European Union Smart Contract Regulatory Guidelines Released in Council’s Data Act Draft

Smart contracts will reportedly have to include a “kill switch” under an update of the European Union’s (EU) Data Act which was recently released by the bloc’s member states on Monday (March 27, 2023).

The European Union’s Council, which is focused on representing national governments, reportedly agreed on the wording of the document this past Friday. Its proposals seem to be aligned with those currently supported by policy-makers at the European Parliament.

The final-draft wording of the new law will have to be negotiated between the parliament as well as the Council and mediated by the European Commission (EC), which forms a key part of the European Union’s executive branch.

The proposed legislation that is now requiring smart contracts to have the ability to interrupt or terminate their activity has raised concerns in the crypto and blockchain sector that the guidelines could potentially undermine these innovative, automated, and unalterable software programs.

Erik Slottner, who is the Swedish minister that was the Chairperson during the Council’s conference, stated this past Friday that the law should allow data to move “freely” within the European Union as well as across sectors for the benefit of various businesses, researchers, public administrations as well as society in general.

As noted in the update, these rules may be applicable to (smart) contracts that provide certain data as part of controls on smart-home apps such as fridges. However, it is not clear at the moment just how far these guidelines would actually go in practice.

Marina Markezic, a founder of the European Crypto Initiative, shared that it might be challenging, if not entirely impossible, for the vast majority of smart contracts to adhere to the guidelines as proposed by the EU parliament.

Thierry Breton, a commission official tasked with handling digital issues, has said that he does not support the current policymakers’ draft, adding that it hinders the ability to establish clear standards for blockchain-based smart contracts.

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