Smart Contract Kill Switch: EU’s Data Act Ignores Industry Pleas

• The EU’s Data Act contains a kill switch clause that applies to all “smart contracts,” not just privately owned and permissioned data records as lobbyists had hoped.
• Negotiators reached an agreement on the controversial text on June 28, shortly after organizations linked to numerous blockchains expressed their concerns in an open letter.
• A final version of the new European Union Data Act rules largely ignores pleas from the blockchain industry, which worries they could make most smart contracts unlawful.

EU’s Data Act Final Draft Still Contains Controversial Smart Contract Kill Switch

The European Union’s (EU) Data Act regulates smart contracts and contains a kill switch clause that applies broadly to “smart contracts” rather than being limited to privately owned and permissioned data records as lobbyists had requested. Despite several organizations linked to Polygon, NEAR and Cardano expressing their concerns in an open letter, negotiators reached a deal on the controversial text on June 28th. This final version of the law largely ignores pleas from the blockchain industry, which worries it could make most smart contracts unlawful.

Scope Clarified for Automated Data-Sharing Agreements

The text of the law has been updated by negotiators from its original February 2022 proposals in order to clarify that it only applies when programs are used for “automated execution” of data-sharing agreements made for smart devices like connected cars and fridges. However, this scope still does not refer to private or permissioned networks, so appears wider than lobbyists had requested.

Responsibility on Vendors of Automated Programs

The text puts duties on “vendors” of automated programs – despite lobbying fears that this wording could impose perpetual responsibility upon decentralized cases with no single seller involved.

Political Agreement Reached at June 27 Meeting

The text was circulated privately among EU member governments by Spain under freedom of information laws on July 7th; Spain is currently chairing talks between lawmakers at the European Parliament regarding this matter and reportedly came to a political agreement at a meeting held on June 27th.

Industry Worry Over Law’s Impact On Smart Contracts

Industry experts remain concerned over how this law will impact “smart contracts” and whether it will effectively make them unlawful due to its broad application of the kill switch clause.