Ethereum’s technology has just been given the seal of approval by the State of Arizona which passed a bill giving legal status to smart contracts and blockchain based signatures, considering them as any ordinary contract or signature. The bill states:
“A signature that is secured through blockchain technology is considered to be in an electronic form and to be an electronic signature.
A record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.
Smart contracts may exist in commerce. A contract relating to a transaction may not be denied legal effect, validity or enforceability solely because that contract contains a smart contract term.”
In effect, the new legislation applies current contract law to blockchain based contracts, erasing any uncertainty and making it clear that any blockchain based agreement is fully enforceable in a court of law.
The law goes further to state that blockchain based data amounts to ownership, importing current property rights to the nascent field and removing any legal ambiguity as to what may amount to theft. It states:
“Notwithstanding any other law, a person that, in or affecting interstate or foreign commerce, uses blockchain technology to secure information that the person owns or has the right to use retains the same rights of ownership or use with respect to that information as before the person secured the information using blockchain technology.”
This is the very first legislation on smart contracts specifically and if it does not necessarily amount to a precedent, it is likely to be highly persuasive in all western jurisdictions.
Removing legal uncertainty regarding blockchain based signatures and smart contracts is a significant event that gives green light to commerce based smart contracts in a corporate or business setting.
Things like futures, as in you pay a farmer now for his crop at a set price with delivery at a later date, things like escrow, things like blockchain based insurance, and so on, can now be set in code with the code itself applying enforceable contractual terms where it operates as intended.
It’s a significant win for ethereum specifically. While bitcoin has often been at a cold end of regulators, the new legislation specifically states it applies to permissionless and permissioned blockchains as well as in a statement that seems to apply solely to ethereum it says:
“Blockchain technology” means distributed ledger technology… which may be… driven by tokenized crypto economics or tokenless.”
The significant difference in attitude by regulators towards ethereum is probably due to the currency’s stated attitude of “political neutrality,” with the community seemingly open towards working with corporations – including banks – assisting in private blockchain technology, as well as focusing primarily on the tech itself.
This suggests eth based projects may find more understanding from regulators and legislators who, rather than taking a confrontational attitude as they have with bitcoin, may see the project as more of a beneficial invention not just for some fringes, but for the mainstream itself.