This article is written by Sushree Surekha Choudhury from KIIT School of Law, Bhubaneswar. The article gives an overview of the US laws relating to smart contracts and blockchain technology and the legal standing of the same. 

it has been published by Rachit Garg.


Have you ever entered into a contract with another person, institution, or organization? Was it an absolutely smooth affair or did it involve complications and conflicts of interest? Well, in a parallel universe, you could be so lucky as to have no conflicts while contracting, and everything goes amicably. But in the world that we live in, it is near impossible to enter into an agreement that has no errors, poses no risks, and has possible future conflicts.

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Why does this happen though? When two parties enter into an agreement with bona fide intentions and in good faith, what goes wrong? Well, you must have heard this – “to err is human.” It means human beings tend to make errors. In contracts, tiny errors that are not visible at the surface often lead to unforeseeable conflicts in the future. It may be due to a sense of bias in the terms and conditions or to an error that the parties could not recognize at first glance. So, what is the solution to this, you ask? Luckily for us, God sent help in the form of technology. In the world of contracts and agreements, blockchain technology and smart contracts have come up with a potential that can eliminate all the risks that ordinary contracts pose. In this article, we will learn how that works.

What are smart contracts

The term ‘smart contracts’ was coined for the first time in 1994 by Nick Szabo. He proposed the ideology that property and other valuable things should be digitally recorded and controlled using computer codes. These codes would store data as per predetermined terms and instructions. Thus, a smart contract stores data in computer codes and programs following predetermined terms. However, the concept developed in the 21st century when blockchain technology, Distributed Ledger Technology (DLT), and other related programs and ledgers were introduced to the world.

Since then, the concept has evolved and has now become an important aspect of the blockchain ecosystem. Smart contracts are becoming relevant and popular among their users because of the host of advantages they come with. They eliminate errors and the need for intermediaries. Smart contracts increase accountability and transparency since data, once fed, is accessible by all and remains unchanged. 

Smart contracts have become a massive tool for decentralization. Decentralized applications, decentralized finance, gaming, media, and several other functionalities have chosen to depend on smart contracts. These programs and applications often function by using more than one smart contract together to create synergistic and coordinated work.

Smart contracts are widely used in finance and have proven to be beneficial in trading, investments, etc. They have also brought revolutionary changes to several industries, like the gaming industry, real estate, etc., by providing ease of doing business. They have revolutionized the corporate world by bringing a whole new dimension into the picture. 

Blockchain-based smart contracts use blockchain technology and thereby create self-executing codes by which they automatically implement the terms of a contract between parties. Smart contracts have gained momentum in the US faster than anywhere else. In a 2016 statistical analysis, it was found that venture capital deals in the US that were based on smart contracts added up to $116 million in only one quarter. This was found to be twice as much as compared to the previous three quarters combined. Thus, the utility and effectiveness are evident. More and more investors are willing to invest in smart contract-based programs and blockchain technology because of their profit-increasing graphs. An Ethereum-based institution has raised $150 million in funds to conduct research and development to develop smart contracts and blockchain-based applications and programs. Global banks have been investing in research and development, including smart contracts for trading and settlement in an effective manner.

Understanding blockchain technology

Blockchain technology is growing rapidly. It is a form of digital ledger that stores information using cryptographic computer codes and programming. The most crucial feature of blockchain technology is its use of cryptography. It is a ledger that stores information that is accessible to all its users/parties. The data is stored in ‘blocks’ that are connected using codes and cryptography. The data stored cannot be changed without following the required procedure, and any alteration would be transparently known to all. A party cannot deny or step back from a transaction he has consented to, set forth using blockchain technology. These features increase the security and enforceability of agreements and other transactions. 

A blockchain-based smart contract functions in the following manner: 

  • First, data is input into its system based on the consensus and mutually agreed on terms of each party. 
  • These determined terms then execute a contract using computer codes and programming. 
  • When terms are input by parties, there is absolute reliability as the computer program will follow the input protocols. Thus, errors are eliminated. 
  • It gives a fair, unbiased result that is based on accuracy and reduced risk. There is no scope for error or manipulation as the parties can anytime access the ledger and it would contain all records and results transparently. 

