The EU and the Future of Smart Contracts: Are Ethereum and Polygon at Risk? –

Regarding cryptocurrencies like Bitcoin: the EU is planning a new regulatory authority

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Regulations recently introduced by the European Union, known as the Data Act, have raised concerns in the crypto and Web3 community. The potential impact on smart contracts, especially on platforms like Ethereum and Polygon, could be significant. Although the law was passed despite the opposition, the question arises: are we facing the ban on smart contracts in the EU?

The Impact of the Data Act: A New Era for Smart Contracts

With the passage of the Data Act by the European Parliament in March, we are entering a new era for smart contracts. The main aim of the Data Act is to ensure fair use of industrial data and remove barriers that prevent fair data sharing across various data-centric services such as the Internet of Things (IoT). These regulations aim to establish controls on how Big Tech and other companies across Europe use corporate and consumer data.

Source: Mittelstand-Digital Zentrum Chemnitz

However, many concerns arise when conducting decentralized transactions, such as those found in crypto and controlled by non-viable code. For example, the regulations include the so-called “smart contract kill switch” provision, which has drawn heavy criticism for its potential impact on smart contracts.

Although the final legal document of the agreement is not yet publicly available, reports indicate that more stringent amendments have been made to the original smart contract proposals. These changes aim to increase individuals’ control over their data. The regulation is specific to the enforcement of contractual clauses in the context of data sharing, although it is initially unclear to what extent this also affects smart contracts.

The Data Act is a major turning point in the way smart contracts could be regulated and regulated, and could have a profound impact on blockchain technology and its implementation in the EU. But despite the current uncertainty, it is clear that the Data Act has ushered in a new era for smart contracts and that their future will depend heavily on the final rules of this act.

EU passes Data Act including regulation of smart contracts
Source: CryptoSlate

Smart contracts under the magnifying glass: increased regulation in the EU

During the new Data Act regulations, the use of Smart Contracts in the European Union is subject to increased scrutiny. The focus is on the possibility of decentralized transactions in the crypto world through non-viable code – one of the basic functions of smart contracts. In particular, the crypto community and Web3 are concerned about the “smart contract kill switch” principle included in the regulations.

Initial proposals for smart contracts have reportedly been revised in the final version of the Data Act to increase users’ control over their data. The text of the law has changed in that it no longer specifically focuses on smart contracts, according to legislator Damian Boeselage. However, another source emphasizes that the final text of the law uses the term “smart contracts”.

Balancing the protection of user data while maintaining the decentralized nature of smart contracts is a complex challenge. The new regulations may also affect the use of smart contracts on open and permissionless blockchains, as there is no central authority to enforce regulatory restrictions.

However, the European Commission has indicated that the new regulations would not invalidate existing smart contracts. She also emphasized that the practical implementation of the requirements set out in the law should not create significant challenges for providers.

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The future of Ethereum and Polygon: The consequences of the Data Act for the crypto industry

The new Data Act raises important questions about the future of Ethereum, Polygon and other platforms that rely on smart contracts. These platforms have played a vital role in the development of the crypto market and the wider digital economy, particularly by supporting decentralized financial services (DeFi) and non-financial tokens (NFTs). However, the new Data Act could have a significant impact on how these platforms operate and are used.

All of the main concerns raised by the crypto industry relate to the possibility that the law could restrict or even ban the use of smart contracts. Ethereum and Polygon are known for their smart contract capabilities, and any limitations could seriously hinder the functionality and desirability of these platforms.

How Will Polygon Benefit From Ethereum Merge?  - Altcoin Buzz
Source: Altcoin Buzz

The impact of the Data Act on Ethereum and Polygon may depend on the precise wording and implementation of the law. Some experts have suggested that the law could limit the ability of platforms to conduct decentralized transactions, while others suggest that it could change the way data is handled within smart contracts.

There are also fears that the new regulations could limit innovation and development in the crypto industry as a whole. Some companies may reduce or even stop their efforts to develop new products and services due to the need to comply with regulatory requirements.

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Despite these concerns, some in the industry have expressed the view that the new regulations could ultimately be positive by helping to boost consumer confidence in cryptocurrencies and related technologies. By providing a clearer legal framework for the use of smart contracts, the new rules could help spur the growth and adoption of cryptocurrencies.

Ethereum in particular, which could benefit from this in the long term after its recent transformation into proof-of-stake with all the standards of sustainable and innovative cryptographic projects. But in the short term, investing in sustainable Ethereum options could also be worthwhile.

This new sustainable crypto project will not be affected by the Data Act and is currently a good alternative to Ethereum

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Last updated on June 30, 2023

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