Smart contracts are a natural outcome of blockchain technology. It is still evolving and so there are lots of chances for errors to creep in. However, companies across the world have recognized their potential. Therefore, new use cases continue to emerge on a daily basis. This brings the question of legality of smart contracts.
While some countries are still studying the pros and cons, others have gone forward to draft a law that would encourage investments and innovation. In the US, Tennessee has enacted a bill that officially recognizes the electronic transactions done using blockchain technology and smart contracts.
The bill, signed by the governor Bill Haslam of Tennessee, also “protects the ownership rights of certain information secured by blockchain technology.” The law legalizes smart contracts in the entire state.
According to the bill, blockchain technology is
“defined 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.”
And a smart contract is defined as “an event-driven program, that runs on a distributed, decentralized, shared, and replicated ledger and that can take custody over and instruct transfer of assets on that ledger.”
It is the first time a US state has enacted a law to legalize blockchain technology and smart contracts.
According to the bill “Smart contracts may exist in commerce. […] an event-driven program, that runs on a distributed, decentralized, shared, and replicated ledger and that can take custody over and instruct transfer of assets on that ledger.”
The process of enacting a law to legalize smart contracts began after the bill was introduced in January. Both Nebraska and Florida are expected to follow suit. While Wyoming passed a bill to create a new asset class for cryptos, Georgia enacted a law to accept cryptocurrencies as payment for state tax and licenses.