The European Union’s Data Act is generating plenty of buzz in the crypto sphere, introducing new regulations that could potentially reshape the digital landscape. The Data Act, complementing the Data Governance Act of November 2020, aims to clarify who can monetize data and under what conditions as part of the EU’s mission to spearhead regulatory leadership in a data-driven society. Nevertheless, ambiguity around certain aspects of the Act has sparked concern among blockchain experts and enthusiasts.
Recently, the EU lawmakers reached a political consensus on the Data Act, a milestone as labelled by Thierry Breton, the European Union Commissioner for the Internal Market. While progressing legislation on non-personal data, this consensus also introduces a so-called “kill switch” for smart contracts, inciting unease in the crypto community.
This “kill switch”, designed to terminate or halt automated data-sharing agreements during a security breach, is particularly worrisome. Existing smart contracts on public blockchains could suffer unforeseen consequences owing to the Data Act’s wide definition of smart contracts. Moreover, little clarity is provided on the safe termination or interruption conditions, resulting in a higher uncertainty level. This uncertainty is particularly problematic considering blockchain technology’s acclaimed immutability and irreversibility, which won’t allow for a smooth kill switch.
This provision is certainly troublesome, given the prominent role of smart contracts in digital finance. As blockchain technology and decentralized finance (DeFi) platforms become increasingly entwined, it’s crucial to fully comprehend the potential implications of this new EU regulation. The Data Act does not make a clear distinction between digital contracts and smart contracts that utilize distributed ledger technology. This lack of specificity might lead to ambiguity and confusion in the long run.
Making matters worse, the Data Act doesn’t clearly define “data sharing agreement”, nor does it explain whether prevalent smart contracts in Web3 applications adhere to these kinds of agreements.
Manifestly, issues arising from the Data Act are not merely hypothetical. Many predict that this new legislation could turn the use of smart contracts within the European Economic Area (EEA) on its head. There are even concerns about these rules bleeding into DeFi.
At the same time, errors can creep into kill switches due to human mistakes in smart contracts. The complications arising from these errors, compounded with automated features setting strict rules, could result in asset lock-ups, protocol shutdown, or even loss of funds and essential data.
In summary, while the European Union’s Data Act could reinforce regulations around data utilization, it also brings uncertainty and potential hazard to the flourishing world of blockchain and DeFi. Innovation should not be stifled by regulatory ambiguity; instead, a clear and practical regulatory roadmap will inspire trust and facilitate further growth in this exciting digital landscape.
Source: Cointelegraph
