The European Union (EU) has reached a deal on controversial rules regarding smart contract “kill switches” under the Data Act, whereas the Web3 community raised fears that it could kill the sector.

Overall, the Data Act seeks to make equitable use of industrial data and remove barriers to the fair sharing of data generated by a range of data-centered services, such as the Internet of Things.

For the Data Act to pass into law, both the European Parliament and the Council, representing the 27 member states of the European Union, must vote in favor of the agreed-upon text by negotiators.

The new rules, negotiated and agreed upon by EU officials this week, grant authorities the power to intervene and deactivate smart contracts in certain circumstances. Under the finalized rules, specific criteria must be met before authorities invoke the kill switch mechanism. These criteria include potential threats to user data privacy, security breaches, and violations of legal requirements.

“With the adjustments made to the text we are no longer addressing smart contracts in general but make this regulation applicable specifically to the execution of contractual clauses in the context of data sharing,” Damian Boeselager, a lawmaker, told CoinDesk.

Proponents of the smart contract kill switch argue that it offers a crucial layer of security and protection against potential fraud or exploitation. By allowing authorities to intervene in exceptional circumstances, they say that consumers can have greater confidence in the technology and its applications. This could foster wider adoption of blockchain solutions and enhance trust in the digital economy.

Critics, obviously, express concerns about the implications of introducing a centralized mechanism to control and deactivate smart contracts because it undermines the fundamental principles of decentralization, trustlessness, and immutability that blockchain technology embodies. They also raise questions about potential abuse of power, censorship, and the potential for regulatory overreach.

The commission has dismissed concerns the blockchain industry raises, stating that the high-level requirements outlined in the new law should not pose practical problems for vendors.

In summary, the EU’s approval of smart contract kill switch rules reflects its efforts to establish a regulatory framework that addresses the unique challenges and risks posed by blockchain technology, aiming to strike a balance between protecting user interests and maintaining the integrity of the blockchain ecosystem.

It remains unclear, however, whether the final agreement will alleviate concerns that the measures may not be feasible for public, permissionless blockchains, as these types of blockchains lack a central entity to enforce regulatory restrictions.This news comes amid numerous reports of EU regulatory activity on crypto, including publishing the Digital Euro bill and reaching an agreement on crypto bank-capital rules.