EU Parliament passes smart contract legislation under the Data Act
- According to the EU Data Act, smart contracts must have a kill switch and must not lack authorization.
- To enable the termination or interruption of transactions, smart contract developers may need to include reset options in their designs.
The European Union (EU) is getting closer to policing smart contracts as part of a larger data markets plan. With 500 votes in support and 23 votes against, the European Parliament on Tuesday approved the Data Act.
A single section of the “Data Act,” which was approved by the EU, specifically addresses blockchain smart contracts. Many people in the crypto world are against the rule that smart contract code include a kill switch to prevent the contract from running, especially if there is a malfunction.
The legislation, including its smart contract provisions, concentrates on information from devices connected, or the Internet of Things, rather than directly targeting the cryptocurrency business. However, some in the sector are concerned that the Data Act may have significant effects on cryptocurrency if the extent isn’t made explicit.
The European Union’s latest move should be paid more heed to by the crypto community since the DeFi infrastructure is entirely supported by smart contracts, which are automated executions encoded into software.
It is safe to say that the path to crypto adoption in the European Union is rather rocky. EU legislators were looking to establish strict crypto rules for banks in January.
It was pointed out by Professor Thibault Schrepel, Co-Director of the Amsterdam Law & Technology Center at VU Amsterdam, that the “smart contracts for data sharing” are not specifically defined in the smart contract clause.
On Twitter, he mentions a core issue: “who should have control over a smart contract kill switch. It could be the creator of the smart contract, some public authorities, or the courts.“
The “rigorous access control mechanisms” and trade secret security built into the structure of smart contracts are the part of the clause that worries adherents of cryptocurrency. It will be up to legislators to determine which circumstances would make it acceptable. The policy is looking to necessitate a mechanism that could end or halt transactions.
Companies must abide by the new regulations starting in 2024 if they want to offer services or goods to customers in the EU.
The rules are designed to give smart contracts the same degree of protection and legal security as other contracts created using other methods. Developers of smart contracts must take steps to ensure compliance with the rule, such as releasing an EU declaration of compliance.