U.S. State Tennessee Officially Recognizes Blockchain Transactions and Smart Contracts

Smart contracts have rapidly evolved within the last couple of months, with numerous start-ups relying on the technology to conduct multiple types of electronic transactions. However, implementation of the technology is often slowed down due to lack of regulation, which in turn, makes certain smart contracts obsolete from a legal standpoint.

This is however changing, as jurisdictional areas are realizing smart contract potential, and moving in to regulate the niche. Such is the case of U.S. State Tennessee, where the governor has recently signed a bill that recognizes the legal authority of smart contracts and blockchain technology in conducting various forms of electronic transactions. Additionally, the bill also talks about the right of ‘protecting ownership rights of information secured by distributed ledger technology’.

The bill in question has also placed a legal definition on top of blockchain technology, characterizing it as: ‘distributed ledger technology that uses a distributed, decentralized, permisionless, or driven by tokenized crypto economics or tokenless’. Additionally, the bill also mentions that data on the ledger is protected by cryptography, and has a state of immutability, while also being auditable and providing access to an uncensored truth.

The new legislation effectively states that: ‘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 on the other hand, are defined as event-driven programs which run on a DLT, which can take custody over, and/or instruct the transfer of digital assets on the ledger in question.

The bill also authorizes commerce-based smart contracts, thus giving them more power.

The bill, which has been first introduced in January, has managed to easily pass through both chambers of the state’s legislature. It represents a big step forward for smart contract technology, and will surely open the door to numerous more blockchain-based implementations in the future.

Based on everything that has been outlined so far, such a step is needed in many other regions of the world, where smart contracts platform with great potential exist, yet are stopped by the lack of regulation, which essentially forbids them from being recognized as a legally-binding contract.