European Union (EU) lawmakers have reached an agreement to push ahead with the contentious European Data Act. The Act, which aims to promote fair use of industrial data and facilitate the sharing of data generated by various data-centered services, has sparked criticism from the crypto community. The deal, confirmed by Thierry Breton, the EU’s Commissioner for Internal Markets, marks a milestone in the EU’s efforts to regulate the digital space. 
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The European Parliament initially passed the Data Act on March 14, but negotiations among EU lawmakers regarding the final version of the bill have been ongoing. The legislation primarily focuses on enhancing the utilization of data resources to train algorithms, potentially leading to lower service costs. However, it has drawn heavy criticism from the crypto community due to its proposals surrounding smart contracts and perceived vagueness. 
One of the main concerns raised by crypto proponents is the inclusion of provisions in the act that impose new requirements on smart contracts, including the mandatory inclusion of “kill switches” to safely terminate them. Smart contracts, decentralized applications that execute business logic in response to events, play a vital role in various blockchain-based applications. Critics argue that these new requirements could restrict innovation and pose challenges for smart contracts within the crypto industry. 
Martin Hiesboeck, head of research at Uphold, previously highlighted that smart contracts were moving closer to falling under EU-wide regulation within a broader strategy on data markets. The recent revision to the EU Data Act, published by the member states in March 2023, now mandates smart contracts to have a kill switch, further fueling concerns within the blockchain industry. 
The amendment proposed by the EU Council, which represents national governments, aligns with the preferences expressed by European Parliament lawmakers. It stipulates that smart contracts must be capable of terminating or interrupting their activity, adding to the apprehension surrounding potential limitations on blockchain-based smart contracts. 
The European Crypto Initiative and other advocates have voiced their concerns, fearing that the Data Act’s ambiguous language and requirements could have a detrimental impact on the decentralized finance (DeFi) sector within the EU. Marina Markezic, executive director of the European Crypto Initiative, warned that compliance with the Data Act requirements could pose significant challenges, potentially restricting the use of public blockchains for utilizing smart contracts. 
Of particular <a href="https://news.todayq.com/eu-data-act-sparks-concerns-for-defi-sector-and-smart-contract-regulations/">concern</a> is Article 30 of the legislation, which outlines “essential requirements regarding smart contracts for data sharing.” If passed, this law would necessitate smart contracts to be designed in a manner that allows for termination or interruption, which contradicts the inherent nature of blockchain-based smart contracts. The bill also emphasizes the need for robust access control mechanisms at the governance and smart contract layers. 
The blockchain industry, particularly the DeFi sector, now faces uncertainty as it grapples with the potential ramifications of these regulations. The Data Act’s intentions to regulate data shared between smart devices within Internet of Things networks could inadvertently stifle innovation and hinder the growth of blockchain-based applications in the EU. 
As the EU moves forward with the European Data Act, stakeholders in the blockchain industry eagerly await further clarification and amendments to address the concerns raised by crypto proponents. The balance between regulatory oversight and fostering innovation in the digital space remains a critical challenge that policymakers must address to ensure a thriving and inclusive future for emerging technologies. 
The European Parliament recently made history by <a href="https://news.todayq.com/news/eu-lawmakers-pass-mica-with-a-huge-margin-laws-to-come-into-effect-next-year/">approving</a> the MiCA Act, the world’s first comprehensive cryptocurrency law. Additionally, the Transfer of Funds Regulation (TFR) was also passed, mandating cryptocurrency providers to identify their clients to combat money laundering. The approval of the MiCA regulation represents a significant milestone for the European Union’s cryptocurrency industry as it seeks to establish consistent regulations and harmonize rules for digital assets. This move will alleviate the compliance challenges faced by businesses in the sector, which currently have to navigate 27 distinct regulatory frameworks across EU member states. 
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European Union’s Data Act is a major concern for smart contracts: Find out why.

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