Decentralized services heat up competition in the VPN market

The birth of Bitcoin (BTC) and its underlying blockchain technology has accelerated the expansion of decentralization beyond the realms of money and finance. While not every domain may necessitate decentralization, one area that holds promise is that which pertains to our data, privacy, and the ability to access restricted services while browsing the current version of the Internet.

VPN (virtual private network) providers have already stepped up to address these concerns, but now they face growing competition from their decentralized counterparts, often referred to as dVPN or DPN (decentralized virtual/private network).

The industry is inundated with technical details and nuances to compare between traditional VPNs and DPNs, not to mention variations among DPNs themselves. Let's take a high-level overview of the developments in this dynamic market.

The primary distinction between a VPN and a DPN lies in the fact that, with a VPN, there exists a single entity that controls its servers, whereas in a DPN network, nodes are operated by independent parties. Anyone can initiate running a node and receive compensation in tokens for doing so, while the platform itself, at least in theory, is expected to be governed by a community.

Regardless of the model, VPNs are experiencing a surge in popularity. According to a recent report by Technavio, the VPN market is projected to grow by $47,825.44 million during 2023-2028, at a Compound Annual Growth Rate (CAGR) of 16%. Additionally, a survey by Security.org revealed that in 2023, 88% of Americans are familiar with VPNs, a notable increase from 72% in 2020.

The question arises: why are people using VPNs? The mentioned survey provides the following insights:

As the VPN market continues to expand, and issues related to privacy and data protection become increasingly relevant in light of corporate and governmental policies, the number of decentralized VPN players is also on the rise.

Decentralized competition

Internet users currently have the option to choose from platforms like Mysterium Network, Orchid, Deeper Network, and others. These platforms, powered by blockchain technology, claim decentralization and feature native tokens used within their respective ecosystems as incentives for running a DPN node and receiving payment for routing traffic.

Taking Orchid's token, OXT, as an example (albeit oversimplified), is also utilized by node runners to compete for user payment flow. As of the current writing, the price of OXT has decreased by 93% from its all-time high and is down by 13% over the past year.

Notably, payments for DPNs are typically made in cryptocurrency (although some VPN providers also offer this option alongside fiat payments), and users may have the option to pay per megabyte of data.

Additionaly, Deeper Network goes beyond software solutions, offering DPN hardware that facilitates user participation in their network. This hardware provides additional features such as ad-blocking and protection for Internet of Things (IoT) devices. Deeper Network's token, DPR, has experienced a 99% decrease from its all-time high and is currently 52% cheaper than a year ago.

Soon, another player may enter this market. Nym Technologies, a six-year-old internet privacy infrastructure developer that has raised almost $25 million in total, plans to launch the beta version of its decentralized NymVPN by the end of this year and intends to introduce the paid version shortly thereafter.

The company asserts that its solution stands out because it not only safeguards against data interception but also protects against traffic analysis of metadata. Additionally, Nym Technologies aims to implement a multi-hop approach, introducing an extra layer of complexity for potential eavesdroppers. In contrast to most VPNs, the solution involves routing traffic through 2-5 independent proxy nodes, providing an added level of security. Nym claims to have over 600 nodes currently mixing traffic across more than 60 countries.

Similar to its decentralized counterparts, Nym's token has experienced a substantial decline from its all-time highs (-97%), with the price also down by 10% over the past year.

Tit for tat

As the array of options for online protection continues to grow, the challenge becomes deciding which option is best suited for individual needs. Some insights into this decision-making process may be gleaned from the comparative claims made by competing centralized and decentralized VPN projects.

For instance, DPNs often emphasize the vulnerability of a centralized company, citing a single point of failure wherein trust is placed solely in the company, and even their proclaimed "no-log" policies remain unverifiable. (Interestingly, some VPNs make similar claims about DPNs and their no-log policies.) The no-log policy signifies a commitment by a VPN service provider to refrain from monitoring or storing any records of users' online activities.

In response, centralized VPNs argue that although trust is placed in their company, DPN users must trust multiple parties and hope that node runners won't compromise their data. However, this argument's intricacies go beyond this point, as DPNs typically implement systems that disincentivize dishonest behavior. For instance, Nym asserts that when a node underperforms, the community has the authority to withdraw NYM tokens from that node at any time and reallocate them to a competing node. While not offering absolute protection, such measures suggest an expectation of ongoing improvements in addressing potential risks associated with abusive nodes.

Users of DPNs are cautioned about the potential exploitation of bandwidth and reminded that it's impossible to determine the source of the server to which they are connecting.

Simultaneously, even some DPN projects acknowledge that this solution may not be suitable for users with extremely high bandwidth requirements for a single tunnel or a connection between two devices over the internet.

Considering the above, it becomes evident that there are no straightforward answers as to whether a centralized or decentralized VPN is inherently superior. As is often the case in similar situations, the choice hinges on individual needs, capabilities, familiarity with blockchain and cryptocurrencies, and, in this context, a willingness to experiment with more innovative solutions. Like many innovations, new solutions may present unknown risks alongside exciting opportunities. Therefore, it is advisable to thoroughly familiarize yourself with the options before testing one or another solution. In either case, both centralized and decentralized VPNs are likely to attract their respective audiences as the demand for this type of service continues to grow.