European Union Approves Smart Contract Kill Switch

The European Union has made a landmark move by passing the new “Data Act.” It includes a controversial smart contract kill switch provision.

This provision, a part of the legislation regulating data sharing, has sparked intense debate within the cryptocurrency industry.

EU Approves Data Act with Smart Contract Kill Switch

The Data Act, agreed upon by MEPs and member states, aims to stimulate innovation by removing barriers to data access. It sets rules for sharing data generated through connected products or related services, such as the Internet of Things and industrial machinery.

The act is designed to facilitate the development of new services, especially in artificial intelligence, by allowing users to access the data they generate. It also targets making after-sales services and repairs of connected devices more affordable.

In exceptional circumstances like floods and wildfires, public sector bodies can access and use data held by the private sector. The legislation also protects trade secrets and prevents unlawful data transfers.

MEPs have ensured a clear definition of trade secrets to prevent unlawful data transfers and leaks to countries with weaker data protection regulations. Additionally, the new law facilitates switching between cloud service providers and introduces safeguards against unlawful international data transfers.

However, the inclusion of a smart contract kill switch in the final draft of the Data Act has raised concerns. The crypto industry fears this could render most smart contracts unlawful.

Read more: Will the “Kill Switch” in the EU’s Data Act Kill Smart Contracts?

Despite lobbying efforts from organizations linked to blockchains such as Stellar, Polygon, NEAR, and Cardano, the final version of the text still broadly refers to “smart contracts” and imposes duties on “vendors” of these automated programs. This has led to concerns over perpetual and limitless responsibilities in decentralized scenarios with no single seller.

“Safe termination and interruption: ensure that a mechanism exists to terminate the continued execution of transactions: the smart contract shall include internal functions which can reset or instruct the contract to stop or interrupt the operation to avoid future (accidental) executions,” reads Article 30 of the Data Act.

The final text clarifies that the rules apply only when programs are used for the automated execution of data-sharing agreements. However, the scope does not refer to private or permissioned networks, making it wider than lobbyists requested.

The legislation, which garnered 481 votes in favor against 31 in the European Parliament, now awaits formal approval by the European Council.

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