Blockchain devs expect complications from EU smart contract kill switch
The Data Act — a contentious piece of European Union legislation that includes a clause requiring the ability to terminate smart contracts — has been approved by the European Parliament. If introduced, the legislation will require a smart contract to have a “kill switch.”
In a Nov. 9 press release, the parliament announced that the legislation was passed with 481 votes in favor and 31 against. The next step for it to become law is to gain the approval of the European Council.
In its current form, the Data Act stipulates that smart contracts must have the capability to be “interrupted and terminated,” and it mandates controls that allow for the resetting or halting of the contract. The stipulation appears to be a significant departure from the blockchain’s foundational ethos of decentralization.
How such kill switches would be implemented, and how they could impact the development and use of smart contracts remains unclear. Scott McKinney and Laura De Boel, attorneys with Wilson Sonsini Goodrich & Rosati, told Cointelegraph that such a kill switch is “fundamentally incompatible with what a smart contract is” and how it’s viewed.
They added that the definition of a smart contract included in the Data Act is “overbroad” and likely to encompass computer programs that wouldn’t currently be considered a smart contract. They added:
“However, it’s important to understand that the EU Data Act’s smart contract requirements will likely only apply to a relatively small subset of smart contracts (or potential smart contracts), i.e., smart contracts for executing of ‘data sharing agreements’ governed by the Data Act.“
Given the EU’s requirements — including the kill switch and data archiving obligations — they suggested that many companies entering applicable data sharing agreements “will simply decide not to use smart contracts in their applications.”
Gracy Chen, managing director at cryptocurrency exchange Bitget, told Cointelegraph that the implementation of such a kill switch “introduces a centralized element,” which may “erode trust in smart contracts, as users may beware of relying on contracts that external entities could potentially modify or shut down.”
As the EU moves closer to potentially cementing a smart contract kill switch into law, it’s unclear how it would enforce its application.
Enforcing a “kill switch”
Implementing and regulating such a mechanism would, according to Wirex co-founder and CEO Pavel Matveev, see smart contract deployers “self-assess compliance with essential requirements and issue an EU declaration of conformity.”
Matveev told Coinelegraph that the Data Act’s definition of smart contracts is “expansive and lacks precision regarding the circumstances under which interruptions or terminations should be initiated.”
McKinney and De Boel believe the regulation could hinder blockchain innovation in the EU as its requirements are “quite strict, and vendors will need to go through potentially burdensome conformity assessments.”
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Not everything is a negative, however, as the attorneys noted the Data Act provides “that European standardization organizations will be requested to draft harmonized standards for smart contracts.” They added:
“Increased standardization could strengthen the use of blockchain in the EU, and could even lead to greater adoption of smart contracts outside of the data access agreements that are regulated by the Data Act.”
Arina Dudko, head of corporate payment solutions for cryptocurrency exchange Cex.io, told Cointelegraph that as regulatory oversight of crypto companies builds, many have “settled on a system of transparency and detailed reporting.” That system has seen them adhere to applicable directives.
Dudko further compared the development of rules around blockchain tech to safety and standards rules for automobiles. When cars first hit roads, seatbelts weren’t mandatory, safety standards varied wildly, and when regulations were eventually introduced, “some vehemently fought progress in safety standards before they became accepted practice.”
Over time, she said, regulations surrounding these safety standards saved lives and led to safer roads. She likened these advances to the EU’s Data Act, saying it’s been facing a “similar phase of reactionary blowback.”
Dudko said that much like “emergency exits and fire codes, these accommodations are critical to ensuring the environments and products we share are safe for all.” Crypto market participants, she said, need a way to escape if they “get locked into a nefarious or misguided commitment.”
“While this could discourage hardliners from engaging with these resources, introducing basic user protections could serve to welcome skeptics and crypto-curious participants to make their first transaction.”
Impact on blockchain adoption
The debate on how the EU’s Data Act will impact the industry is ongoing, with some suggesting it could lead to a retreat or even hinder adoption.
Several provisions could hinder smart contract adoption in Europe, including geo-fencing services to maintain regulatory compliance.
According to Dudko, there’s an “unfortunate aversion to regulation in some offshoots of the crypto ecosystem that runs antithetical to the industry’s founding principles,” but to her, regulation is only a hindrance to those “with limited vision.”
Dudko argued that the Bitcoin (BTC) genesis block reference to the 2008 financial crisis was an “explicit mention” of the “pallid response” to the crisis, which was itself “the product of lax oversight.” She added:
“Retail customers want less risk in their transactions, and legislators are right to seek the ability to pull the plug if an opportunity proves too good to be true. The challenge for developers now is to work within these confines and still stick the landing on user satisfaction.”
