How dangerous is the EU’s smart contract ‘kill switch’?

The European Union’s new smart contract “kill switch” has angered many in the blockchain ecosystem. How threatening is this to the industry and the immutability of smart contracts?

Last week, the crypto community was up in arms about a provision in a new EU law that would mandate the inclusion of a “kill switch” for terminating smart contracts.

Section 30 of the Data Act, which was passed on Tuesday, March 14, ensures that there must be a clearly defined mechanism for terminating or interrupting the operation of any smart contract. The passage in Article 30 says:

“Safe Termination and Interruption: Ensure that a mechanism exists to terminate the continued execution of transactions: The smart contract shall include internal functions that prevent or interrupt the contract in order to avoid future (accidental) execution.” In this regard, the conditions under which a smart contract may be reset or instructed to stop or interrupt must be clearly and transparently defined. Therefore, it should be assessed under what conditions non-consensual termination or interruption should be permitted.

Other provisions of Article 30 are less controversial. A clause is included that ensures smart contracts have strong security features to prevent mistakes or tampering by third parties.

The regulations have caused consternation among those in the crypto, DeFi, and smart contract communities. But why?

immutability is key

First, smart contracts perform a few important functions. They allow developers to write web apps that consumers can use without having to trust the people who wrote them. A big factor here is immutability, a fundamental concept in blockchain technology, which includes smart contracts. The immutability of a smart contract refers to its inability to be changed once it has been deployed in the blockchain.

You can technically “upgrade” a smart contract. whether to improve functionality, fix bugs, or better adapt to technology or user need. But such steps are the exception, not the rule. (Because a smart contract is immutable, the upgrade isn’t done the same way you upgrade a non-blockchain-based app. In essence, you deploy a new smart contract.)

In essence, once a dApp or smart contract is deployed on a blockchain, its users can read its code and be sure that it will not change.

The European Union “kill switch” presents a challenge to this fundamental irreversibility, which many experts have found concerning. Thibault Schrepel, associate professor of law and technology at the VU Amsterdam University, believes it has the potential to undermine the technology itself. “Article 30, as currently drafted, goes too far in addressing the issues raised by irreversibility,” he said on March 14. do,

Downsides of Immutability

“Instead of enforcing ‘practical immutability’ (where immutability remains the principle and mutability the exception), it makes mutability the principle. In doing so, it jeopardizes smart contracts to a degree that no one can predict.” Could be,” Schrepel continued. They also shared concerns that the definition used in the article (“smart contracts for sharing data”) was not specific enough.

Rapolas Lakavicius, the European Commission, the EU’s biggest law-making body, is less concerned. in March 17 doLakavicius claimed, “It is a common industry practice that is already available on most smart contract implementations to prevent smart contract states from some errors running on immutable blockchains and that no one can do anything about.” Is.”

Lakavicious raises a valid point. Smart contract immutability is not without its downsides. As mentioned above, there are reasons why a user or developer may want to change the contract.

From the point of view of some EU officials, adding a “kill switch” seems like an obvious step. What if a smart contract is found to be invalid or becomes invalid due to a new law? What if the contract in question doesn’t do what it says on the tin? A non-blockchain expert would find these concerns to be logical. A kill switch also benefits the developer, who now has a way to terminate the contract if there is a fatal flaw in the code. A post by Thomas J Rush outlines this scenario.

A systemic risk to DeFi?

In an interview with BeInCrypto, Spool core builder, Luke Lombe expressed his view that the “kill switch” poses a risk to the safety and security of the DeFi industry. “By mandating human intervention and essentially creating a backdoor in smart contracts, this mandate could potentially lead to unintended consequences with far-reaching and damaging effects,” he said.

“The ‘kill switch’ can be used for nefarious purposes, such as shutting down a smart contract to manipulate the market or unfairly gain an advantage over other market participants. This can ultimately harm consumers and could undermine the integrity of the DeFi ecosystem,” Lombe continued.

“Furthermore, this situation may suggest limited understanding of blockchain technology and its benefits among regulators responsible for administering it. We recommend increased cooperation between regulators and industry professionals to discuss such measures prior to their implementation.” To enhance the understanding of the possible consequences associated.

Chao Cheng-Shorland, co-founder and CEO of ShelterZoom, also considers the “kill switch” to be counterproductive. “Smart contracts offer massive benefits for efficiency, self-governance and anti-fraud,” he told BeInCrypto. “Moreover, under EU laws, personally identifiable information is already well protected by being on public blockchains. While the intent may be good, the introduction of a mandatory ‘kill switch’ for contracts could subvert the trust and governance that smart contracts will provide. We are entering the Web3 era.”