Pros and cons of blockchain technology


Blockchain technology comes with its own set of pros and cons. Some of its advantages are:

Improved data quality

The DLS filters data. It removes human-made errors and mistakes and thereby stores only the correct and relevant data. Once stored, everything is recorded into its core memory and further modifications or tampering are not possible. Blockchain increases efficiency and removes the administrative burden.

Enhanced trust and confidentiality 

The use of blockchain technology ensures correct and accurate data that is timely provided. There is no scope for errors or delays. It maintains confidentiality by storing the data with high-security cryptography. This data is only accessible by the parties to the shared information. These features eliminate the fear of fraud and manipulation.

Better security and transparency 

The data stored using blockchain is accessible by all members to the information. This data is permanently stored and the agreement is made with the consent of all parties to it. The system maintains transparency, which reduces risk and conflicts. The stored information cannot be deleted or altered by any person, and this increases trust and security. 


One of the biggest advantages of blockchain technology is its feature of decentralization. Everything is done using technology, and the need for intermediaries is eliminated. Elimination of the need for a third-party intervention reduces the cost of engaging them and the risks of manipulation or fraud. It also increases parties’ autonomy and power, as the power is not concentrated in the hands of a few or dependent on third-party intermediaries. This also cuts the cost that would go into hiring third parties and intermediaries.

Immutability and traceability

Blockchain technology is a database that provides immutability and traceability. Data stored in the blockchain cannot be altered, deleted, or erased. Parties to it can trace the exact amount of data as they were entered and it would be in the same manner as was input, even after 100 years or more. Each block is protected by a unique hash function that cannot be compromised. It contains complex mathematical algorithms that are impossible to hack. Thus, even if a user tries to manipulate the data, it would be traceable by others.


What makes blockchain technology unique and better than any other system of storage and database is its feature of using cryptography. Cryptography is a system that uses binary codes (0 and 1) to create long algorithmic functions that are attached to the blocks. These blocks are further connected using cryptography. These hash functions create hash results, and this feature provides the highest form of security and confidentiality for data. Data processed and saved using cryptography is uniquely locked and would not be accessible to anyone without the sender’s permission. Thus, only the parties to the data stored using blockchain can access it, and no outsider. If anyone tries to crack the code to manipulate the data, it will become impossible to do so due to the complex cryptography used. This makes blockchain technology the most reliable and secure form of data transaction. 


Like any other thing in the world, blockchain technology, too, comes with its share of disadvantages. Some of those disadvantages would be: 


A disadvantage of blockchain technology is that it remains volatile even today. Although the concept has been introduced to the world economy for quite a time now, its acceptability and adaptability remain questionable. Only a few companies have adopted the tech and have readily accepted it. The reason behind the slow adaptability is the amount of technical advancement it requires. A company would need to incorporate advanced technology and developments to incorporate blockchain technology into its governance and transactions. Not every company has the level of technical expertise required to implement blockchain technology. These companies might need to hire experts who would help in maintaining and functioning the company’s ledger. This would require efforts, procedural mandates, and costs. Many companies might not want to make that expenditure. This further blocks the adaptability of blockchain technology. 


While everything looks sophisticated and secure from the outside, it takes high expenditure to attain this expertise and security. Incorporating blockchain technology requires expenditure at every step of implementation. The establishment of the ledger and the technical advancement required need funding. The hiring of experts and other support to run the technology involves expenses. Blockchain technology runs entirely on power. There is a need for a constant and high supply of electricity for the smooth functioning of the ledger. All of these involve additional expenses and would not be on the path to sustainable development. Every company or organization would not be willing to bear these expenses, and thus, blockchain technology continues to pose a hurdle to implementation. 

