New Smart Contracts Legislation
Tennessee’s’ Senate Bill 1662, which signed into operation on March 22, 2018, defines a smart contract as an “event-driven computer program, that executes on an electronic, distributed, decentralized, shared, and replicated ledger that is used to automate transactions.” In simpler terms, a smart contract is a computer code that automatically executes an agreement or transaction. Once executed, these contracts are stored in a blockchain based platform. Smart contracts have several benefits over traditional ones. They are faster and cheaper since they execute automatically, without the need for a broker or lawyer. Smart contracts are also very secure since they are rooted in cryptography and saved permanently to the blockchain.
While smart contracts have many benefits, they are not perfect. Like with any other method of transaction, problems may arise. What if there is a glitch in the system or the wrong code is sent? Since smart contracts are automatic, and practically unrevivable once executed, can we challenge a smart contract in court? These inquiries bring us to the issue of smart contract interpretation and enforcement under State laws.
Due to the growing importance of cryptocurrency and blockchain technology, the enforcement of smart contracts in State courts is becoming an increasingly salient issue. There is no federal regulatory mechanism for smart contracts. As such, interpretation and enforceability of smart contracts is determined at the state level. Several States have already passed bills recognizing smart contracts. Among these are Vermont, Arizona, and Tennessee. The Tennessee bill “recognizes the legal authority of blockchain technology and smart contracts in conducting electronic transactions.” This language officially places smart contracts within the legal umbrella of contracts law.
While the common law and regular contract laws may already apply to smart contracts under certain circumstances, and so long as they meet the essential elements of contracts (offer, acceptance, consideration), the passage of a specific smart contract bill tends to save legal practitioners allot of time and effort by filling in the grey areas of the law. That is, it codifies the proper interpretation and applicable rule for smart contracts, so lawyers don’t have to waste energy extracting it from traditional contracts case law. Florida, which currently does not recognize smart contracts at statutory level, may follow in Tennessee’s footsteps if House Bill 1357 passes. This bill would legally recognize blockchain signatures and smart contracts as enforceable transactions in Florida.
Links:
http://www.capitol.tn.gov/Bills/110/Bill/SB1662.pdf
https://bitrazzi.com/florida-legally-blockchain-signatures-smart-contracts/
https://www.skadden.com/insights/publications/2018/05/an-introduction-to-smart-contracts
https://cointelegraph.com/news/vtennessee-passes-bill-recognizing-blockchain-smart-contracts-for-electronic-transactions
https://blockgeeks.com/guides/smart-contracts/
