EU Parliament Approves Controversial Data Act with Smart Contract Kill Switch

Despite strong opposition from crypto industry players, the European Parliament introduces the Data Act that can severely impact the smart contract platforms.

On Thursday, November 9, members of the European Parliament endorsed a Data Act that includes a contentious provision potentially rendering the majority of smart contracts illegal.

The Act focused on regulating data sharing, garnered 481 votes in favor and 31 against. The legislation awaits formal approval from the European Council, which consists of the heads of state from the 27 member nations.

The approved Data Act includes a stipulation mandating that smart contracts must be susceptible to interruption and termination, incorporating controls for functions that reset or halt the contract.

Fundamentally, the Data Act aims to grant users access to data generated by smart devices, addressing the European Commission’s assertion that 80% of such collected data goes unused.

The finalized bill released this July includes a provision specifying that automated data-sharing agreements must be safely terminable. The July 7 text referred broadly to “smart contracts” rather than privately owned and permissioned data records.

Smart contracts are automated tools executing transactions based on predefined conditions. Organizations associated with blockchains such as Stellar, Polygon, NEAR, and Cardano expressed concerns in an open letter during that period.

Critics of Data Act that Affects Smart Contracts Highlights Flaws

Critics of the Act have raised apprehensions regarding the broad definition of the smart contract clause, emphasizing the lack of clarity on specific instances for interruptions or terminations.

Contrarily, the European Commission has stated that the Data Act does not specifically address blockchain, and concerns that the Act would criminalize smart contracts are deemed unfounded.

Some of the opt players offering smart contract solutions have lashed out at the EU parliament for introducing this controversial Data Act. “This almost feels like a back-end way to regulate those or not allow any smart contract-based systems to be fully decentralized,” said Rebecca Rettig, chief policy officer at Polygon Labs.

“If you put restrictions for a termination provision on all smart contracts, you basically require some point of centralization and you eliminate the permissionless, autonomous, automatic nature of smart contracts,” said Rettig.

The creation of MiCA spanned several years and underwent numerous revisions, ultimately providing a well-defined framework for developing the cryptocurrency industry in the EU, according to Rettig. In contrast, other bills with potential implications for the crypto sector, such as the Data Act or the Anti-Money Laundering Regulation, progressed at a faster pace.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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