Difficult to modify

Though immutability is a benefit of blockchain technology, it is also a disadvantage in certain circumstances. Data once input into blockchains are difficult to alter due to the complex algorithms involved. Such data modification would be possible only when the codes are rewritten. This is a complex and long-drawn process. This makes blockchain technology a rigid process. Sometimes, data needs constant modification as the job demands it. Thus, blockchain’s complex and rigid process becomes a problem. 

Pros and cons of smart contracts

Smart contracts generated using blockchain technology also come with a set of pros and cons. These can be seen as:


Mentioned below are the advantages of smart contracts:


Smart contracts are generated using computer codes that work with predetermined protocols. This feature of smart contracts makes them efficient and accurate. There is no scope for mistakes as everything is generated using codes. Human errors are entirely omitted. This saves a lot of time that goes into doing the requisite paperwork and reconciling errors. This is the most essential feature of smart contracts that makes them better and preferable to ordinary contracts. 


As discussed earlier, smart contracts provide a completely transparent process throughout the stages of execution and transaction. The parties to the contract can access the information at any time they wish. This transparency also enhances trust among contracting parties. Enhanced transparency and trust benefit the company or business in question by mitigating conflicts and risks. Thus, smart contracts are a means to effective corporate governance practices.  


Blockchain-based smart contracts ensure the highest degree of security due to their usage of cryptography. Cryptography binds the smart contracts with complex algorithmic encryptions that are exclusive only to the parties to the contract. The entries or actions of the parties are recorded. Outsiders can neither get access to these encrypted smart contracts nor be able to modify them. These features make smart contracts a secure and preferable form of contract. 

Cost cutting

Smart contracts eliminate the need for many things required in an ordinary contract, like the need for third parties and intermediaries to facilitate the transaction. It eliminates the need for complex paperwork and registration complexities. Smart contracts are self-executory. Thus, they eliminate the need for all these essentials of an ordinary contract. Therefore, it saves a lot of time and expenditure. 

Reduces risk

Smart contracts reduce the risk of errors. Ordinary contracts are manually executed, which can often contain several errors. These errors could be involuntary or sometimes intentional manipulations could be made to them with mala fide intention as it is impossible to scrutinize and monitor at every step. This problem is solved in smart contracts as they are self-executory on the instructions of the parties to them. 


Mentioned below are a few disadvantages of smart contracts:

Difficult to modify

Blockchain-based smart contracts use complex algorithmic functions to store data. This data, once stored, cannot be altered unless the codes are rewritten. This is a long process and it is difficult to execute multiple times. Contracts sometimes require modifications due to negotiations between parties. In these circumstances, smart contracts become an undesirable option to execute. 

Execution loopholes

In an ideal smart contract execution, the parties first negotiate and derive a common consensus on terms and conditions that shall be the basis of these contracts. However, these terms and conditions might not be executed in the smart contracts precisely as they were negotiated. It becomes additionally difficult as the data is very difficult to modify once input. The parties are at risk of loss due to this execution loophole. 

Third parties

Although smart contracts are believed to eliminate the need for third parties and intermediaries since they are digitally executed, it is not entirely true. Intermediaries are still required at different stages of forming a smart contract. Intermediaries facilitate the negotiation of terms and conditions. When this is done, intermediaries input the data into codes for forming smart contracts. Thus, intermediaries are required to do even more complex work here. This also busts the myth that the cost of hiring intermediaries is eliminated in smart contracts. 


Smart contracts work entirely with the help of computer programs and codes. The codes-generated agreement does not fully understand the needs of each party while the terms are decided. Even though smart contracts generate the data input to them, it is very difficult to understand the parties’ requirements in the same way a human being can. Technology has its limitations when it comes to comprehension, and this could be a reason for unfulfilled needs. This will lead to the parties wanting to modify the agreement or being dissatisfied with it. The modification process is difficult in smart contracts. Thus, all of these problems combined will give rise to conflicts between parties. 

