The European Parliament authorizes the Data Act, mandating kill switches for smart contracts

The legislation would promote data sharing, but it puts constraints on smart contracts used in this context that have concerned crypto community members.

The European Parliament enacted the Data Act on March 14. The comprehensive measure aimed to “promote innovation by reducing obstacles to accessing industrial data.” Among its features is an item mandating the customizability of smart contracts.

The law created regulations for the fair sharing of data produced by “connected products or associated services,” including the Internet of Things and “industrial machines.” The European Parliament said that 80% of industrial data is never utilized. This legislation will promote better use of these resources to train algorithms and reduce device maintenance costs.

The legislation included rules to preserve trade secrets and prevent unauthorized data transfers. It established standards for the smart contracts of parties selling shareable data, including “safe termination and interruption”:

“The smart contract must have internal operations that may reset or tell the contract to halt or interrupt its activity. […] Specifically, it must be determined under what circumstances non-consensual termination or interruption may be allowed.”

The statute also offered smart contracts the same level of protection as conventional contract types. Specialists with the Act noted several difficulties. Michael Lewellen, head of solutions architecture at OpenZeppelin, issued the following statement to Cointelegraph:

“The inclusion of a kill switch compromises immutability guarantees and establishes a single point of failure, since someone must regulate its usage. […] Several smart contracts, like Uniswap, lack this kill switch capability.”

Professor Thibault Schrepel of the Vrije Universiteit Amsterdam tweeted that the legislation “endangers smart contracts in ways that no one can anticipate” and cited the measure’s legal difficulties. Specifically, he discovered that it did not indicate who may cancel or terminate a smart contract.

The measure was approved by a vote of 500 to 23, with 110 members missing. Members of Parliament will now discuss the bill’s final shape with the European Council and individual European Union member states.

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