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EU Data Act’s Smart Contract “Kill Switch” Sparks Concern in Crypto Community

EU Council and Parliament's agreement on June 28 marks a step closer to enacting legislation regarding non-personal data.

by Alexander
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European Union (EU) lawmakers have reached a consensus on the EU Data Act, which includes a controversial “kill switch” provision for smart contracts. This development has caused significant upheaval within the crypto community. The EU Council and Parliament’s agreement on June 28 marks a step closer to enacting legislation regarding non-personal data.

The Data Act supplements the Data Governance Act from November 2020, aiming to establish clear guidelines for deriving value from data and its usage conditions. It aligns with the EU’s strategy for data, seeking to position the EU as a frontrunner in regulating the data-centric era.

However, the Data Act’s “kill switch” provision has alarmed the blockchain community. The Act’s definition of smart contracts is seen as overly broad and potentially impacting existing smart contracts on public blockchains. Moreover, the Act lacks clarity on the conditions triggering the “kill switch,” raising uncertainties given the immutability of blockchain technology.

The lack of differentiation between various types of contracts, including those utilizing distributed ledger technology, has added to concerns. The implications extend beyond smart contracts, potentially impacting decentralized finance (DeFi) platforms and protocols.

This uncertainty has prompted the crypto community to propose alternative solutions. Polygon, for instance, suggested limiting the Act’s scope to enterprises and excluding software and developers. An open letter signed by several crypto organizations, including Stellar, Iota, and Coinbase, highlights concerns and calls for lawmakers to address ambiguities and potential clashes with existing regulations.

As the Data Act moves toward approval by the European Parliament and Council, its impact on the crypto and blockchain landscape remains a subject of intense debate and scrutiny.

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