Uses of smart contracts in the US

Smart contracts are already in use in certain sectors and industries in the US, and they have the potential to bring revolutionary changes in some others. These are as follows:

Trade clearing and settlement

Blockchain provides a single and effective ledger for transacting. Smart contracts enable automated work by using input computer codes to generate data. Using technology for clearing and settlement is essentially beneficial since it is a system prone to errors. With complex calculations involved, trade clearing and settlement can be facilitated using blockchain-based smart contracts. This will eliminate errors by automating the process. This also saves a lot of time and money that would otherwise go into monitoring and maintaining the system. 

Traditional trading and settlement involve rigorous internal and external compliance. They require approvals, regulatory compliance, and labour-intensive work. Even though the banks use IT software in clearing and settlement, each bank or each party to the transaction makes use of different software. It becomes difficult to combine everything, and even when combined, there are high risks of error. All of these cause delays and involve resolving differences. This could be avoided by the use of smart contracts since all the parties involved in the chain of clearing and settlement would work under a single ledger. Every party would be able to access the information, and symmetry would be maintained. 

Clearing and settlement houses in the US are slowly shifting from traditional techniques to blockchain technology. Seven startups have raised around $125 million for developing blockchain technology to be used in trade clearing and settlement. Investors include big players like Citigroup, JP Morgan, SV Angel, and even NASDAQ and DTCC themselves. 

Blockchain can also be used for maintaining trade finance documentation. Trading and finance involve multiple parties, spread across time and multiple transactions. These can be traced and recorded on a single platform using a blockchain ledger. This reduces cost and confusion that can lead to conflicts due to using paper documentation and gives an efficient, comfortable, and transparent ground for trading. 

Global gaming industry

The gaming industry is booming as a $100 billion industry globally. In the typical gaming industry, developers develop games and software, and players pay to play. That is how cash flows in the industry, from the players to the developers. These games are designed in a way that the players make payments in several phases to unlock the benefits of the game. Sometimes, these players transact to make in-game purchases and asset acquisitions in the gaming industry. All of these can be facilitated with ease using blockchain technology. 

The practice has already begun where the gaming industry makes use of blockchain technology for its everyday transactions. It is done in the form of Non-Fungible Tokens (NFTs). NFTs are unique digital assets. These assets represent a form of acceptable exchange in the gaming industry with the help of blockchain-based smart contracts. The blockchain network provides the users (players) with NFTs that are unique and immutable. Additionally, it provides players and developers with a common ground for transacting. This enhances transparency and security for both parties. Transactions can be made between not only the developers and players but also two different players in a way of sale and purchase. One player can sell an in-game purchase to another using NFTs as it has become a universally accepted mode of exchange in the gaming industry. Thus, blockchain-based NFTs have the potential to become the mainstream method in the gaming sector and further expand their horizons. 

Legal industry

One of the most important sectors where blockchain has been bringing affirmative changes is the legal industry. The introduction of smart contracts has turned the tables and changed the games in the legal industry. The legally binding contracts made using paper documentation by lawyers can be entirely replaced with smart contracts. The legal industry has been open to technological changes and bringing amends in the ways of transacting. Digital record-keeping, e-signatures, virtual complaint filing and hearing, and many other electronically-driven innovations have been introduced and accepted in the legal industry. 

Adopting smart contracts in the legal industry will reduce errors and impartiality that can occur due to the formation of contracts manually. They eliminate the need for intermediaries. Smart contracts work by processing the data input to them after parties negotiate on common grounds of contracting. These are then generated and executed using smart contracts, which have zero errors since the ledger generates the data input to it and machines can do no wrong. Apart from these benefits, smart contracts also fasten the process of the transaction and increase transparency. This eliminates many of the added costs involved in manual contracts. Smart contracts mitigate the risk of conflicts between contracting parties due to their features of transparency and immutability and help businesses run smoothly. This, in turn, reduces the risk of litigation and potential reputational damage that can occur in manual contracts. Thus, inculcating smart contracts generically in the legal industry would be a big win. Many US state governments have given legal recognition to smart contracts just like ordinary contracts. For instance, California laws allow marriages to be licensed using blockchain-based smart contracts.

