EU’s Data Act: Smart Contracts Face “Kill Switch” Clause

The European Union is on the brink of adopting a new piece of legislation known as the Data Act, which has stirred the pot within the blockchain community due to its controversial clause on smart contracts. The Act, which recently passed the European Parliament with a significant majority, introduces a requirement for smart contracts to include a “kill switch” mechanism, allowing them to be terminated or interrupted.

The Data Act’s Path to Law The Data Act sailed through the European Parliament with 481 votes in favor and only 31 against. The next and final hurdle for the Act is the European Council, where the leaders of the EU’s 27 member states will decide its fate. If approved, this legislation will mandate that smart contracts have built-in controls for termination or interruption.

Smart Contracts Under Scrutiny The core aim of the Data Act is to empower users by granting them access to the data generated from their smart devices. The European Commission has pointed out that a staggering 80% of this data goes unused. However, the Act’s critics are sounding the alarm over the smart contract clause, arguing that it is too vague and lacks specificity on the conditions that would trigger a contract’s termination.

The Blockchain Community Reacts In June, an open letter from EU blockchain advocacy groups, endorsed by numerous crypto firms, expressed concern that the Data Act could inadvertently outlaw smart contracts that interact with public blockchains, such as Ethereum. The letter suggests that the Act’s current language could be interpreted to mean that any smart contract using data from these blockchains could be in violation of the law.

European Commission’s Stance Despite the uproar from the blockchain sector, the European Commission has attempted to quell fears, stating that the Data Act is not targeting blockchain technology. They assert that concerns about the Act rendering smart contracts illegal are baseless.

The Data Act represents a pivotal moment for the intersection of technology, law, and blockchain. While it aims to unlock the potential of unused data, the implications for smart contracts are causing unease among blockchain enthusiasts and developers. The European Council’s decision will be closely watched, as it will determine whether this “kill switch” clause becomes a regulatory standard for smart contracts within the EU, potentially setting a precedent for other jurisdictions to follow.