The Legalization of Intelligent “Smart” Contracts

Today’s post is from my good colleague, Joe Yacura, who is a collaborator on our data analytics annual survey.

Blockchain technology is bringing about the potential to create and benefit from Intelligent “Smart” Contracts (ISCs). While the creation and use of ISC’s is in its infancy, their creation and operational use are inevitable. As a result, some state legislators have taken on the responsibility to create a legal framework for ISCs to operate within.

In the U.S., the State of Arizona has recently taken the forefront in creating legislation that would recognize and allow ISCs to operate within Arizona. In March 2017, Arizona Governor Doug Ducey signed HB 2417 into law. HB 2417 clarifies the enforceability issues related to the commercial use of blockchain and ISCs relative to Arizona law. The law focuses on transactions which are related to the sale of goods, leases, and documents of title governed respectively under UCC Articles 2, 2A and 7.

What do we mean by the term ISC? “HB 2417 includes a definition of “smart contracts” as an event driven program, with state, that runs on a distributed, decentralized, shared and replicated ledger that can take custody over and instruct transfer of assets on that ledger.” 1

A predecessor of the Arizona law is a law passed in Vermont in 2016. The Vermont law H.686 states that a blockchain based digital record will be considered a “business record” under the State of Vermont’s Rules of Evidence.

There are other state legislatures currently creating a legal framework under which ISCs will be allowed to operate within their state laws. In July 2017, Delaware’s Governor John Carney signed SB 69 into law. SB 69 established statutory authority for Delaware corporations to use blockchain technology but on a more limited basis than other recent legislation. Several other states have pending amendments and/or new legislation regarding blockchain technology that will come up for state legislative votes in 2017 & 2018.

All this legislative activity supports the undeniable rapid acceptance of blockchain and the evolution of ISCs utilizing blockchain technology.

Please feel free to reach out to me with your views/comments regarding this exciting technology. (jyacura@gmail.com)