Smart Contract Kill Switch Included in Final Draft of EU Data Act Sparks Ongoing Debate

The blockchain industry is raising concerns about the final version of the European Union Data Act, which was recently revealed. These new rules, as seen by CoinDesk, do not address the industry’s pleas and could potentially make most smart contracts illegal. Lobbyists had hoped that the provisions aimed at ensuring the secure termination of automated data-sharing agreements would be limited to privately owned and permissioned data records, but the provisions still broadly refer to “smart contracts.”

Negotiators reached an agreement on the controversial text on June 28, following concerns expressed by blockchain organizations in an open letter. However, the text has only now been made public. The disclosed version of the law still uses the term “smart contracts” instead of the industry’s preferred term, “digital contracts.”

One aspect of the law that has raised fears among lobbyists is the responsibility placed on “vendors” of the automated programs. There is concern that this could create perpetual and limitless liabilities in decentralized scenarios where there is no single seller.

While the text has been modified to apply only to the “automated execution” of data-sharing agreements for smart devices like connected cars and fridges, it fails to specify private or permissioned networks. This extends the scope of the law beyond what the lobbyists had requested.

The circulated text, which was shared privately with member governments by Spain, the current chair of the talks, reflects the updates to the law based on the provisional political agreement reached during a June 27 meeting. The text states that all political issues were resolved, concluding the negotiations with lawmakers at the European Parliament.

In order for the text to become law, it must receive formal approval from the parliament and the Council of the EU, which consists of the governments of the member states.

The blockchain industry is left with concerns about the new rules outlined in the final version of the European Union Data Act. These rules could potentially make most smart contracts illegal, causing uncertainty within the industry. Lobbyists had hoped for more specific language in the provisions, such as limiting the scope to privately owned and permissioned data records. However, the text still broadly refers to “smart contracts,” which does not meet the industry’s expectations.

Negotiators reached an agreement on the controversial text on June 28, after receiving input from blockchain organizations through an open letter. Despite this input, the final version of the law has only just been made public. The use of the term “smart contracts” instead of “digital contracts” is one point of contention for the industry.

Furthermore, the law places responsibilities on vendors of automated programs, which has raised concerns about potential liabilities in decentralized scenarios. Without a single seller, the implications of this responsibility become unclear.

Although the text has been modified to only apply to the automated execution of data-sharing agreements for smart devices, such as connected cars and fridges, it does not specify private or permissioned networks. This lack of specificity extends the law’s scope beyond what lobbyists had requested.

The circulated text, shared privately with member governments by Spain, the current chair of the talks, reflects updates based on the provisional political agreement reached during a June 27 meeting. The text confirms that all political issues have been resolved, marking the conclusion of negotiations with lawmakers at the European Parliament.

Formal approval from the parliament and the Council of the EU, consisting of member state governments, is necessary for the text to become law. The blockchain industry will be closely following these developments to assess the impact they may have on their operations.