HomeBlockchainRegulationEurope’s Data Act: the requirements for smart contract developers

Europe’s Data Act: the requirements for smart contract developers

Europe’s Data Act recently went into force, and the legislation has far-reaching requirements that could force smart contract developers to comply with strict requirements–such as terminating a live smart contract–even in cases where the smart contract features immutability, thus making any changes impossible. 

“Safe termination and interruption: ensure that a mechanism exists to terminate the continued execution of transactions: the smart contract shall include internal functions which can reset or instruct the contract to stop or interrupt the operation to avoid future (accidental) executions,” reads Article 30 of the Data Act.

In essence, the Data Act outlaws immutable smart contracts, and thus true blockchain applications, potentially marking the dawn of a dark day for the European crypto industry after much optimism around Markets In Crypto Assets (MiCA) legislation passed last year.  The draconian rules in the Data Act are likely to cause an exodus of crypto talent away from the continent if lawmakers don’t see the errors in their ways and quickly. 

The Data Act’s demand for a mechanism to safely terminate or interrupt smart contracts represents a kill switch for blockchain-based apps. It goes entirely against the nature of blockchain’s innovation. Smart contracts are designed to avoid interference and potential termination dictated by authorities. That is the entire point of not having a middleman, after all. Such a kill switch is also a single point of failure and threatens to create additional exploit risks, potentially putting user funds at serious risk. It’s a disaster of a bill for crypto.

Although the Data Act is officially designed to remove barriers to data access, it actually creates barriers to access in the context of blockchain–talk about unintended consequences. That’s right–the data act achieves the opposite of what it set out to do. Aside from the fact that the Data Act basically renders smart contracts unlawful, the Act also fails to clearly define smart contracts and those instances when authorities could demand a smart contract be terminated. It’s a whole lot of uncertainty that should make the European blockchain industry very, very nervous. It’s on the crypto industry to clean this mess up.  

Undermining blockchain’s immutability is nothing more than innovation killing. Immutability is how blockchain ensures the integrity of data passing through the ledger. Information added to a blockchain should generally be unalterable so that no entity can manipulate, replace, or falsify data on the network. But EU lawmakers have chosen to ignore this innovation. 

Public blockchain immutability bolsters trust in the system, reducing the time and cost of audits. It’s an absolutely essential feature of any real blockchain. tEnterprises should in particular want  immutability, since it provides organizations with needed data integrity. With blockchain immutability, organizations can demonstrate to stakeholders that certain information is accurate.

The proven history of a transactional ledger increases ease and efficiency in the auditing process. Use cases cropping up in this domain include supply chain management, financial disclosures, and identity management. Many data problems faced by enterprises can be solved with blockchain-based immutability.  

One of blockchain technology’s strengths is that it preserves the full history and data trail. The blockchain’s integrity can be proven at any time by re-calculating the block hashes so that organizations and regulators can detect fraud, etc.

The entire crypto industry throughout Europe must unite against the Data Act’s Article 30, because it threatens to put a freeze over the entire crypto industry with what amounts to a backdoor. The blockchain’s immutability must be defended at every turn, and it is on the European crypto industry’s shoulders to lead the way. 

Kadan Stadelmann

Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform’s chief technology officer. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Kadan started his journey into blockchain technology in 2011 and joined the Komodo team in 2016.