which can greatly limit their user base. Decentralized mobile networks are one example. Operating a mobile network is much more complex than deploying "tiny" base stations. The nature of mobile coverage requirements is dynamic, and the structure of a decentralized network cannot quickly adapt to these changes in requirements. In addition, mobile networks require a lot of technical work in terms of planning, deploying infrastructure, servicing and maintenance, which is difficult for decentralized contributors to complete. To get an idea of the scale of this complexity, the decentralized mobile network project XNET estimates that for every $1 in network revenue, $0.60 goes to supporting complex backend operations, and $0.4 goes to rewarding nodes for deployment. This complexity suggests that a centralized entity needs to exist to coordinate these activities, and a decentralized PoPW would be more difficult to achieve.

Standardization of contributions

Another important factor for the success of the PoPW network is the standardization of work contribution, and the contribution of service providers cannot be subjective. The subjectivity of contributions can lead to low-quality contributions that affect the overall functionality of the network. Evaluating such contributions to rule out low-quality contributions requires complex systems that cannot be implemented on-chain. PoPW projects that collect complex data such as imagery have recognized the importance of standardized contributions, for example Hivemapper requires dashcams with specific specifications. Spexi goes a step further, creating consistent aerial images by controlling the drone's movement through the system's software. Standardization also guarantees fairness and neutrality among service providers. Service providers can be rewarded differently based on metrics related to network goals such as coverage, new accuracy, or customer demand. Please remember that awards should not be related to subjective opinions of contributed works.

reliable oracle

In the PoPW network, the off-chain contributions of network participants need to be proven on-chain. These proofs allow for rewarding contributions in the network's native token. This is the classic oracle problem, where the oracle needs to prove the existence, correctness, and authenticity of the contribution before committing it to the chain. The oracle problem is one of the toughest challenges of PoPW networks. Malicious actors have an incentive to manipulate oracles to extract maximum value from the network. For example, malicious behavior by some actors in the Helium network, as the network benefits from extended geographic coverage and rewards it through proof-of-coverage mechanisms, creates an incentive to fake hotspots or spoof their locations. As both behaviors were observed and reported by cyber actors, several measures were launched to combat them, including creating deny lists for untrustworthy actors and using hotspot challenge systems, among others. Despite the crackdown, the existence and correct location of hotspots remains a challenge.

Other PoPW platforms like Hivemapper rely on hardware authentication to combat oracle manipulation. Hivemapper dash cams use the GPS location and connection to the Helium hotspot as part of the Proof of Location protocol, which is used to prove the correctness of the mapping contribution. Additionally, Hivemapper adds a human-operated quality assurance layer to check the authenticity of submitted images. As effective as it is, 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 of innovation. Currently, there is no general solution to this problem, and hardware authentication can provide some protection for specific use cases. Examples include anti-spoofing GPS modules for location-sensitive PoPW contributions. But there is a need for more resilient and general-purpose oracles to support a wider range of use cases.

Anti-monopoly

For a decentralized PoPW network to be successful, single node failures should be avoided. These failure points include dependencies on proprietary technology or specific software or hardware vendors. Instead, the network should adopt a contributing standard that can be supported by multiple vendors, including any hardware or software required for use in the network. By removing any potential risks of centralization and monopoly, the network becomes more reliable and secure. For example, Helium Networks 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 the token design, which successfully attracts network contributors, balances supply and demand, and prevents useless or malicious value extraction from the network. Balancing token design is a large topic that probably deserves its own article, but some important guidelines are:

The demand side is harder to get right than the supply side

It's nearly impossible to get a design right from the first try.

Therefore, PoPW developers should clearly and transparently understand the inevitability of changing the token design based on the actual data of the project's main network. The best approach is to conservatively reward thoughtful design on the supply side from the start and roll it out as an initial product.

Current status of PoPW

A common requirement of PoPW networks is the need to scale quickly to compete with centralized solutions. A major limiting factor for participants is the cost of participating in the network. A network with a low cost of participation can quickly attract more users, enable better supply, enable great decentralization, and test product-market fit faster. PoPW participation costs are usually divided into upfront entry costs and ongoing participation costs. In this section, PoPW projects are categorized according to these participation costs.

