On Tuesday, the European Parliament of the European Union (EU) voted in favor of new legislation that targets smart contracts. The bill might force smart contracts to include a clause for details of a kill switch to reset activity.
A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement.
Sources reveal that the bill was brought to the House last year and is called the Data Act. It includes provisions intended to give people more control over information from smart devices but has generated concerns within the Web3 community.
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 bill, 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.
In the parliamentary debate that took place on Tuesday, Pilar del Castillo Vera, the lead lawmaker said that the law aims to contribute to optimizing existing business models and processes, boost the development of new ones, and by doing so create new values and jobs. She added:
“The new rules will empower consumers and companies by giving them a say on what can be done with the data generated by the connected products.”
Additionally, the provisions included in her redraft of the bill would mean that smart contracts must have to have access controls and protect trade secrets. They would also need to have functions to stop or reset something that experts worry could undermine their purpose.
Sources reveal that smart contracts fall under Article 30 of the Data Act, on “essential requirements regarding smart contracts for data sharing.” It includes several provisions like “rigorous access control mechanisms” and “protection of trade secrets integrated into the design of smart contracts.”
There would need to be a possibility to terminate or interrupt transaction mechanisms, and lawmakers will need to decide which conditions would make that permissible. The lawmakers stated that for smart contract developers, these provisions would mandate additional processes to ensure compliance with the regulation, like issuing an EU declaration of conformity.
Thibault Schrepel, an Associate Professor at VU Amsterdam University and a specialist in blockchain legal issues, took to Twitter to share her views on the bill.
Article 30, as currently drafted, goes a step too far in addressing the issues raised by immutability. It endangers smart contracts to an extent that no one can predict.
He criticized the current draft of the bill and believes the legal text is unclear about who in practice would have to hit the kill switch on a smart contract, and that it interferes with the fundamental principle that the automated programs can’t be altered by anyone. She stated:
The vote empowers del Castillo Vera and other lawmakers to negotiate with national governments to hammer out a final version of the law. 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. This gives us the idea that the organization prioritizes people’s safety and control when it comes to the digital sector, however, it is important to note that a subtle balance between caution and innovation is maintained to ensure efficiency.