Chen said that the kill switch could “impose additional compliance requirements on developers,” which could lead to delays and increased costs when deploying smart contracts.
On top of that, the effectiveness and functionality of these smart contracts could suffer due to strict data obligations. Chen added, “The enforceability of smart contracts heavily relies on their autonomous and self-executing nature, and any intervention or interference by third parties poses a risk to their integrity.”
Don’t make perfect the enemy of good
While the EU’s new regulatory landscape poses some significant challenges for businesses employing smart contracts, it provides an imperfect but visible set of rules that isn’t present in many jurisdictions.
In the United States, regulators have been accused of regulation by enforcement after suing various crypto exchanges, including Coinbase, Kraken and Binance. To this day, the very definition of cryptocurrency differs between different U.S. financial watchdog agencies.
Chen said that the EU is “generally more cautious and regulation-focused” than other major economies, while McKinney and De Boel said Europe is “typically at the forefront when it comes to regulating data-driven industries.”
”The Data Act, as part of this digital strategy, sets harmonized rules for data sharing arrangements. It is the first major regulation of this kind having such specific requirements and implications for smart contracts.”
In contrast, they said that the U.S. doesn’t have a federal smart contracts law and has “relatively few state laws regarding smart contracts, most of which simply clarify that a smart contract can be a valid, binding contract.“
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Dudko said the EU has led with “common sense regulations that speak to the public’s broad understanding and usage of digital currencies,” adding that “the U.S. and United Kingdom place “greater emphasis on asset classification and promotional messaging respectively,” while the EU is “continuing to set standards around procedure and project functionality.”
While the Data Act is progressing, it is still yet to be passed into law, meaning the blockchain industry still has time to prepare. The industry will only know the true scope of the law once it has come into effect.
Has Labour got the right strategy to tackle Reform UK?
Nigel Farage’s party cost the Tories dozens, maybe 100-plus seats at the general election. Now it looks like the party is hitting Labour too. But has Sir Keir Starmer got the right answers?
Last year, Labour won a landslide because the Tory vote collapsed, in part because Reform UK took chunks of their supporters in constituencies across the UK.
And here is the situation on 1 May this year – the national equivalent vote share at the council elections put Reform well ahead in first place. Success – this time at the expense of Labour too.
How big a threat is this to MPs? As a very crude experiment, Sky News has looked at what would happen if this result was replicated evenly across parliamentary constituencies.
Within the areas where there were county council elections are 77 complete Westminster seats with sitting Labour MPs.
This includes places like Wycombe, where Treasury minister Emma Reynolds holds. Or Lincoln, won by Foreign Office minister Hamish Falconer.
Now if – for fun – we mapped the country council results from 1 May evenly across these general election constituencies, almost all those Labour seats are gone. All lost, apart from five. That’s 72 out of 77 Labour MPs losing their seats and mostly to Reform UK.
What if we took that swing an applied across the whole country, places where there weren’t local elections?
Angela Rayner in Greater Manchester and Jess Phillips in Birmingham would lose their seats.
Yes this is a crude measure – it assumes a uniform swing can be drawn from the 1 May polls – and local and national elections are very different.
But importantly, YouGov’s latest national opinion polls paint a similar picture to the council elections. Meanwhile, 89 out of 98 constituencies where Reform came second place have Labour in first. Labour MPs are feeling the heat from Farage.
The Reform threat is real. Sir Keir Starmer knows it – and this year has started chasing Reform votes. Slashing aid spending. Abandoning green promises. Hard talk about immigration and living on an “Island of Strangers”.
Sensible given the clear and evident Reform UK threat? Actually – maybe not. Look at the data in detail:
This block here is all the people who voted Labour in last year’s general election. Now thanks to YouGov polling, we know what people in this block would do with their vote now.
It shows Labour has lost more than half of last year’s voters. Just 46% still say they’d still vote for Sir Keir’s party. But – despite the PM’s strategy – they’re not actually going to Reform in large numbers.
Just 6% of Labour’s voters at last year’s general election – six out of every 100 – said they would vote Reform now. That’s all. So where have they gone?
Well, they’ve been lost much more to liberal and left-wing parties – 12% to the Lib Dems, 9% to the Greens.
So just pause there. That means the number of Labour voters who have switched to the Lib Dems and Greens, arguably on the left of the political spectrum, is three times the number going to Reform to the right.
Just 2% go to the Tories.
And much more seriously for Labour, 22% aren’t going to vote, don’t know or won’t say.
The bottom line is people who voted Reform have never backed Labour in large numbers.
This shows how Reform supporters last year voted in each election since 2005. You can see – Reform voters are former UKIP voters. They’re Boris Johnson’s Tories.
Let’s put it another way. While 11% of Labour voters may one day be open to voting Reform, 70% are at risk of going to the Lib Dems or Greens – seven times the threat from Reform.
