- Blockchain leaders applaud the recent progress on the Data Act, expressing appreciation for policymakers’ efforts. However, they voice concerns regarding the rushed negotiations and the need for a more detailed examination of the “digital contract” and “smart contract” terminology.
- Industry stakeholders call for increased dialogue and understanding between regulatory bodies and the blockchain industry, emphasizing the potential unintended implications of future regulatory proposals.
Within the rapidly advancing digital era, we, as key industry stakeholders, find cause for optimism in the recent political agreement on the Data Act. Policymakers have addressed the concerns we laid out in our open letter, demonstrating an earnest commitment to supporting this evolving digital landscape. This response symbolizes a significant step in an ongoing dialogue around smart contracts and permissionless technology.
[Data Act Update] In ongoing efforts to safeguard #blockchain innovation in Europe 🇪🇺, the #IOTA Foundation and collaborators present a joint statement addressing the latest circulated Data Act proposal. Read it here:
— IOTA (@iota) July 17, 2023
Nonetheless, we find a crucial area of discourse overlooked in the pressured race to conclude the negotiations—the necessity of the term “digital contract” in place of “smart contract”. A deeper dive into this would have aligned more congruously with industry expectations, given the considerable weight these two distinct terms carry in interpreting and implementing the corresponding regulations.
Through rigorous review and discussion of the finalized Data Act, we discern the legislation’s focal point—mutual consent and intentionality in data-sharing agreements. The rules of Article 30 apply specifically when two or more parties consent to a data-sharing agreement, enabled by a ‘smart contract’ adhering to the Act’s requirements. The Act also mandates disclosure of safety measures in smart contracts, such as termination, interruption features, and access control mechanisms.
Article 30 underscores the instrumental role of European standardization organizations in establishing common standards. These guidelines would ensure that smart contracts, aimed at facilitating data-sharing agreements, comply with the specifications of Article 30 (1).
Deconstructing the Data Act: The Need for Continued Dialogue
Assuming that our interpretation of the Data Act aligns with regulators’ intentions, it is pivotal to initiate further consultations with standardization committees and second-level regulators. Addressing the open-ended questions arising from the broader Data Act text will help establish a well-rounded, harmonized regulatory framework.
While we recognize the strides made in legally defining “smart contracts” at the EU level, we harbor concerns about possible unintended implications in subsequent regulatory proposals. It is essential to gain a robust understanding of permissionless technology before integrating this definition into another legislation, lest we inadvertently obstruct the utility of smart contracts and permissionless blockchain technology.
During the negotiation process, the necessity for a stronger dialogue and understanding between regulatory bodies and the blockchain industry was apparent. Misunderstandings surrounding smart contracts have led to confusion among regulators and developers, highlighting the importance of education and increased awareness within the industry.
Policymakers have urged the industry to trust their intentions—a call that we echo for reciprocity. The blockchain industry has been proactive in standardizing smart contracts and implementing consumer and investor safety measures. Introducing an intermediary into a disintermediated environment may introduce new risks rather than enhance technological security.
In harnessing the potential of permissionless technology, regulators need to thoroughly understand its fundamental aspects before implementing regulations. An approach proportionate to the current level of understanding, with a readiness to learn, should guide regulatory actions.
We stress that this statement is based on currently available information and that there are still many unanswered questions we hope regulators will clarify. We remain committed to engaging and supporting regulatory bodies, leveraging our expertise, and providing ongoing support to advance our shared objectives—innovation, consumer and investor protection, and a sustainable and secure digital economy.