Recently, several states have passed legislation allowing the use of smart contracts and blockchain technology in various commercial contexts. A “smart contract” is commonly defined in such legislation as an event-driven program or computerized transaction protocol that runs on a distributed, decentralized, shared and replicated ledger that executes a contract or any provision(s) of a contract by taking custody over and instructing transfer of assets on the ledger.
Arizona led the way in 2017 by passing legislation allowing the use of smart contracts in commerce and preventing a contract from being denied legal effect, validity or enforceability solely because the contract contains a smart contract term. The bill also recognizes signatures and records secured using blockchain technology as valid electronic signatures and records under state law. Tennessee passed similar legislation in March 2018. Bills are currently pending before the state legislatures of Nebraska, New York and Ohio that would allow the use of smart contracts and smart contract terms in each state. Other states continue to explore legislation relating to the use of both smart contracts and blockchain technology.
In Vermont, a bill was signed into law in May 2018 allowing limited liability companies organized for the “purpose of operating a business that utilizes blockchain technology for a material portion of its business activities” to elect to be a blockchain-based limited liability company (“BBLLC”). The bill allows BBLLCs to use blockchain technology for various aspects of corporate governance, including the use of smart contracts to administer the BBLLC’s voting procedures.