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EU Data Act designs a new contract closure mechanism

The European Union has unveiled its new Data Act, a legislative proposal aimed at regulating data collection and handling by the entities that use it. The legislation, in its broad scope, mentions smart contracts and suggests that every smart contract contains a termination mechanism to halt the flow of transactions when necessary.

The newly proposed European Union (EU) Data Act was unveiled on February 23. It proposes to govern and manage how data is created, giving legal clarity to Europe’s data market. The new Data Act, according to a news release, aims to “guarantee justice in the digital environment, encourage a competitive data market, offer prospects for data-driven innovation, and make data more available to all.”

This new measure, however, touches on the topic of smart contracts, which are bits of software meant to execute particular activities based on data inputs, due to their broad reach. One of these criteria, under “safe termination and interruption,” stipulates that authorised smart contracts must provide internal functions that can reset or tell the contract to cease or interrupt the activity in order to avoid subsequent (accidental) executions.

Another criterion for the EU to validate smart contracts is the capacity to audit them, including the ability to access a record of previous transactions conducted by the programme. According to sources, the EU has recently focused on cryptocurrencies, with some of its member nations advocating for the establishment of a crypto AML watchdog in the area.

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