According to reports, according to the revised version of the EU data law released by EU member states on Monday, smart contracts must include a termination switch. The European Council, which represents governments, agreed on the text on Friday, and its proposal seems to echo the proposal already endorsed by lawmakers in the European Parliament. The final wording of the law must now be negotiated between Parliament and the Council, with the mediation of the European Commission.

EU data law requires smart contracts to include a termination switch

Introduction

Smart contracts are digital agreements that operate on blockchain technology. They are self-executing contracts that let the terms of an agreement be enforced automatically without the need for intermediaries. The use of smart contracts is increasing each day, and their potential to revolutionize processes is immense. However, when it comes to handling data, there are concerns surrounding the privacy and security of information. In response to such concerns, the European Union proposed a revision to its data laws. According to recent reports, EU member states have agreed that smart contracts must include a termination switch.

What are Smart Contracts?

As mentioned, smart contracts are self-executing digital contracts. They are created to be tamper-proof, meaning they cannot be changed once they are executed. Smart contracts operate on the blockchain network, which is decentralized and distributed. This means that information stored on the blockchain cannot be modified or deleted. Smart contracts make use of various tokens, including cryptocurrencies, to facilitate transactions automatically.
Smart contracts are not only used for financial transactions but can also be used to automate various operations, such as supply chain management, record-keeping, and voting systems. With smart contracts, organizations can lessen their dependence on paper-based contracts and reduce the need for intermediaries, making transactions faster and reliable.

The EU Data Law: Termination Switch Must be Included

The General Data Protection Regulation (GDPR) is a regulation that came into force in May 2018. The GDPR outlines rules on how personal data should be collected, processed, and stored. The European Union proposed a revision to the GDPR in light of smart contracts’ increasing use, and according to recent reports, a termination switch is mandatory for smart contracts to be GDPR compliant.
The termination switch will give data subjects the right to terminate a smart contract when there is a breach of the GDPR principles. This means that when a data subject requests the termination of a smart contract, the data processor will have to adhere to the request unless there is a legal basis to retain the data.
The proposed law also outlines that the termination switch should be accessible, provided in a language that the data subject can understand, and free of charge. This is to ensure that data subjects’ rights are protected and that they can exercise their right to request the deletion of their data, stop processing or revoke consent.

The Proposed Law by the European Parliament

The European Parliament’s proposal for a revision to the GDPR includes the same requirement for the termination switch in smart contracts, making it mandatory for GDPR compliance. The proposed law also outlines that when there is a breach of the GDPR principles, the data subject can terminate the smart contract.
However, the European Parliament’s proposal added that smart contracts should have a fallback option, which can be activated in the absence of the termination switch. This is to ensure that the data subject’s rights are not violated, and they can still revoke consent, stop processing, or request the deletion of their data.

The Agreement of the European Council

On Friday, the European Council, which represents governments, agreed to a revised version of the GDPR that includes a mandatory termination switch in smart contracts. This agreement confirms the European Parliament’s proposal, and the final text of the law must be negotiated between Parliament and the Council, with the mediation of the European Commission.

Negotiations between Parliament, Council, and Commission

The negotiations between Parliament, Council, and Commission will determine the final wording of the law. The Commission will act as a mediator to ensure that the final version of the law aligns with the GDPR’s principles and upholds data subjects’ rights.
Once the law is finalized, organizations that use smart contracts will have to ensure that their contracts are GDPR compliant, including the mandatory termination switch.

Implications and Benefits of the Law

The inclusion of a mandatory termination switch in smart contracts under the revised EU data law will have several implications and benefits. The most significant benefit is the protection of data subjects’ rights, which is the GDPR’s main objective. With the termination switch, data subjects can exercise their right to revoke consent, stop processing, or request the deletion of their data.
Furthermore, the use of smart contracts is likely to increase with the inclusion of the termination switch. Organizations can now handle data more securely and are no longer reliant on intermediaries to enforce the terms of agreements.

Conclusion

The proposed requirement for the mandatory inclusion of a termination switch in smart contracts under the revised EU data law is a significant step towards protecting data subjects’ rights. The termination switch will give data subjects the right to revoke consent, stop processing, or request data deletion. Organizations that use smart contracts will have to ensure that their contracts are GDPR compliant, including the mandatory termination switch, to avoid penalties.

FAQs

Q: What are smart contracts?
A: Smart contracts are self-executing digital contracts that are executed on the blockchain.
Q: Why is a termination switch necessary in smart contracts?
A: A termination switch is necessary to protect data subject rights in the event of a breach of GDPR principles.
Q: Who must make sure that smart contracts comply with GDPR?
A: Organizations that use smart contracts must ensure that their contracts are GDPR compliant.
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