Real estate 

The real estate industry in the US has been familiar with using blockchain technology and smart contracts for some time now. It has helped the industry in numerous ways, especially by making it more accessible to people for business and investment. This has been possible due to tokenization in transactions. Ownership of assets and properties can be gained using blockchain-based smart contracts with ease. 

Firstly, smart contracts can facilitate buy-and-sell transactions in the real estate industry by using blockchain tokens. Then, after the purchase has been made, it follows an agreement that binds both parties. This agreement can be replaced with smart contracts, which will bring their facilities and benefits to the real estate industry. These agreements can be further registered using blockchain-based smart contracts between the registry office and the property holder. All of this shall mitigate the risks that the industry brings with itself. The real estate industry is prone to disputes, and people get stuck in property disputes and conflicts for years. When this problem is solved, the industry will flourish rapidly and in a better way. Thus, inculcating blockchain technology is a step in the right direction for the industry as a whole. 


The use of blockchain-based smart contracts can make many improvements in the healthcare sector. Everything would be digitized and patients would be able to access their sensitive personal information using technology. Health records would be protected using encryption, and only the patient and the concerned healthcare service provider would have access to the data. The patients could input their details and documents in these blocks, and the doctors or physicians could prescribe and input reports and records here. Smart contracts will increase the confidentiality and trust between patients and their healthcare service providers. 

Remote areas often face difficulties due to a lack of doctors and medical facilities. These areas could be controlled and monitored using blockchain technology, and just a few people could be trained to handle these systems which would cover the healthcare facilities for the whole territory. This will also result in increased employment and education in the village areas. 

In government as well as private hospitals, patients’ everyday data and analysis could be stored using blockchain-based smart contracts. The patient’s records and the receipts of services provided by the hospitals can be digitally stored. These records can be sent to insurance companies or other healthcare programs that provide medical coverage to patients. This way, it would ensure errorless data and store years of records systematically. 

Apart from these facilities that could be provided to the patients, hospitals and other medical facilities can store data relating to the medicines, equipment, services, etc., provided by them systematically. 

Voting system

The government could start using blockchain-based smart contracts for conducting voting during elections. This would revolutionize the entire system of voting and elections. It would bring affirmative changes to the system and eliminate crimes committed during elections. Fairness would be ensured as data stored in blockchains cannot be modified. Voters’ votes would be protected and encrypted with blockchain. This would provide a secure, free environment to cast votes. The counting would be done automatically using technology, and thus, there would be no scope for manipulation in the counting as well. This will ensure fair results and also enhance people’s trust in the government. 

This change could increase voters’ turnout as well, since many people refrain from voting due to the processes they have to go through, like lining up in the booths, and identification and verification processes, all of which consume a lot of time. With blockchain, everything could be pre-verified and votes could be cast easily. Thus, more people will participate in the process. 

Supply chain

Companies and organizations always depend on a long supply chain through which their transactions take place. This chain consists of various manufacturers, suppliers, distributors, and other service providers on the go. Traditionally, supply chains are maintained and work through handwritten agreements and word of mouth, and sometimes involve paperwork. This traditional method of maintaining the chain of work often leads to conflicts where one party infringes upon the rights of another in various forms, like denying payment, refusing to accept orders, etc. This happens due to the lack of bindingness and the methods followed. If these transactions are maintained using blockchain-based smart contracts, it could mitigate these risks and conflicts as the records of transactions would be stored in a better manner and enforceability would become easier. A party to the contract would hesitate to defraud another party when the records are maintained digitally. These records would be used as proof of performance or non-performance in the case of conflicts. The payments would also be made digitally through the information provided in smart contracts. 


