On Monday, the European Union’s member states published a revision in the existing EU Data Act. The new revision to the act now mandates smart contracts to have a kill switch.
A smart contract is a decentralized application that executes business logic in response to events. These contracts are simply programs stored on the blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.
Sources reveal that the EU’s Council, which represents national governments, agreed on the amendment on Friday, and now its proposals appear to echo those already favored by lawmakers at the European Parliament. According to the amendment to the act, smart contracts must be able to terminate or interrupt their activity.
Now, the final framing of the law has to be negotiated between the EU parliament and the council which is to be mediated by the European Commission. However, sources reveal that this change to the Data Act has triggered concerns in the Web3 community for undermining the concept of decentralization and what is supposed to be automated and unalterable programs.
In a statement released on Friday, Erik Slottner, the Swedish minister who chaired the council talks at the EU council, said that the law will “allow data to flow freely within the EU and across sectors for the benefit of businesses, researchers, public administrations, and society.”
The bill was passed in Parliament with a clear and huge majority as 500 lawmakers voted in favor of the bill, 23 against it and the rest 110 did not vote. With this amendment, smart contracts have come to a step closer to falling under EU-wide regulation within a broader strategy on data markets, an issue that continues to raise concerns within the crypto industry.
It is important to note that in principle the new rules apply to contracts that make data available as part of controls on smart-home appliances like cars and fridges, but how far they go is not clear. Expressing her views, Marina Markezic, a founder of the European Crypto Initiative, a crypto-lobbying group said it could be hard, if not impossible, for most smart contracts to meet the regulations as drafted by the Parliament.
Thierry Breton, a senior commission official responsible for digital matters, also showed a stance similar to Markezic. He indicated that he doesn’t favor the lawmakers’ version, saying it inhibits the ability to set standards for smart contracts.
The world has already set eyes on the EU as it awaits to bring into effect its Markets in Crypto Assets (MiCA) regulation. The regulation aims to bring financial inclusion and enhance innovation while ensuring investors’ protection has been repeatedly delayed due to translational issues.
In addition, EU Commissioner Yvo Volman emphasized the need for regulations to prevent discrimination and protect user privacy in the upcoming metaverse legislation that is set to be implemented in May 2023. All of this suggests the agency’s prioritization of consumers’ safety but it is imperative to maintain a balance between protection and inhibition to ensure innovation.
