The European Parliament recently voted in favor of the Data Act, a legislation that aims to establish rules in various domains, including the development of smart contracts. With 481 votes in favor, 31 against, and 71 abstentions, the act now awaits formal approval from the European Council to become law. However, the possible effects of the Data Act on the blockchain sector have not been explicitly outlined in the press release.
Several members of the crypto industry, such as the European Crypto Initiative (ECI), have raised objections to the Data Act and its potential implications for smart contract developers. The ECI argues that the act places an unrealistic burden on developers and deployers of smart contracts, making them responsible for compliance even in cases where it may be impossible to do so. Furthermore, the demand for a “kill switch” to terminate or interrupt smart contracts has drawn criticism. The ECI points out that smart contracts are designed to be immutable and resistant to termination, and introducing a kill switch could compromise the integrity and introduce vulnerabilities.
The ECI also opposes any rule that would prohibit developers from creating immutable smart contracts. Immutability is a fundamental principle in blockchain technology, ensuring transparency and trustlessness. Additionally, the act’s provision that equates smart contracts with legal contracts has been met with disagreement. Smart contracts operate on a different basis and should not be subjected to the same legal framework as traditional contracts. This equivalence could stifle innovation and hinder the potential of smart contracts.
Another contentious point of the Data Act is its requirement for smart contracts to handle data in accordance with trade secret protection regulations. The ECI argues that this is an unnecessary restriction that disregards the unique characteristics of blockchain technology. Applying trade secret rules to smart contracts could impede their functionality and limit their potential use cases.
While the Data Act presents an extensive set of rules, it remains unclear how EU government agencies will enforce these regulations. Moreover, the introduction of overly strict rules could inadvertently push European blockchain companies to relocate to more favorable jurisdictions. By discouraging innovation and imposing burdensome regulations, the Data Act risks stifling the growth and development of the blockchain sector within the European Union.
The European Data Act’s impact on smart contract development remains uncertain. While the act aims to establish rules for data sharing and smart contracts, concerns have been raised by industry members regarding its potential consequences. The act’s demanding requirements, such as a kill switch and equivalency with legal contracts, may hinder innovation and limit the potential of smart contracts. Additionally, the act’s handling of data and trade secrets may not align with the unique nature of blockchain technology. EU government agencies must consider the enforcement of regulations and the potential consequences of driving blockchain companies away. Striking a balance between regulation and fostering innovation is crucial to ensure the growth of the blockchain sector within the European Union.