EU Parliament Approves Data Act With Smart-Contract Kill Switch Provision

EU Parliament Approves Data Act With Smart-Contract Kill Switch Provision

In a significant development, the European Parliament has approved a Data Act that includes a provision which could potentially render most smart contracts illegal. The legislation, which focuses on data sharing rules, received overwhelming support with 481 votes in favor and only 31 votes against. The bill now awaits formal approval from the European Council. Notably, the bill’s final version, reviewed by CoinDesk in July, included a clause that requires smart contracts to have a “kill switch” and be capable of being terminated. This move has sparked concerns among organizations associated with blockchain networks like Stellar, Polygon, NEAR, and Cardano, who expressed their reservations through an open letter. The implications of this decision could have far-reaching consequences for the future of smart contracts and data regulation within the European Union.

EU Parliament Approves Data Act With Smart-Contract Kill Switch Provision

The European Parliament recently voted to approve a Data Act that includes a provision regarding smart contracts. This provision has raised concerns in the blockchain community as it could potentially make most smart contracts unlawful. In this article, we will examine the background of the Data Act, the scope of the legislation, the details of the smart-contract kill switch provision, the legal implications of this provision, the reaction from industry players, the arguments in favor of and against the provision, and the next steps for the Data Act.

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Background

The Data Act was introduced to establish rules on the sharing of data within the European Union (EU). It aims to create a unified framework for data sharing and ensure the protection of personal data. The act underwent several revisions before reaching its final version, which includes the smart-contract kill switch provision. CoinDesk reviewed the bill’s text in July, which raised concerns among organizations linked to blockchains like Stellar, Polygon, NEAR, and Cardano.

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Scope of the Data Act

The Data Act covers various aspects of data sharing within the EU. It outlines rules and regulations for data protection, data transfers, and data governance. The act aims to harmonize data protection laws across EU member countries and facilitate cross-border data sharing while maintaining adequate safeguards for individuals’ privacy rights.

Overview of the Smart-Contract Kill Switch Provision

The smart-contract kill switch provision is a controversial addition to the Data Act. Essentially, it requires automated data-sharing agreements, known as smart contracts, to be capable of being terminated safely. Smart contracts are programmable agreements that execute transactions automatically when specific conditions are met. This provision has raised concerns among industry players, as it could make most smart contracts unlawful and potentially hinder blockchain innovation.

Legal Implications of the Provision

The inclusion of the smart-contract kill switch provision in the Data Act carries significant legal implications. It introduces uncertainty and potential legal challenges for organizations that rely on smart contracts in their operations. The provision could restrict the use of smart contracts within the EU and discourage blockchain development and innovation. It is crucial to carefully assess the legality and enforceability of the provision to ensure that it aligns with the principles of transparency, efficiency, and security that underpin blockchain technology.

Reaction from Industry Players

The smart-contract kill switch provision has garnered mixed reactions from industry players. Organizations linked to blockchains, such as Stellar, Polygon, NEAR, and Cardano, expressed their concerns in an open letter when the provision was first reviewed in July. These organizations worry that the provision could stifle innovation and create regulatory uncertainty for blockchain projects. On the other hand, some industry players argue that the provision is necessary to protect individuals’ rights and ensure accountability in data sharing.

Arguments in Favor of the Provision

Supporters of the smart-contract kill switch provision highlight the importance of individuals’ privacy and data protection. They argue that the provision ensures that data-sharing agreements can be terminated when necessary, providing individuals with greater control over their personal information. Additionally, proponents suggest that the provision promotes accountability and transparency in data sharing, aligning with the EU’s data protection principles.

Arguments Against the Provision

Opponents of the smart-contract kill switch provision emphasize the potential negative impact on blockchain innovation. They argue that the provision undermines the trust and efficiency that smart contracts bring to various industries. Additionally, opponents raise concerns about the broad language used in the provision, which could unintentionally make most smart contracts unlawful, leading to legal uncertainty and hindering the development of blockchain projects.

Next Steps for the Data Act

Although the European Parliament has approved the Data Act, it still requires formal approval from the European Council, comprising the heads of state from the EU member nations. The Council will review the act and provide any necessary amendments before finalizing its adoption. It is crucial for stakeholders in the blockchain community to engage in discussions and provide input during this process to ensure that the final version of the Data Act strikes a balance between data protection and blockchain innovation.

In conclusion, the approval of the Data Act by the EU Parliament, with the inclusion of the smart-contract kill switch provision, has sparked significant debates within the blockchain community. The provision raises concerns about its potential impact on smart contracts and blockchain innovation. As the legislation progresses through the European Council, it is crucial for industry players to actively engage in the decision-making process and advocate for a balanced approach that safeguards individuals’ privacy rights while fostering blockchain development.

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