Blockchain devs expect complexities from EU smart contract kill switch.

The Data Act – a controversial EU law that includes a clause requiring the ability to opt out of smart contracts – has been approved by the European Parliament. If introduced, the law would require smart contracts to have a “kill switch”.

In a press release on November 9, the parliament announced that the bill was passed with 481 votes in favor and 31 against. The next step for it to become law is the approval of the European Council.

In its current form, the data law stipulates that smart contracts must have the ability to “terminate and terminate”, and mandates controls to re-establish or terminate the contract. The regulation appears to be a significant departure from the basic ethos of blockchain decentralization.

It is unclear how such kill switches will be implemented and how they might affect the development and use of smart contracts. Scott McKinney and Laura de Boel, attorneys at Wilson Sonsini Goodrich & Rosati, told Cointelegraph that such a kill switch is “fundamentally incompatible with what a smart contract is and how it looks.”

He added that the definition of smart contract included in the Information Act is “excessive” and may include computer programs that are not currently considered smart contracts. He added:

However, it is important to understand that the EU data law's smart contract requirements only apply to a relatively small number of smart contracts (or potential smart contracts), i.e. smart contracts to enforce data-driven ‘data sharing agreements'. action”

In light of EU requirements – including kill switch and data archiving obligations – many companies have proposed that applicable data sharing agreements “decide not to use smart contracts in their applications”.

Gracie Chen, managing director at cryptocurrency exchange Bitget, told Cointelegraph that such a kill switch implementation “introduces a centralized element,” which “could erode trust in smart contracts, as users would be wary of trusting contracts that could be modified by external parties or shut down.”

As the EU moves closer to enshrining the smart contract killer into law, it's unclear how it will enforce its application.

Executing the “kill switch”.

Implementation and control of such a method, according to Pavel Matveev, co-founder and CEO of Wirex, sees smart contract deployments “by self-assessing compliance with the necessary requirements and issuing a declaration of conformity of the European Union.”

Matveev told Cointelegraph that the Data Act's definition of smart contracts is “broad and imprecise as to when termination or termination begins.”

McKinney and De Boel believe the regulation could hinder blockchain innovation in the EU because the requirements are “too strict, and providers have to go through potentially burdensome conformity assessments.”

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However, not everything is negative, but according to the data law, “European standardization organizations will be asked to develop unified standards for smart contracts.” He added:

“Increasing the standard will strengthen the use of blockchain in the EU and may lead to the introduction of smart contracts outside the data access agreements stipulated by the Data Act.”

Arina Dudko, head of corporate payment solutions for cryptocurrency exchange Cex.io, told Cointelegraph that when regulatory oversight of crypto companies was built, many “settled on a system of transparency and detailed reporting.” That system saw them complying with the relevant directives.

Dudco compares the regulations surrounding blockchain technology to the standards for safety and cars. When cars first hit the road, seat belts weren't mandatory, safety standards varied widely, and when regulations were finally passed, “safety standards fought hard before they gained some acceptance.”

Over time, regulations governing these safety standards have saved lives and led to safer roads, she said. She likened these developments to the EU's data law, saying it was facing “the same backlash”.

“Just like emergency exits and fire codes, these accommodations are critical to ensuring the environment and products we share are safe for everyone,” Dudko said. She said that crypto market participants need a way to escape “if they get into a bad or wrong commitment”.

“While this discourages the powerful from participating in these resources, introducing basic user protections can help welcome skeptics and curious participants to make their first transaction.”

Impact on blockchain adoption

Debate is ongoing about how the EU data law will affect the industry, with some suggesting it could lead to a backlash or even hinder adoption.

Several provisions, including geo-fencing services to maintain regulatory compliance, may hinder smart contract adoption in Europe.

According to Dudko, “there is an unfortunate aversion to regulation in some crypto ecosystems that goes against the founding principles of the industry,” but to her, regulation only hinders those with “limited vision.”

Dudko in the year The Bitcoin (BTC) genesis block reference to the 2008 financial crisis was a “clear reference” to the “pure response” to the crisis, itself a “result of lax regulation.” she added.

“Retail customers want less risk in their transactions, and legislators are right to want the ability to pull the plug if the opportunity seems too good to be true. The challenge for developers now is to work within these constraints and still stick the landing on consumer satisfaction.”

According to Chen, the kill switch “may impose additional compliance requirements on developers,” which could lead to delays and additional costs when implementing smart contracts.

In addition, the effectiveness and functionality of these modern contracts may be affected by strict data obligations. Chen added, “The enforceability of smart contracts largely depends on their autonomous and self-executing nature, and any intervention or intervention by third parties will threaten their integrity.

Don't make perfect the enemy of good

While the EU's new regulatory landscape presents some significant challenges for businesses employing smart contracts, it is imperfect but offers visible rules that are absent in many jurisdictions.

In the United States, various crypto exchanges including Coinbase, Kraken and Binance have been sued by regulators after being charged with enforcement. To date, the definition of cryptocurrency varies between different US financial watchdog agencies.

According to Chen, the EU is “generally more focused on prudence and regulation” than other major economies, while McKinney and de Boel said Europe “is at the forefront of regulating industries that are traditionally data-driven.”

“The Data Act, as part of this digital strategy, sets out agreed rules for data sharing arrangements. It is the first major regulation of its kind with such specific requirements and implications for smart contracts.

In contrast, the US has no federal smart contract law and “relatively few state laws regarding smart contracts, most of which specify that a smart contract can be a valid and binding contract.”

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Dudko said that the European Union is leading the common understanding rules that address the wider public awareness and use of digital currency. “Continues to set standards around process and project activities.”

While the data law is in progress, it has not yet been passed into law, which means that the blockchain industry still has time to prepare. The industry will know the true scope of the law only after it comes into effect.