Entry cost (Capex)

Cost of entry is the upfront cost a user must pay to become part of the network. Such as the cost of a Helium hotspot or the cost of a drone with 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, and high entry costs are often associated with the specialized equipment required to participate in the network. In addition to cost, specialized equipment 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 Cost of Engagement (Opex)

This is an ongoing operating cost that users pay to actively participate in the network. For example the energy cost and time required to map an area using Hivemapper or Spexi. We refer to these as Opex costs. High operating costs mean participants need to be paid for their contributions faster and more frequently. This also means that participants will need to sell a significant portion of the token rewards earned to cover their operating costs, creating constant selling pressure on token prices. 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 participants’ confidence in the network. Networks that require high operating expenses can often benefit from an incremental growth strategy that balances supply and demand.

PoPW Innovations

Infrastructure and Tools for PoPW Networks

Before discussing specific use cases for PoPW networks, it is important to recognize that there is a general need for the network to support the infrastructure and tools in this area. Examples of such required infrastructure include innovative oracle solutions that are resistant to manipulation. These oracle solutions need to be based on hardware or encryption to ensure the authenticity of contributions and eliminate cheating.

Another needed tool is an SDK for easy launching of a modular PoPW network as L2 or Appchain with a customizable token economic model so that the PoPW network does not need to be launched as L1 as it is now. These SDKs need to focus on achieving modularity by creating separate modules, such as token utility, reward mechanism, oracle solution, storage solution, etc. This modularity allows PoPW developers to independently tune each module for optimal 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 for public health researchers is the lack of sufficient data sets to test their research hypotheses. One solution to this problem is the decentralized contribution of individuals to health data for research and drug development. For example, individuals share DNA data, the decentralized 23andme, where participants are rewarded for sharing their DNA data and related health information. Universities, hospitals, and pharmaceutical companies can access this data through a distributed marketplace for research and commercial applications. Another example is the sharing of physical activity data, heart rate, sleep data and other types of data collected by wearables that 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 techniques such as zero-knowledge proofs.

Decentralized VoIP International Calls

Voice over Internet Protocol VoIP technology can significantly reduce the cost of international calls because it routes calls through the Internet. With a decentralized approach, the cost of international calls can be reduced by another 10 times. The PoPW network, made up of users who connect their local phone lines to the Internet, creates a global phone network that enables international calls at the cost of a local call.

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 an efficient distribution network that balances generation and consumption. Decentralized energy contributions can also be integrated with public energy networks to support the network during periods of high demand, reducing the need to use fossil fuels during these periods. An example project in this area is React Web.

Decentralized robot

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 suitable technical tools, MTurk can be implemented as a PoPW network requiring smaller aggregates. In this model, PoPW subnetworks are created on-demand by requesting entities, and worker contributions are submitted to 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 lowering costs by cutting intermediary fees, there are:

l Job requesters and workers do not need to share PII as Amazon MTurk currently requires.

l The work achievements of requesters and workers are transparently available on-chain for counterparty review.

l Specific worker eligibility can be demonstrated through an SBT issued by a third-party identity provider.

l Earned on-chain reputation can be transferred to other user-facing clients.

l Payments can be settled faster through encrypted payments.

AI dataset creation

Training advanced AI models requires large and complex datasets. These datasets are often labeled images for computers and require a lot of human input during dataset creation. 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 properly label and annotate these images to train the computer vision model. Both of these 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 that 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 for participants who perform sustainable activities. These tokens are purchased and burned by institutions seeking to achieve a greener footprint and greater sustainability impact. The system works like carbon credits, but can incentivize more difficult-to-achieve activities and goals, such as cleaning waterways, encouraging recycling, funding better industrial filtration systems, and more.

In conclusion

We believe the PoPW network can create a massive economic network that demonstrates the true benefits of decentralization. Compared to the speculatively focused Web3 financial use cases, the PoPW network facilitates various services that touch our daily lives. In the above use cases, PoPW can provide better services at a lower cost.