The IOTA Foundation and many other representatives of the crypto industry are protesting against the EU’s plan to have to include an emergency shutdown (“kill switch”) in smart contracts. The issue is indeed sensitive.
In June, the European Union approved in principle a proposal to give data use a legal framework in the future with a “Data Act.” But the crypto industry has major problems with the plan. In an open letter, the IOTA Foundation also supports the attempt to stop a mandatory “kill switch” on smart contracts after all.
Specifically, Clause 30 of the EU proposal reads that smart contracts can only be legal if there is a possibility of an emergency shutdown (“kill switch”). Smart contracts are driving innovation in the crypto industry because without them, lines of business like Decentralized Finance (DeFi) would not even be possible. IOTA hopes to integrate smart contracts into its ecosystem in the foreseeable future, starting with the side project Shimmer (SMR).
The principles of Bitcoin and Co. insist that cryptocurrency networks be decentralized and thus function independently within themselves. A “kill switch” in the EU would undermine this basis, think besides IOTA also blockchain associations and foundations of popular cryptocurrencies such as Cardano (ADA). Already in April, Polygon (MATIC) had turned to the EU and explicitly warned against overregulation and a “kill switch” in a letter.
IOTA coordinator is a kind of “kill switch”
The arguments from the crypto industry are obvious: firstly, a “kill switch” would be technologically impossible to retrofit to very few blockchains. And second, a kill switch would lead to a loss of confidence among investors and users. In short, if the proposal were to pass with an unchanged Section 30, many crypto projects would likely be forced to leave the EU. In the case of IOTA, the situation is quite particular. There, a central coordinator exists who can also initiate the emergency shutdown of the network and is under the control of the IOTA Foundation. The latter already used the tool in 2020, when a serious security vulnerability in the official IOTA wallet was exploited by cybercriminals.
However, IOTA has actually wanted to do away with the central coordinator for at least seven years, but the project entitled “Coordicide” has turned out to be a hardly manageable technological challenge. In this respect, the example of IOTA can also be used to study the pluses and minuses of “Kill Switch”.
Conclusion: “Kill Switch” in the EU? Crypto scene heavily concerned with IOTA.
The EU proposed “Kill Switch” in its “Data Act” because it wants to implement consumer protection. But Bitcoin (BTC), Ethereum (ETH) and other globally known cryptocurrencies have become so popular precisely because they want to be quasi-self-regulated from the outset and protected by their structure against external influences such as a “kill switch”. Even the special case IOTA wants to move away from the integrated central coordinator and therefore joins the protest movement. It remains open whether the EU will agree to readjust the questionable Section 30 in the “Data Act”. One line of compromise would be to require the “kill switch” only for private, commercial networks. Then Ethereum, Cardano, IOTA and others could continue to follow their previous practice as open ecosystems with smart contracts without getting into legal gray areas.
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