State laws recognize impact of blockchain on legal sector

State legislatures across the US are working to update their electronic records laws so that smart contracts, signatures and public data recorded via blockchain technology will be legally recognized and valid. This trend at the state level could impact both public and private sectors, particularly for firms in the legal sector poised to use distributed ledger technology.

Most recently, the governor of Tennessee signed a bill into law that recognizes blockchain data as legally binding and gives smart contracts legal power. Bill 1662 defines blockchain technology as “distributed ledger technology that uses a distributed, decentralized, shared, and replicated ledger, which may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable and auditable, and provides an uncensored truth.”

Although this definition may seem obvious — and unnecessary — to many familiar with the technology, the laws themselves indicate states’ intentions to become blockchain-friendly destinations for firms employing this type of distributed ledger technology.

Rep. Jason Powell, D-Nashville introduced the Tennessee bill, saying, “In making sure that Tennessee has meaningful blockchain legislation, it is really important to say that Tennessee is supportive of this technology.”

However, some critics warn that passing such laws too quickly and without consistency among states can lead to problems down the road, creating a confusing patchwork of legislation. As Mike Orcutt reports in the MIT Technology Review,

If enough states create differing versions, “it’s just going to be chaos,” says Peter Van Valkenburgh, director of research at Coin Center, a policy think tank that advocates for blockchain technologies. (MIT Technology Review)

So far, Arizona, Nevada and Delaware have also passed new statutes to make blockchain contracts and records legally binding. In 2017, Arizona Governor Doug Ducey signed into law an amendment to the Arizona Electronics Transactions Act (AETA) that clarifies the enforceability of blockchain-based transactions and signatures relating to the sale of goods, leases and documents of title. Now pending in Arizona is another measure that would add blockchain databases to the list of electronic records with recognized legal status.

Taking a cue from Arizona last spring, Nevada passed a law prohibiting local governments from imposing taxes, fees or licensing requirements on blockchain use. The new law also establishes that records secured by blockchain satisfy legal requirements that a particular record be in writing.

Delaware, known as the incorporation capital of the US, now allows corporations to maintain shareholder lists and other business records stored on a blockchain.

California is considering a bill that would formally recognize blockchain signatures and other data as electronic records.

Several blockchain related bills are pending in New York, one of which would introduce definitions of blockchain technology and smart contracts into state law and provide a legal understanding of digital signatures stored on a blockchain.

A bill introduced in the Florida legislature this year provided for “electronic credentialing” of motor vehicles. It also would have established that a contract may not be denied legal effect solely because an electronic record was used containing a smart contract term. The clock ran out on this measure when the Florida legislative session adjourned in March.

Nebraska legislators have been advancing supportive blockchain bills, and leaving more regulatory measures behind. One of the key sponsors of legislation to legally recognize smart contracts said, “We want to have it in state statute that we embrace this technology.”

Several other states are examining blockchain for other types of legal data. Vermont is now studying the idea of blockchain-enabled virtual or “remote citizenship,” based on the e-residency program pioneered in eastern Europe by Estonia. That digital transformation program also includes smart contracting, digital signatures and facilitation of startup businesses. In 2016, Vermont passed new laws allowing for the use of blockchain-based data as admissible evidence in court, and for authentication of high value art, gemstones and consumer goods via blockchain.

Aside from legal classification efforts, other states, such as Illinois, Hawaii, Maine and North Dakota have passed laws mandating new studies to explore practical ways in which blockchain technology can enhance government record-keeping.

Illinois is already conducting pilot projects around blockchain for identity management in collaboration with the private sector. And last year, Virginia announced grants to nonprofits for technology research, including $50K dedicated to commercialization of blockchain technology. Currently, Colorado is considering a bipartisan bill that would encourage government uses of blockchain technology.

The increased legislation surrounding distributed ledger technology means that local legislators in the US are beginning to recognize the technology’s inevitable impact on the legal sector, though it remains to be seen what kind of effect these various legislative frameworks may have on business down the road.