- The EU’s final Data Act draft includes a controversial ‘kill switch’ provision for smart contracts, disregarding appeals from blockchain industry leaders.
- The regulation appears to impose “perpetual and limitless responsibility” on ‘vendors’ of these automated programs, raising concerns over decentralized systems where there is no distinct seller.
The European Union’s final draft of the new Data Act continues to stir the pot in the blockchain industry, as it seemingly disregards key concerns raised by significant players like Polygon, NEAR, and Cardano. The bone of contention in the legislation is a ‘kill switch’ provision for smart contracts, despite the industry’s opposition to it.
A Conflict of Interests
Smart contracts are automated programs inherent to many blockchains, enabling self-execution of agreements without the need for a centralized authority. However, the Data Act, whose draft was disclosed to CoinDesk via EU freedom of information laws, proposes that these smart contracts should include a ‘kill switch’ – a provision allowing them to be safely terminated.
Instead of focusing on privately owned and permissioned data records as the industry had hoped, the legislation paints with broad strokes, applying to all smart contracts. The blockchain industry had earlier expressed its apprehension about this provision in an open letter, but the EU lawmakers seem to have remained largely unswayed.
The Act draft does provide some clarity on the applications of these rules, specifying that they are relevant only when smart contracts are used for automated execution of data-sharing agreements for smart devices. However, it fails to delineate between private and permissioned networks, rendering the scope of the legislation wider than what the blockchain industry had anticipated.
Moreover, the Act places responsibilities on ‘vendors’ of these automated programs. This poses a conundrum for decentralized systems where there is no clear-cut seller, potentially imposing a “perpetual and limitless responsibility”, a scenario the blockchain industry had hoped to avoid.
In a subsequent statement, signatories of the industry open letter stated they “regret” the regulation’s coverage of smart contracts rather than digital contracts, as the difference between the two terms is quite consequential. They further expressed caution about the potential unforeseen implications in future regulatory proposals.
The final hurdle for the Act is to gain approval from the parliament and then from the governments within the Council of the EU. However, the blockchain industry’s concerns remain unaddressed, implying that the lawmakers and the crypto industry are yet to find a common ground.
