Draft Data Act Explained: The Impact of the Data Act on Smart Contract Applications

IMPLICATIONS FOR THE FUTURE OF INNOVATION IN EUROPE

Europe is at a crucial point in setting down rules governing the use of innovative technologies such as AI, Blockchain and quantum computing, especially as it strives to bridge the gap with other jurisdictions that have more fully grasped the countless benefits of Web1 and Web2 innovation. 

Significant progress has been and continues to be made to strengthen the Digital Single Market during this mandate (through the Digital Markets Act, Digital Services Act, Artificial Intelligence Act, European Digital Identity framework, and Data Governance Act), providing Europe with a strong basis for the establishment of a coherent legal framework for data sharing through the Data Act. 

This final significant piece of Europe’s digital strategy can enable a European vision for a free, open, and secure global internet where citizens have control over their data; it holds the promise of a dynamic data ecosystem that can harness and unleash a new data-driven economy that strengthens the competitiveness Europe while safeguarding its most important principles and values.  

To unleash the full potential of Europe’s vibrant, innovative data ecosystem, Europe needs clear, fair, and forward-looking regulation, which can serve as a stepping stone towards enabling innovation. A key part of achieving this goal is fostering seamless data transmission with full transparency, autonomy, reduced cost, and speed. Automatised and digitally executed contracts (i.e. the “smart contracts”) play an increasingly essential role in this respect, and the technology that underpins smart contracts is constantly evolving. Europe will be among the first jurisdictions to regulate the use of smart contracts through the Data Act. It is essential to get it right.

In the context of the ongoing trialogue negotiations on the Data Act, we, together with the 18 organisations listed at the end of this paper, wish to share a number of concerns that we have regarding the treatment of smart contracts so that Europe doesn’t “shoot itself in the foot” by inadvertently damaging innovation and technological development in the broader Blockchain industry – given that much of that innovation is happening in the Web3 enabling technology that relies on smart contracts that do not fit the current provisions of the Data Act but would likely be captured.