Tuesday, 27 February 2024

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Blockchain devs expect complications from EU smart contract kill switch

Blockchain devs expect complications from EU smart contract kill switch

The Data Act — a contentious piece of European Union legislation that includes a clause requiring the ability to terminate smart contracts — has been approved by the European Parliament. If introduced, the legislation will require a smart contract to have a “kill switch.”

In a Nov. 9 press release, the parliament announced that the legislation was passed with 481 votes in favor and 31 against. The next step for it to become law is to gain the approval of the European Council.

In its current form, the Data Act stipulates that smart contracts must have the capability to be “interrupted and terminated,” and it mandates controls that allow for the resetting or halting of the contract. The stipulation appears to be a significant departure from the blockchain’s foundational ethos of decentralization.

How such kill switches would be implemented, and how they could impact the development and use of smart contracts remains unclear. Scott McKinney and Laura De Boel, attorneys with Wilson Sonsini Goodrich & Rosati, told Cointelegraph that such a kill switch is “fundamentally incompatible with what a smart contract is” and how it’s viewed.

They added that the definition of a smart contract included in the Data Act is “overbroad” and likely to encompass computer programs that wouldn’t currently be considered a smart contract. They added:

“However, it’s important to understand that the EU Data Act’s smart contract requirements will likely only apply to a relatively small subset of smart contracts (or potential smart contracts), i.e., smart contracts for executing of ‘data sharing agreements’ governed by the Data Act.“

Given the EU’s requirements — including the kill switch and data archiving obligations — they suggested that many companies entering applicable data sharing agreements “will simply decide not to use smart contracts in their applications.”

Gracy Chen, managing director at cryptocurrency exchange Bitget, told Cointelegraph that the implementation of such a kill switch “introduces a centralized element,” which may “erode trust in smart contracts, as users may beware of relying on contracts that external entities could potentially modify or shut down.”

As the EU moves closer to potentially cementing a smart contract kill switch into law, it’s unclear how it would enforce its application.

Enforcing a “kill switch”

Implementing and regulating such a mechanism would, according to Wirex co-founder and CEO…

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