Europarliament approves Data Act that requires kill switches on smart contracts

The act would encourage data sharing, but it imposes requirements for smart contracts used in this setting that have alarmed members of the crypto community.

The European Parliament passed the Data Act on March 14. The comprehensive bill was intended to “boost innovation by removing barriers obstructing access to industrial data.” Among its provisions is an article that would require smart contracts to be alterable. 

The legislation established rules for fairly sharing data generated by “connected products or related services,” such as the Internet of Things and “industrial machines.” Eighty percent of industrial data generated is never used, the Europarliament noted in a statement, and this act would encourage greater use of those resources to train algorithms and lower prices for device repairs.

The act contains provisions to protect trade secrets and avoid unlawful data transfers and it set requirements for the smart contracts of parties offering sharable data, including “safe termination and interruption”:

“The smart contract shall include internal functions which can reset or instruct the contract to stop or interrupt the operation; […] Especially, it should be assessed under which conditions non-consensual termination or interruption should be permissible.”

The act also granted smart contracts equal protection with other forms of contract.

Experts identified a number of issues with the legislation. OpenZeppelin head of solutions architecture Michael Lewellen commented in a statement provided to Cointelegraph:

“Including a kill switch undermines immutability guarantees and introduces a point of failure since someone needs to govern the use of such a kill switch. […] Many smart contracts such as Uniswap do not have this kill switch ability.”

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Prof. Thibault Schrepel of the Vrije Universiteit Amsterdam said in a tweet that the act, “endangers smart contracts to an extent that no one can predict,” and pointed out sources of legal uncertainty in the act. In particular, he found that it did not specify who could stop or interrupt a smart contract.

Today, the @Europarl_EN is debating the Data Act (https://t.co/cwDOFDGmU9). My thoughts on the latest version of Article 30 (#smartcontracts).
➝ The immutability of smart contracts is key to their survival (i.e., immutability is their main differentiating https://t.co/X3XfgRC6ZL… https://t.co/4JHg2fP84j pic.twitter.com/8QTSBxSueH

— Thibault Schrepel (@ProfSchrepel) March 14, 2023

The bill was passed by a margin of 500-23, with 110 abstentions. Parliament members will now negotiate the final form of the law with the European Council and individual member countries of the European Union.