- The Data Act’s Article 30 outlines legal requirements for smart contracts in the context of data sharing, which may affect the blockchain industry.
- The European Crypto Initiative has gathered the support of the crypto industry to address this specific smart contract regulation in the Data Act.
Implications for the Future of Innovation in Europe:
The Data Act has been primarily focused on promoting fairness in the digital environment and creating opportunities for data-driven innovation and data accessibility. However, the blockchain industry is concerned about the potential impact of Article 30 of the Data Act, which outlines legal requirements for smart contracts in the context of data sharing. This article’s phrasing has captured the interest of the Web3 and blockchain community, as it includes one of the most fundamental components of Distributed Ledger Technology (DLT).
It is very likely that DLT and crypto become affected by the Data Act’s application, even though they might present but a minuscule part of the overall (data) economy.
The European Parliament’s draft proposal suggests specific design requirements for smart contracts in the context of data sharing, such as robustness and access control, safe termination and interruption, equivalence, and protection of confidentiality of trade secrets. The European Crypto Initiative has gathered the support of the crypto industry to address this specific smart contract regulation in the Data Act, proposing changes in the EU regulators’ approach towards them.
The Data Act is a key step in defining and regulating #smartcontracts and ensuring a thriving blockchain ecosystem in sectors like digital identity, supply chain management, NFTs & DeFI. Thank you @EUCI for inviting us to contribute to this position paper!#IOTA https://t.co/z5wjD5OLd0
— IOTA (@iota) April 28, 2023
The Data Act recently entered the EU negotiation process in March 2023, called the trialogues, where the European Commission, the European Parliament, and the Council defend their proposals for the regulation and eventually reach a final compromise version that incorporates parts from each of the initial three versions. Although the three proposals for the Data Act text, made by the EU co-legislators, differ significantly in some parts, all three versions can be seen as a cause of concern.
EUCI requested the co-legislators to consider the potential negative consequences of regulating smart contracts without making a proper distinction between various types of smart contracts. The EUCI Data Act Position Paper observes that the regulators refer to the smart contract as digitally composed and executable agreements without taking into account that the term already earned strong adoption in the blockchain and Web3 industry. EUCI proposed recommendations that primarily focus on adapting terminology, a clear distinction between various types of smart contracts, and clarification as to which DLT smart contracts the Data Act applies to.
The blockchain industry is concerned about the impact of the Data Act’s potential overly restrictive regulations that cover smart contracts, hindering innovation caused by the complexity of the smart contract requirements. Compliance would be practically impossible for those smart contracts vendors that rely on public blockchain technology, as such smart contracts typically transmit data openly through records that are accessible on the blockchain. Thus, a definitive understanding of the compliant use cases for smart contracts, particularly those based on public blockchain technology, must be established to avoid any potential adverse outcomes.