The state’s “Blockchain Technology Act,” sponsored by Rep. Keith Wheeler (R), took effect Jan. 1, opening a slew of potential new legal scenarios for blockchain-based contracts. These contracts are now admissible as evidence in court, recognized as a viable alternative to paper-based records and statutorily exempt from local taxation.
“A smart contract, record or signature might not be denied legal effect or enforceability solely because a blockchain was wont to create, store or verify the smart contract, record or signature,” the law reads partially .
Illinois joins other U.S. states in recognizing smart contracts in legal settings. Vermont led the charge with its 2016 move to form blockchain records admissible in court. One year later, Arizona passed similar legislation recognizing blockchain signatures.
The Illinois law extends an equivalent legal recognition already enjoyed by paper contracts to blockchain contracts and agreements in order that they're recognized as legally binding within the eyes of the state.
It also shields the blockchain industry from government interference, meaning cities and towns cannot impose taxes and regulations or require licensing or permits on blockchain systems or those that use them.
“The law ensures that companies and individual community members won't need to navigate a patchwork of local blockchain regulation,” said Alison Mangiero, president of blockchain technology company TQ Tezos and a proponent of the bill.
Its backers within the Illinois State legislature hailed the bill when it had been passed as a way of providing companies and businesses with a legal framework for embracing new technologies. Governor J.B. Pritzker signed the measure into law in August.
Mangiero agrees. She said legal certainty and stability will allow firms to focus their efforts on developing new uses for the technology, including facilitating transactions.
Tatyana Ruderman, counsel at InfoLawGroup’s Chicago offices, said the law could bolster companies looking to utilize blockchain-based records systems. But she said the law’s wording is vague in places, enough in order that she predicts it could face a legal challenge.
“The law is probably going to be tested in courts by parties who later want to undertake and invalidate a blockchain transaction, she said.
Ruderman added the Illinois law’s success could also be hindered by its borders. simply because Illinois recognizes blockchain and smart contracts doesn’t mean a special state, like neighboring Indiana, will do an equivalent .
“It might not add up for businesses who operate outside of Illinois to implement blockchain-based contract management only in Illinois and not elsewhere,” she said. “This could also be a neighborhood where it is sensible for industry to return together and agree on some standards to fill the gaps.”