The European Parliament has voted in favour of a proposed law on smart contracts. The proposed draft, which is part of the Data Act, aims to reshape smart contracts so that they can be “stopped” or “reset”. However, the wording of the proposed law is ambiguous, causing experts to worry that it could jeopardise smart contracts in DeFi and limit innovation in the blockchain sector.
EU bill targets smart contracts
By a vote of 500 to 23, the European Parliament has voted in favour of a bill targeting smart contracts, which are blockchain-based programmes that allow, among other things, the deployment of decentralised applications (dApps) or the automation of certain processes.
Introduced as part of the Data Act, this project aims to remodel smart contracts so that they can be “stopped” or “reset”. In other words, this would simply break the inherent immutability of smart contracts, although the bill is not aimed at the cryptocurrency sector in particular.
However, when asked by The Block, ConsenSys’ legal counsel Natalie Linhart is optimistic about the current wording of the document. She said:
“We view Article 30 as a marginal provision applicable to smart contracts facilitating data transfers involving IoT products, not those deployed in DeFi applications. “
However, it should be noted that the bill will now have to be debated in negotiations within the European Council and the various EU member states. Therefore, its final form is likely to change, and Natalie Linhart adds that we must remain vigilant in this respect:
“Setting substantial requirements for blockchain development would restrict innovation and make the EU an unwelcoming place for software developers. “
But the project is worrying
Curve, one of the ecosystem’s leading decentralised finance protocols, has highlighted the unworkability of the project as it stands for DeFi. Michael Lewellen, Head of Solutions Architect at OpenZeppelin, supports this and adds that a protocol like Uniswap (UNI), among others, would be unable to cope with this type of demand.
Smart contract developers may need to design reset possibilities to allow termination or interruption of transactions.
☻ The European Parliament adopted legislation under the Data Act on Tuesday, with 500 votes in favour and 23 against.
Fire them all. Impossible to comply here https://t.co/FV8lJdcrqX
– Curve Finance (@CurveFinance) March 14, 2023
On Twitter, academic Thibault Schrepel warns of the dangers of the text, which could “jeopardise smart contracts to an extent that no one can foresee” if the immutability of smart contracts is indeed called into question.
Furthermore, he points out a certain lack of clarity in the text, which mentions “smart contracts for data sharing”, a definition that needs to be fine-tuned or it could apply to all classes of smart contracts.
Finally, according to him, it remains to be determined who will be able to “cut” a smart contract, as the text proposes:
“Is it the creator of the smart contract? Public authorities? The courts? If the European Parliament wants to go ahead with Article 30, future versions should at least clarify that only the creator of a smart contract can terminate it.”
