Are Ethereum and Polygon’s Smart Contracts Soon to Be Forbidden in the EU? Lawyers Strongly Criticize New Law Restricting Advancement and Development

The legislative representatives of the European Union have reached a consensus on new regulations referred to as the Data Act. This development follows apprehensions the crypto and web3 community voiced regarding the potential negative impact of the regulations on smart contracts, raising concerns that the sector could be adversely affected. Nevertheless, the act has proceeded despite these concerns, incorporating the contentious smart contract kill switch provision.

Following the passage of the Data Act by the European Parliament on March 14, negotiations have been underway among EU lawmakers to finalize the bill.

The primary objective of the act is to ensure the equitable utilization of industrial data and eliminate obstacles that hinder the fair sharing of data generated by ious data-centric services, including the Internet of Things (IoT).

The regulations will establish controls on how Big Tech and other businesses operating within Europe utilize corporate and consumer data. This alteration forms part of a broader overhaul of internet-connected devices’ data regulations.

The existence of decentralized transactions, such as those occurring in the crypto sphere, which is governed by unchangeable code, raises concerns for many. The agreement has been confirmed by Thierry Breton, the commissioner responsible for the EU’s internal market.

Another deal! 👍👍
⁰Tonight’s agreement on the #DataAct is a milestone in reshaping the digital space.

Thanks to the swift work of the EP @delcastillop & the 🇸🇪 Council Presidency, we are on the way of a thriving 🇪🇺 data economy that is innovative & open — on our conditions. pic.twitter.com/vTWUU8xTx9

— Thierry Breton (@ThierryBreton) June 27, 2023

Tighter Revisions for Smart Contracts in Data Act

The conclusive legal document of the agreement has not yet been released to the public. Nonetheless, reports indicate that the initial proposals regarding smart contracts have undergone tighter revisions. These modifications are intended to enhance individuals’ authority over their data.

As per lawmaker Damian Boeselage, “With the adjustments made to the text, we are no longer addressing smart contracts. Additionally, the regulation applies specifically to the ution of contractual clauses in the context of data sharing.”

On the other hand, an alternate source asserted that the law’s final version still employs the term “smart contracts.” In response to concerns raised by the blockchain industry, the commission addressed them by stating that the new regulation would not render existing smart contracts null and void.

Additionally, the commission emphasized that the practical implementation of the high-level requirements outlined in the regulation should not pose significant challenges for vendors.

Nevertheless, it remains to be seen whether the ultimate agreement will address concerns regarding the feasibility of implementing the measures on open and permissionless blockchains where there is no central authority to enforce regulatory limitations.

According to an open letter signed by several crypto groups, the Data Act could conflict with the recently implemented MiCA (Markets in Crypto Assets) regulation. The letter highlights that licenses will be granted to cryptocurrency exchanges and wallet providers to operate throughout the European Union under the regulations. The implementation of MiCA is scheduled for 2024.

However, the Data Act still needs to achieve the status of a law. The approval of the wording reached by negotiators for the Data Act to be recognized as the law requires the endorsement of the European Parliament and Council, representing the 27 European Union nations.