EU Data Law Passed by European Parliament, Smart Contracts Need Termination Switch

According to the official website of the European Parliament, the European Parliament has passed the final draft of the Data Act, which will require smart contracts to have a termination switch. The legislation is now pending approval by the European Council to be finalized.

European Parliament Passes Final Draft of Data Act

The European Parliament voted yesterday to pass the final draft of the Data Act, receiving 481 votes in favor, 31 against, and 71 abstentions. However, the legislation has been highly controversial within the cryptocurrency industry. In addition to regulating data processing for smart contracts, it also requires smart contracts to have a switch that can be terminated.

According to the Data Act draft Article 30, smart contracts must meet four requirements:

• Robustness: Ensure the secure design of smart contracts to avoid functional errors;
• Secure Termination and Interruption: Ensure that smart contracts have a mechanism for termination, including internal functions for resetting or interrupting operations to prevent unintended execution in the future;
• Data Archiving and Continuity: If a smart contract must be terminated or deactivated, it needs to archive transaction data, functional logic, and code to retain a record of past operations on the data for auditability;
• Access Control: Control access security of smart contracts through governance and functional layers.

The legislation still needs to be approved by the EU Council before becoming law and taking effect. However, the crypto community has expressed concerns about it.

Concerns in the Crypto Industry

The crypto industry views immutability as a feature of smart contracts that helps achieve the ideals of Web3 freedom. If the legislation passes, it may render most smart contracts currently in use illegal, and the negative effects on the crypto industry may be challenging to assess.

Some believe that introducing centralized mechanisms into decentralized systems could potentially reduce security. They also argue that holding sellers permanently responsible in decentralized systems may not be feasible.

This year, organizations in the crypto space such as Polygon, Near, Cardano, Stellar, IOTA, and others have voiced opinions and suggestions to the EU, such as changing the term "smart contract" to "digital contract" in hopes of mitigating the negative impact of the legislation on the crypto industry. However, according to reports from Coindesk, it seems that these organizations' opinions have not been adopted.

Corresponding Legislation in France

According to reports from DL News, the French Prudential Supervision and Resolution Authority (ACPR) is considering regulating smart contracts, with compliant smart contracts being designated as safe zones. However, these smart contracts may need to be "changeable" to meet the standards, requiring developers to update or rewrite the smart contracts.

The policy is currently in the discussion stage.