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Threat to Blockchain Advancement: Lawyers Raise Alarm Over EU’s Law Impacting Ethereum and Polygon

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  • The EU Data Act, finalized by the European Commission, may impose significant limitations on the usage of smart contracts, risking their decentralization.
  • Blockchain associations, including INATBA and Blockchain for Europe, are advocating for changes to the legislation, especially Article 30, which directly impacts smart contracts.

The European Commission’s legislative negotiators have reached an agreement on the Data Act, according to a tweet from an EU Parliament member, who acclaimed the legislation as a “milestone in reshaping the digital space”. However, the Act could imply a substantial setback for smart contracts, given the contentious Article 30 that endangers their decentralized nature.

The wording of the mentioned paragraph indicates a substantial curtailment in the current use of smart contracts. The Commission has not yet released the legal draft of the Data Act, hence it remains to be seen whether legislators have responded to the plea of numerous crypto industry representatives who have expressed their desire to modify the specific paragraph concerning smart contracts.

Among these advocates are prominent blockchain associations such as the International Association of Trusted Blockchain Applications (INATBA) and Blockchain for Europe. They have voiced their concerns to the EU Commission via an open letter. Mariana de la Roche, a board member at INATBA, expressed to BTC-ECHO their anticipation for the final version of the legislative proposal. She stated:

“At this point, we do not believe that major changes have occurred. On June 20th, we saw a version in which some modifications were made to our recitals, including recital 80, which contained a ‘consent’ component. This implies that any interruption must be agreed upon by all parties involved.”

In other words, the Data Act’s enactment requires the European Parliament and Council’s approval of the draft proposal decided upon by the EU Commission.

Blockchain associations are spearheading the fight for the crypto industry. De la Roche confirmed that various industry actors have proactively taken steps to develop self-regulatory frameworks and standards, aiming to foster innovations while ensuring public welfare.

“Regardless of the final outcome of the Data Act, we will continue to advocate for these principles and work towards a regulatory environment that supports the growth and success of the industry.”

The Data Act could potentially harm the major smart contract protocols in the crypto market, including Ethereum, Cardano, Polkadot, the Binance Chain, and many others. They would have to ramp up their compliance requirements and adapt their code functionality accordingly. This signifies additional trials, audits, and verifications to ensure compliance with the new regulations.

The legislation demands the inclusion of a so-called “Kill Switch” in the smart contract code, which can be activated when necessary. Such emergency mechanisms are a topic of heated debate within the crypto community. The oversight of this emergency mechanism could fall under the purview of the smart contract creator, public authorities, or even a court, striking a significant blow to the decentralization of all affected protocols.

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Godfrey Benjamin
Godfrey Benjamin
Godfrey Benjamin is an experienced crypto journalist whose primary goal is to educate everyone about the prospects of Web 3.0. His love for crypto was sparked during his time as a former banker when he recognized the clear advantages of decentralized money over traditional payments. Business Email: info@ethnews.com Phone: +49 160 92211628