EU’s Digital Finance Package and Smart Contracts

The EU’s New Digital Finance Package Could Impact Smart Contracts

The European Union (EU) is making progress towards implementing a new digital finance package that could potentially impact the use of smart contracts. The package, which includes a clause mandating the inclusion of “kill switches” on smart contracts, is currently awaiting approval from the European Council to become law.

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. These contracts are stored on a blockchain network and automatically execute when the predetermined conditions are met. They have gained popularity in various industries due to their transparency, efficiency, and unalterable nature.

What are “Kill Switches”?

A “kill switch” refers to a mechanism that allows for the termination or modification of a smart contract under certain conditions. It essentially gives parties the ability to intervene in the execution of a contract if unforeseen circumstances arise or if there is a need to prevent potential harm.

The European Commission believes that implementing kill switches in smart contracts could help mitigate risks associated with these types of agreements. By allowing for intervention, parties can prevent fraudulent activities, resolve disputes, or address situations where a contract becomes impractical or illegal.

Potential Implications

If the digital finance package is approved and the clause requiring kill switches on smart contracts becomes law, it could have significant implications for businesses and individuals utilizing smart contracts within the EU.

On one hand, the inclusion of kill switches may provide an added layer of protection for parties involved in smart contract transactions. The ability to intervene in exceptional circumstances can help safeguard against potential misuse or unexpected outcomes.

However, some critics argue that the introduction of kill switches goes against the fundamental principles of blockchain technology, such as immutability and decentralization. They believe that allowing for external control over smart contracts undermines their purpose and could potentially create a centralized authority to manipulate or influence transactions.


The EU’s digital finance package, which includes a clause mandating kill switches on smart contracts, is currently awaiting approval from the European Council. If implemented, this regulation could impact the usage and implementation of smart contracts within the EU. While the intent behind the inclusion of kill switches is to enhance security and address unforeseen circumstances, it also raises concerns about the potential trade-off between control and the fundamental principles of blockchain technology.


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