The Data Act

The Data Act — a contentious piece of European Union legislation that includes a clause requiring the ability to terminate smart contracts — has been approved by the European Parliament. If introduced, the legislation will require a smart contract to have a “kill switch.”

Approval

In a Nov. 9 press release, the parliament announced that the legislation was passed with 481 votes in favor and 31 against. The next step for it to become law is to gain the approval of the European Council.

Stipulations

In its current form, the Data Act stipulates that smart contracts must have the capability to be “interrupted and terminated,” and it mandates controls that allow for the resetting or halting of the contract. The stipulation appears to be a significant departure from the blockchain’s foundational ethos of decentralization.

Impact on Smart Contracts

How such kill switches would be implemented, and how they could impact the development and use of smart contracts remains unclear. Scott McKinney and Laura De Boel, attorneys with Wilson Sonsini Goodrich & Rosati, told Cointelegraph that such a kill switch is “fundamentally incompatible with what a smart contract is” and how it’s viewed.

Implementation

Enforcing a “kill switch” Implementing and regulating such a mechanism would, according to Wirex co-founder and CEO Pavel Matveev, see smart contract deployers “self-assess compliance with essential requirements and issue an EU declaration of conformity.”

Regulation

Recent: Milei presidential victory fuels optimism in Argentina’s Bitcoin community

McKinney and De Boel believe the regulation could hinder blockchain innovation in the EU as its requirements are “quite strict, and vendors will need to go through potentially burdensome conformity assessments.”

Standardization

However, the attorneys noted the Data Act provides “that European standardization organizations will be requested to draft harmonized standards for smart contracts.”

Impact on Blockchain Adoption

Chen said that the kill switch could “impose additional compliance requirements on developers,” which could lead to delays and increased costs when deploying smart contracts.

Conclusion

While the Data Act is progressing, it is still yet to be passed into law, meaning the blockchain industry still has time to prepare. The industry will only know the true scope of the law once it has come into effect.