And typically, these voters don’t like the hard line, Reform-leaning policies of Sir Keir Starmer recently.
The local elections show there is a threat to Labour from Reform. But our data suggests Keir Starmer trying to be Nigel Farage lite isn’t the answer.
Is Labour’s strategy really working?
The US Securities and Exchange Commission has charged crypto platform Unicoin and three of its executives, alleging they made false and misleading statements about its crypto assets that raised $100 million from investors.
The SEC said on May 20 that it charged Unicoin CEO Alex Konanykhin, board member Silvina Moschini, and former investment chief Alex Dominguez with misleading investors about certificates that conveyed rights to receive Unicoin tokens and stock.
Mark Cave, associate director in the SEC’s Division of Enforcement, claimed the trio “exploited thousands of investors with fictitious promises that its tokens, when issued, would be backed by real-world assets including an international portfolio of valuable real estate holdings.”
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“The real estate assets were worth a mere fraction of what the company claimed, and the majority of the company’s sales of rights certificates were illusory,” Cave added.
The SEC’s complaint, filed in a Manhattan federal court, charged Unicoin and the three executives with various securities laws violations and asks for permanent injunctive relief, along with paying back the allegedly ill-gotten gains.
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After weeks of speculation among crypto enthusiasts and news outlets, Tron founder Justin Sun has claimed he owns the wallet that purchased the largest amount of Donald Trump’s memecoin, allowing him to qualify for a dinner and reception with the US president.
In a May 19 X post, Sun said he had received an invitation to attend Trump’s dinner at his golf club outside Washington, DC, as part of a reward for the top 220 memecoin holders. The Tron founder claimed he controlled the top wallet on the TRUMP token leaderboard under the username “Sun,” which held roughly $19 million worth of the memecoin at a price of $13.20.
According to Sun, he plans to network at the May 22 memecoin dinner, “talk crypto,” and “discuss the future” of the industry. It’s unclear why the Tron founder chose to announce his planned presence at the event now, when the leaderboard was finalized on May 12.
Cointelegraph reached out to a spokesperson for Sun for comment, but had not received a response at the time of publication.
Though not a surprise to many who speculated that Sun was the individual behind the memecoin purchases, his attendance at the dinner only deepens his ties to the Trump administration and the president’s family. In addition to the dinner for the 220 tokenholders, Trump said he would hold a reception and “VIP tour” for the top 25 wallets on the leaderboard.
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Sun spent $75 million on tokens through World Liberty Financial, the crypto platform backed by Trump’s three sons, including a $30 million investment a few weeks after the 2024 election. The Tron founder is also an adviser to the company.
Before Trump won the November election, Sun had been facing a lawsuit from the US Securities and Exchange Commission (SEC) filed in 2023 over the alleged “orchestration of the unregistered offer and sale, manipulative trading, and unlawful touting of crypto asset securities.” In February, roughly a month after Trump took office and appointed Commissioner Mark Uyeda as acting chair of the SEC, the regulator and Sun jointly filed a motion for a federal judge to stay the case, which was granted.
Memecoin’s potential conflicts of interest are affecting Congress
Sun’s and others’ involvement in Trump’s crypto ventures has prompted calls for investigations and oversight among many Democratic lawmakers, who argued that some individuals could use digital assets to essentially purchase influence with the president. The concerns initially slowed progress on a bill to regulate stablecoins in the Senate, the GENIUS Act, complicated by World Liberty Financial’s own stablecoin, USD1. The chamber voted to move forward on the bill on May 19, a few hours before Sun’s announcement.
“How convenient: the day after the Senate advances the GENIUS Act, Justin Sun — a major investor in the Trump family crypto venture — announces he’s getting a private dinner as the president’s top crypto buyer,” said Massachusetts Senator Elizabeth Warren, according to Bloomberg. “It’s critical that everyone understands the GENIUS Act doesn’t stop this type of corruption — it greenlights it.”
At a May 20 oversight hearing, Maryland Representative Glenn Ivey questioned SEC Chair Paul Atkins on Sun’s case being stayed, as well as his investments in World Liberty Financial and Trump’s memecoin. Though the case was stayed before Atkins was sworn in as chair, Ivey expressed concern about the timeline between Sun’s investments and the SEC not pursuing its own enforcement action.
The memecoin dinner applicants are likely still subject to background checks before meeting Trump in person. As of May 20, those planning to attend included Kronos Research chief investment officer Vincent Liu, Hyperithm co-CEO Oh Sangrok, Synthetix founder Kain Warwick, a consultant named Vincent Deriu, crypto user Morten Christensen, a World Liberty Financial adviser going by the pseudonym “Ogle,” and a representative from the startup MemeCore.
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