DePIN requires thoughtful regulation - not litigation.

Source: Cointelegraph Original text: "DePIN requires thoughtful regulation - not litigation"

Author: Kai Wawrzinek, Co-founder of Impossible Cloud Network

It seems that the era of punitive enforcement by the U.S. Securities and Exchange Commission (SEC) against cryptocurrencies has come to an end, but former Chairman Gary Gensler has left us with some legacy issues that need to be explored. Even after his departure, Gensler's approach of "regulating through enforcement" continues to resonate.

We may be living under the first government in American history to support cryptocurrency, but there is still a lot of work to be done, especially in clarifying those ambiguous, contradictory, or missing regulations. There is a crypto industry that particularly needs to clarify how to operate without incurring the wrath of regulators: decentralized physical infrastructure networks (DePIN).

The DePIN project, ranging from decentralized cloud services to telecommunications and shared sensor networks, relies on real-world deployments and robust token economics. When regulators fail to clarify how these tokens and their governance structures should be classified, project parties can only guess blindly — sometimes even ending up in litigation.

Let DePIN play its role

Unlike most of the fully digitalized cryptocurrency industry that never intersects with the physical world, DePIN is different. The key lies in the "physical" aspect of DePIN. One of the most well-known DePIN projects incentivizes users to deploy wireless hotspots, creating a decentralized Internet of Things network. Other DePIN projects include building decentralized cloud services, crowdsourcing environmental data, decentralized energy networks, and more.

The intersection of blockchain, hardware, and real-world services presents unique regulatory challenges that require tailored solutions—solutions that are currently absent in the SEC's approach. The unique interactions between the physical and digital worlds necessitate a regulatory framework that is both clear and forward-looking. Due to the lack of clear rules regarding token issuance, data privacy, and infrastructure deployment, businesses can only navigate through uncertain regulations.

This regulatory ambiguity has created barriers to investment and may hinder the technological innovations promised by DePIN. Regulators must prioritize providing clear and transparent guidance for cryptocurrencies—especially giving sufficient attention to DePIN. If we have clear rules, DePIN startups will be free to build innovative infrastructure that addresses critical real-world problems, rather than wasting resources on lawyers and litigation.

Some people may think that operating in an industry lacking rules is better than surviving in an industry bound by too many regulations. However, history tells us that well-crafted regulations often pave the way for sustained growth, just as building codes allow skyscrapers to reach impressive heights while respecting the city's history and culture. Thoughtful regulation does not stifle creativity; rather, it supports it, providing a stable foundation for original ideas.

DePIN needs clear regulation

There are three main areas that need further clarification regarding how to regulate a rapidly developing cryptocurrency industry that spans multiple sectors (from artificial intelligence to telecommunications), benefiting all participants:

Securities and Practicality: It is crucial to clarify the issuance, distribution, and usage rules of DePIN tokens. This clarity will protect investors and allow for predictable planning and expansion. Without clear rules, project parties can only cautiously invest resources in legal compliance under vague guidelines, rather than in innovation.

Data Privacy: The DePIN platform collects and processes real-world data, from location signals to environmental information. Failing to address privacy issues through clear legal means may result in regulatory backlash and loss of consumer trust. A forward-looking regulatory framework should detail how data is collected, stored, and monetized, while balancing user privacy with the operational needs of these networks.

Global Infrastructure Deployment: Many DePIN solutions physically deploy devices or networks across national and regional boundaries as well as compliance frameworks. The patchwork of state, federal, and international rules could stifle the core of DePIN's global commitment. Policymakers must make these frameworks consistent to ensure that hardware deployment, spectrum usage, and other logistical considerations do not turn into a complex legal maze.

Better trading for everyone

Although more precise guidelines mainly benefit DePIN projects, they will also assist regulators, at least in terms of public image. When it comes to the fines obtained by the SEC through retroactive penalties on crypto projects, these figures are public. However, this has led to a massive exodus of the industry from the United States. The new SEC leadership has a unique opportunity to set a precedent through wise cryptocurrency regulation, emphasizing guidance rather than punishment.

In reality, DePIN is unlikely to be at the top of this list. However, now is the best time for the SEC to demonstrate how it handles innovative industries like DePIN. This crypto space has a clear user base, specific work is underway, and the results are easily measurable.

If the new SEC leadership wants to convey how it will treat the cryptocurrency industry over the next four years, it can certainly start with DePIN as a good beginning.

DePIN isn't just another crypto trend. It is a gateway that bridges our digital and physical worlds, and we are only beginning to envision the possibilities of such a bridge. With deliberate, proactive regulation, DePIN can realize its enormous potential: to solve critical real-world infrastructure problems, and with precise regulation, without breaking any rules and improving our daily lives.

Author: Kai Wawrzinek, Co-founder of Impossible Cloud Network

Related Topics: Emerging Technology Regulation: A Comprehensive and Lasting Approach

This article is for general informational purposes only and does not constitute legal or investment advice. The opinions, thoughts, and views expressed in the text are solely those of the author and do not represent or reflect the views and positions of Cointelegraph.