Smart contracts, blockchain-based contracts that have automatically binding terms, are a huge technological breakthrough. And now, California just took a big step towards making them safer and more widespread. Here’s how California’s new blockchain legislation will change the game for smart contracts, and promote blockchain innovation nationwide.
What is a Smart Contract?
Smart contracts are a blockchain protocol that automatically enforces the terms of an agreement. It’s like a regular contract in that it involves two parties and has terms to which both must adhere. But instead of requiring paperwork, lawyers and a lot of time, smart contracts execute the transaction once terms are met, or invalidate it if they’re not.
In other words, smart contracts cut out the middle man whose job it is to enforce a contract. Smart contracts are so efficient that they’re already revolutionizing the way we conduct trade. cMaersk, one of the biggest shipping countries in the world, just launched a blockchain platform for shipping. They estimate that smart contracts, among other blockchain innovations, cut 15% off of shipping costs. Not only are smart contracts efficient, but they reduce costs and, thereby, promote trade.
But are smart contracts safe? Protected by blockchain technology, a decentralized ledger that you cannot hack or alter, smart contracts are impossible to modify once initiated. But even if they’re effective, are they legally binding?
California Smart Contracts Now Legally Binding
In California, smart contracts are legally binding thanks to new legislation. This week, the California legislature passed Assembly Bill 2658. The changes initiated by this bill extend to government, corporate, insurance and civil contracts. In essence, smart contracts are now legally recognized whether used by a government official or between two individuals.
Specifically, California smart contract legislation revises the legality of an “electronic signature.” California law states that electronic signatures are legally binding. However, this did not extend to blockchain electronic signatures—until now. This legislation reads:
This bill would revise provisions of the act that define “electronic record” and “electronic signature” to include a record or a signature that is secured through blockchain technology, as defined. The bill would expand the definition of “contract” to include a smart contract, as defined.
Not surprisingly, the assemblymember who proposed California’s smart contract legislation is a millennial. Assembly Majority Floor Leader Ian Calderon assumed his role in the California legislature at age 29. Calderon often works on technology-related legislation. In other words, a millennial in government is promoting the causes for which young people advocate. A new Coinbase report shows that 18% of college students own cryptocurrency.
Smart Contracts in California and Beyond
California just took a big step for blockchain innovation. And it extends beyond the Golden Coast: This smart contracts legislation applies to interstate and international business.
Now, smart contracts aren’t only a faster and simpler way to come to an agreement, but they’re legally binding, too. And this is great news for almost everyone. Whether you’re looking to buy a house, make a sale or get a new job, blockchain smart contracts can facilitate the process.
However, efficiency like smart contracts comes at a price. Specifically, when you cut out the middleman, in this case, a lawyer, someone becomes irrelevant. This just one way that blockchain is making people unemployed. And your job could be next.