- A new European law has pushed for greater control over crypto and blockchain technology via smart contracts.
- The crypto community expressed concern over the risk of a smart contract kill switch mandate.
- European regulators, like, their American counterparts, are tightening the screws on crypto and blockchain regulation.
On Tuesday, European Union lawmakers overwhelmingly approved proposed data legislation that expressly allows for data sharing via smart contracts as part of a much larger effort to ‘unlock’ the untapped potential of industrial data and give users of IoT devices the right to access and share the data to which they have contributed.
The Data Act was proposed in February to promote fairness in the digital world, stimulate a competitive data market, open up opportunities for data-driven innovation, and make data more accessible to all. It covers some of the same ground as the European General Data Protection Regulation (GDPR). Still, it focuses on non-personal data and paves the way for it to enable innovation, as opposed to the GDPR, which is more concerned with personal data protection.
According to the European Commission, data volume is expected to increase from 33 zettabytes in 2018 to 175 zettabytes in 2025. Despite the abundance of data, the EC claims that 80% of industrial data is never used. The proposed rules are intended to help harness this data and generate an additional €270 billion ($287 billion) in GDP by 2028.
The Act, according to Thierry Breton, European Commissioner for Internal Market, is “an important step in unlocking a wealth of industrial data in Europe, benefiting businesses, consumers, public services, and society as a whole.”
“So far, only a small part of industrial data is used, and the potential for growth and innovation is enormous. “The Data Act will ensure that industrial data is shared, stored, and processed following European rules,” according to an EU press release.
As a result, the Act prioritizes innovation over protection. Article 30 of the Act covers “essential requirements regarding smart contracts for data sharing,” though not aimed at blockchain technology explicitly.
Several ‘essential’ requirements are outlined in this Article for when smart contracts are offered in the context of a data-sharing agreement.
Parties must ensure that the smart contract has been designed to provide ‘rigorous access control mechanisms’ and a very high degree of robustness to avoid errors and withstand manipulation by third parties.
Mechanisms for terminating the continued execution of transactions, such as internal functions to reset or instruct the contract to stop, must also be in place. There should also be a clear definition of the conditions under which a smart contract can be reset or instructed to stop.
Smart contracts must also “provide the same level of protection and legal certainty as any other contract generated through alternative means.”
They should also be designed to protect trade secrets’ confidentiality.
The provisions need to be more rigorous in engagement with smart contracts and their legal implications. However, they show that European legislators keep one eye fixed on the blockchain world as they regulate the Union. Whether these limited provisions are fit for purpose will be hotly debated; the imposition of requirements around the suspension of smart contracts will likely be viewed as undermining the benefits they provide in the eyes of some.
Having been approved by the European Parliament, the text will now be sent to the EU Council and European Commission for negotiations. The first round of the talks has been scheduled for March 28.