How the Data Act puts the DeFi industry at risk

The Data Act is creating divided opinions. The crypto industry is seeing its de-centralized nature come under fire. Meanwhile, politicians are trying to appease the situation.

Especially for Big Tech giants from Silicon Valley, data is probably the most important asset in the digital age. Data that the European Union plans to better control in the future using the "Data Act".. Because the power of Google, Apple, Amazon and other Tech companies is increasingly seen as a danger. The Tech giants are getting help from an unexpected quarter, namely the crypto industry that previously declared war on "big Tech."

The legislation is actually intended to give individuals more control over their own data. But the European crypto industry is sounding the alarm and sees huge limitations for the industry.

"Kill switches" for decentralization?

The reason for this can be found in section 30(1), where legislators from Brussels impose various requirements for smart contracts. In addition to high security measures, the EU specifically requires the implementation of a mechanism that enables the "secure termination or interruption" of the smart contract. In the crypt industry, this feature is known as a "kill switch." After shutdown, the data would be archived until the contract is changed.

Crypto lobby writes open letter

This is exactly what crypto industry representatives are criticizing. There is confusion about exactly what types of networks are covered by the Data Act. While the measures can be easily implemented for so-called "permissioned blockchains," the situation is different for "permissionless blockchains." For the latter, implementation of a kill switch would be difficult to imagine due to the decentralized nature of the network. Lobby groups subsequently wrote an open letter asking for more clarity.

Finance ministry tries to calm down

The Federal Ministry of Finance, on the other hand, is trying to calm things down. According to an answer to a question from Frank Schäffler (FDP), a member of the Bundestag, the paragraph is limited to "the implementation of data sharing agreements." Neither "business processes nor business models" would be hampered. Overall, the BMF believes that "public blockchain technology is capable of meeting the requirements."

Frank Schäffler sees this as a "all clear". Robert Kopitsch of the association "Blockchain for Europe" is less reassured. Although it is good that lawmakers are taking industry concerns seriously, "we remain concerned about the misunderstandings regarding permission-free networks", Let him know. And added:

"In a network that anyone can enter without permission, there is no entity that retains control, whether the blockchain is private or public."

He sees the Data Act as another attempt to integrate intermediaries into a system that does not rely on them. "This does not increase network security, but creates risks that did not exist before," Kopitsch said.

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