Key Facts.

  • The law will seek access to data held by the private sector that the state deems “necessary.
  • Blockchain expert Thibault Schrepel said the prophecy machine has been the most affected.

EU lawmakers have published another controversial bill to regulate the activities of the cryptocurrency industry. This time it's a so-called data law developed by the European Commission, which includes provisions that threaten data privacy and the invariance of smart contracts.

The project, dated February 23, 2022, includes an article with specific requirements for data exchanges in smart contracts. The regulation requires smart contract developers to include a close button in the code that allows "termination of continuous execution of a transaction. It also requires the inclusion of a mechanism to tell the smart contract to "reset, stop or break" to "prevent future (accidental) execution," according to the document.

According to CriptoNoticias Criptopedia, a smart contract is an application or computer program that performs one or more specific tasks by satisfying a series of pre-defined conditions or instructions. Its main benefit is that its implementation is not subject to interpretation by the parties or approval by an arbitrator, since they are executed automatically when the conditions written in the code are met.

Smart contracts are the basis for the operation of several decentralized ecosystems developed in Ether and other blockchain networks. Some of them, such as DeFi (decentralized finance), DAO (decentralized autonomous organization), Game Money Games (play to win games), and Meta Universe, have managed to gain significant capital.

If the new regulation is approved, the providers of the aforementioned services will be obliged to adapt their applications to the regulation. Thus, both the project and the State itself can stop the automatic execution of smart contracts if they consider, at their discretion, that there is a "risk" for the user.

Transaction data must be available

The European Commission's proposal also calls for the development of a system that allows for the "auditability" of data in smart contracts. For this purpose, a history of the operations performed will be kept, as well as data on each transaction, "the logic of the smart contract and the code", specifying the documentation.

Another point suggests that the contract must include "strict access control mechanisms in the governance layer".

Some reviews suggest that the article proposed by the European Commission stems from the recent multi-million dollar attack on the DeFi project, which was the result of the exploitation of vulnerabilities in its smart contracts. As reported by CriptoNoticias, the Solana Defi bridge Wormhole recently suffered the second largest hack in its history, with losses of about $318 million.

union-europea-1024x576.png.webp In the Data Act, the European Commission states that "exceptional circumstances" require a rapid and secure response. Source: Wikimedia Commons. New Controversy

The full availability of data and the possibility of stoppable smart contracts caught the attention of experts such as Thibault Schrepel, PhD professor of law at the University of Amsterdam, who specializes in blockchain networks.

Schrepel posted a tweet in which he warned that the European Commission's proposed regulation contains "great and controversial" provisions. "So …… basically, all oracles *will* be redesigned (but how?). Otherwise they will violate the law," the expert noted in his post.

"Need to be clear: Data law (if confirmed) prohibits millions of smart contracts that can't be redesigned. Good luck to everyone," Schrepel concluded in another tweet.

The controversy joins the one that erupted last week when the European Parliament amended the proposed law regulating cryptocurrency transactions, known as the MiCA law, to add a ban on cryptocurrency transactions using proof-of-work consensus. As CriptoNoticias reports, the deputy rapporteur had to suspend the vote on the bill due to pressure from several members of the European cryptocurrency ecosystem.