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- The EU Data Act poses a significant risk to permissionless blockchains, particularly Ethereum, with potential implications for decentralized finance.
- Industry experts are working to prevent the adoption of the data bill in its current form, as it could hinder the decentralization of smart contract-based systems unintentionally.
As part of its Data Act, the European Parliament has set out new rules and requirements for smart contracts. As per the Article 30 of the Data Act, there’s been a lot of questions about the restrictions that it would bring over the current use of smart contracts.
Crypto industry experts believe that public blockchain networks are more vulnerable to facing the heat of the Data Act, that impacts decentralized applications (dAppS). The recently enacted legislation seeks to establish regulations for the management of shared data and foster increased legal clarity at the European Union (EU) level concerning this matter. The objective is to ensure that users have clear and open access to the data they generate, promoting transparency.
Industry players like IOTA and Polygon have come together to address this ban on smart contracts. They are working with other global platforms like INATBA over the same.
Yesterday, the Council Working Party discussed the #EUDataAct, shaping the future of #Blockchain & #SmartContracts. Let’s unite as an industry to influence critical terminology changes.🔔Join https://t.co/f3F4rRwp0Q @EuCInitiative @BlockchainforEU @EUBLASORG @DigitalDcgg @Iota
— INATBA (@INATBA_org) June 20, 2023
Currently, the Data Act provides an imprecise legal distinction between smart contracts and traditional legal contracts. this might complicate things unnecessarily if the regulation actually comes into the picture. Dominik Schiener, co-founder and chairman of IOTA, summarizes to BTC-ECHO:
Due to its breadth, the current wording of the Data Act leads to uncertainty about the legality of numerous existing smart contracts. This puts start-ups and SMEs that depend on this technology in a precarious position. Business processes are disrupted and business models endangered, which has negative economic consequences. If smart contracts using public blockchains are deemed illegal due to an overly broad interpretation of the Data Act, there will be significant negative consequences for these companies.
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IOTA and Polygon Push Back Against EU Data Act
The Data Act is likely to impact some of the largest smart contract protocols such as Ethereum, Cardano, Polkadot, Binance Chain, and others. The law would require increased compliance and code adaptation, leading to additional testing, auditing, and verification. It also impacts the immutability of smart contracts, necessitating the inclusion of a “kill switch” for emergency situations, which is a topic of debate in the crypto community.
The lack of precision in defining smart contracts for data exchange within the law creates uncertainties surrounding their application. The IOTA co-founder argues:
The law positions smart contracts in the context of a data delivery agreement. This means that not all smart contracts are considered legal contracts under this law. This ambiguity extends to the debate over controlling the kill switch.
The European Union’s Data Act poses a significant risk to permissionless blockchains, such as Ethereum, and there is limited time to prevent a burdensome outcome, according to Rebecca Rettig, chief policy officer at Polygon Labs.
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Rettig’s remarks highlight the industry’s growing efforts to avert a potential ban on smart contracts, which are vital to decentralized finance and the Ethereum ecosystem. The crypto industry is alarmed that the data bill could advance to the next approval stage unless amendments are implemented promptly.
“This almost feels like a back-end way to regulate those or not allow any smart contract-based systems to be fully decentralised,” Rettig told DLNews, adding that this is probably not an intentional move.
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