The European Parliament (EP) has passed a bill requiring that smart contracts contain a so-called ‘kill switch’. The purpose of the kill switch is to allow authorities to halt or modify the execution of a smart contract in the event of illegal activity, security vulnerabilities or other unforeseen events. Does this jeopardize the existence of smart contracts?
EU introduces new crypto law
The legislation hopes to increase consumer protection and prevent fraud in the fast-growing world of decentralized finance (DeFi) and other blockchain applications. Smart contracts are self-executing programs that are stored on a blockchain and can automate the process of exchanging value or other assets. A kind of digital agreement.
While smart contracts have the potential to revolutionize many industries, they are not foolproof. Bugs, errors or vulnerabilities in the code can lead to major negative consequences, as seen with several DeFi-hacks during the past years.
The new EU bill stipulates that smart contract developers must use external auditors access to review their code for errors and vulnerabilities. This requirement aims to ensure that smart contracts are secure, reliable and compliant with existing regulations.
The bill was widely supported by legislators recognizing the importance of regulating the rapidly evolving world of DeFi and blockchain. The MEPs who led the bill’s draft stated that the legislation would provide much-needed legal certainty for companies and individuals using smart contracts.
Is the kill switch too far?
The new EU bill is the latest development in the global trend towards regulation of the cryptocurrency and blockchain industry. Several other countries, including the US and Japan, have implemented regulations, or are due to do so in a relatively short period of time planning onwhich aims to promote innovation while protecting consumers.
However, some critics of the EU bill argue that the kill switch requirement goes against the decentralized nature of blockchain technology. They argue that such a requirement could lead to centralization and put the government back in power in a position where it is not wanted.