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Conspiracy theorists have long warned about the vaunted “internet kill switch,” often arguing that any point of failure at which authorities can shut down the internet threatens freedom of information and expression, and in return censorship and control.
Something similar to an Internet Kill Switch is used in countries such as China, Iran, and Egypt, and the United Kingdom passed legislation implementing an Internet Kill Switch in 2003. Perhaps unsurprisingly, in this context, the European Union is currently proposing a kill switch for cryptocurrencies in its data law, which came into force on January 11, 2024, and the history of blockchain This poses a threat to the basic tenet of cryptography: immutability, which cannot be changed. Despite this threat, the industry was asleep at the wheel until the bill was passed through European tripartite negotiations.
In particular, Article 30 of the Act amounts to a clause that shuts down smart contracts, or the kill switch of the smart contract layer. This requires that automated data sharing agreements can be terminated in the event of a security breach, completely destroying immutability. Smart contracts are explicitly designed not to feature termination or interruption. It can't even be upgraded in many ways. If passed, the Data Act will dramatically change the use of smart contracts in the European Economic Area (EEA).
Blockchain technology is designed to store the entire history of events and data trails. If authorities can manipulate, replace, or falsify data on a network, they can essentially rewrite the modern history book, the Internet, paving the way for dangerous falsehoods like 1+1=3. It will be.
If Article 30 of the Data Act were applied to public networks, truly decentralized smart contracts would be effectively outlawed and the European cryptocurrency industry would disappear. These are a form of innovation because they cannot be terminated or interrupted by any intermediary, such as the creator of the smart contract, public authorities, courts, etc., who control something like a smart contract kill switch. It represents.
The fact that there is no significant opposition to the requirement for access control mechanisms that contradict the permissionless nature of public blockchains does not bode well for the future of cryptocurrencies in Europe.
Parties that agree to share data using smart contracts must comply with Article 30. It's unclear whether that includes defi, and it's also unclear under what circumstances “access control” is granted or how the kill switch is triggered.
For a continent that was once optimistic about its approach to cryptocurrencies, the recent passage of the Market in Cryptocurrency (MiCA) Bill has made the future more uncertain. Instead, there will be capital flight, innovation will stagnate, and a truly European blockchain industry could disappear.
As currently written, Article 30 could have an unexpected and dramatic impact on the European cryptocurrency industry and Europe's global competitiveness. For example, the definition of “smart contract” in the law needs to be refined to ensure that public blockchains are not excluded from the European market.
Regulators have several avenues to enact a smarter Section 30, such as requiring these rules only for businesses and not software or developers. Lawmakers must reconsider and clarify key aspects of Article 30 or risk sending entire industries overseas.
Still, the data law passed with 500 votes in favor and 23 votes against, so it has momentum. A small number of opponents among crypto companies have voiced their opposition to the bill, but further action is needed.
Now is the time for the European cryptocurrency industry to prove that it is community-first and demand that lawmakers clarify and even amend Article 30 of the Data Act to secure the future of blockchain. It's time to unite. As it stands, Article 30 threatens defi that relies on public blockchains and smart contracts. The internet is a modern public record, and smart contracts can protect it unless EU authorities allow it to be changed forever.