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An Update on State Smart Contract Legislation

In the fall of 2018 we posted a state-by-state summary of smart contract legislation which included an overview of legislation passed in Arizona, Tennessee and Vermont, as well as an update on legislation pending in other states at the time. Over the past few years, a multitude of states have tackled smart contract legislation with varying degrees of detail and success. Most state smart contract legislation has fallen into three broad categories: formation of exploratory committees, recognition of basic smart contract concepts and comprehensive treatment of smart contracts and related technologies.

For many states, the first step in passing smart contract legislation is forming a task force or exploratory committee to research potential applications of smart contracts and similar technologies. California, New Jersey, New York, Texas and others have passed legislation forming committees to explore a variety of topics related to smart contracts and related applications of blockchain technology. These committees are often tasked with researching a specific application, the most common example being the use of blockchain technology in elections. A bill was introduced in Virginia requiring the development of a pilot program for electronic voting, which was required to be based on blockchain technology. Similarly, New York passed legislation directing its state board of elections to evaluate the use of blockchain technology to protect voter records and election results. Typically, exploratory committees are tasked with compiling a report to present their findings to the state legislatures, which then decide whether or not to pursue further legislation.

Several states have passed or have pending smart contract legislation that establishes a very basic framework for smart contracts in state commerce through a combination of adding relevant definitions to its business codes, recognizing the use of smart contracts under the law or permitting the use of related technologies in certain circumstances. Arkansas, Maryland, Nevada, New York, Oklahoma, South Dakota, Texas, Utah and Washington have each passed legislation codifying one or more of these concepts. A bill is pending in New York that would recognize the use of blockchain technology and smart contracts in commerce. Other states, such as Connecticut and New Jersey, have had this kind of legislation fail to pass or die in committee.

A handful of states have taken a more comprehensive approach to addressing the use of smart contracts by creating specific protections for and limitations on the use of smart contracts. In January, Illinois passed the Blockchain Technology Act, one of the most comprehensive pieces of smart contract legislation to date. The South Carolina Blockchain Industry Empowerment Act of 2019 is currently pending before the state legislature of South Carolina. This comprehensive legislation seeks to establish South Carolina as an incubator for blockchain-focused technology companies. The bill primarily focuses on the treatment of tokens and virtual currencies, but does include definitions related to smart contracts, electronic signatures and several other related terms. If passed, this act would create a significant framework for blockchain-based financial technology in the state.

Smart contract legislation continues to gain steam both in the number of states exploring the topic and the depth of the legislation being passed. As recently as 2018 only a few states had passed legislation recognizing smart contracts, and the existing legislation was very modest in scope. Now, many states have at least flirted with the idea of passing smart contract legislation. As state legislation becomes more ambitious in scope, broader and more creative use of smart contracts should follow.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 106

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About this Author

Christopher Adcock Corporate Lawyer Hunton Andrews Kurth
Associate

Chris’s practice covers general corporate and securities matters with a particular emphasis on MLPs and other companies engaged in the upstream, midstream, downstream and services sectors of the oil and gas industry.

Chris represents publicly traded real estate investment trusts on general corporate matters, including registration statements and stock offerings. Chris assists clients in US capital markets transactions, including public and private offerings of debt and equity securities and public and private merger and acquisition transactions...

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