Smart contracts in finance are a milestone to achieve. Financial services involve transactions and record-keeping at every step. Digitizing finance and its facilities would smoothen the entire experience. Services like everyday bank services, maintaining accounting records, transfers, etc., would be better performed digitally and would eliminate several risks and offenses. For instance, when accounting records are maintained using blockchain, they would be impossible to alter, and this eliminates the risks of financial fraud and manipulation. 

Other facilities that involve finance, like insurance claims, could maintain their records digitally. Routine checks, payments, and other transactions could be done digitally, and records would be maintained in blocks. Every institution, company, or organization works for money. Finance is an everyday aspect for all. All these financial transactions can be stored digitally. It would increase the ease of doing business and reduce conflicts.

Corporate world implications of smart contracts

Smart contracts can be used to conduct day-to-day business activities in an organization. It can be used to govern relationships between the company’s managerial board and the stakeholders; the employer and employees; the board and clients, etc. Any agreement between these parties or other stakeholders, like those in the supply chain of the business, etc., can be reduced to an agreement made using blockchain technology. Apart from these contractual benefits, blockchain technology can also help maintain the internal affairs of the company. Good corporate governance practices can be established using blockchain technology. For instance, the minutes of a board meeting can be recorded automatically using blockchain and artificial intelligence. This will mitigate conflicts between members of a meeting and also eliminate the risk of errors in the business. The annual assessments, reports, budgeting, statements, etc., can be made using blockchain technology. This data would become more reliable and trustworthy. This, in turn, will enhance the company’s reputation, mitigate risks, eliminate conflicts, and provide an ease of doing business efficiently.

Law governing smart contracts in the US

Smart contracts in the US are governed by certain rules and legislation, expressed or impliedly. There are federal laws governing the tech and certain states have also made specific laws for governing blockchain and smart contracts in their respective states. These laws are:

Federal law

The legal status of smart contracts in the US is impliedly recognized. Although “smart contracts” have not been explicitly mentioned or defined under any US federal legislation, the Electronic Signatures in Global and National Commerce Act (Electronic Signatures Act) of 2000 has provided enough room for granting legal recognition to smart contracts. Section 101(a) states that an electronic signature, contract, or another record would have legal validity and be legally enforceable by law. It states that a contract made electronically would be legally enforceable, and its legal validity and recognition would not be denied because it has been made digitally. Thus, blockchain-based smart contracts can be brought within the ambit of “electronic contracts” under this section of the Act.

The argument behind giving this recognition is that smart contracts possess all the requisite elements of a contract, as has been mandated under the contract laws governing the American legal system. These essentials are:

  • An offer to be made by one party on valid terms and conditions, 
  • Acceptance by the other party on the said terms and conditions, and
  • The offer and acceptance are for lawful consideration, which is a mutually-agreed exchange on the agreed terms and conditions.

Thus, an agreement containing an offer, acceptance, for a lawful consideration, which is legally enforceable, is a contract. Under these circumstances, a smart contract also comes within the ambit of a legally enforceable agreement. 

However, at times, it so happens that smart contracts or blockchain technology are used merely to store information about a specific stage of an agreement. This portion of information would not contain the elements of a valid contract as a whole, and thus, would not be treated as a legally enforceable contract. It is for the courts to determine from the facts and circumstances of a case whether or not blockchain-based contracts can be given legal recognition. 

Apart from the Electronic Signatures Act of 2000, other legislation and laws in the US as well, recognize smart contracts to be legally enforceable. The traditional common law system states that an agreement between two parties can be legally recognized if it can be reduced into writing. This applies equally to ordinary contracts as well as smart contracts.

The Uniform Electronic Transactions Act (UETA) of 1999 also states that transactions, signatures, contracts, and other records can be enforced legally. Section 7 of the Act states that a contract cannot be denied legal validity for the reason that it was made electronically. This Act is by far, followed in 47 states in the US. Thus, a smart contract would have legal enforceability in all of these 47 states. Even though only 47 states have accepted the UETA (1999), the other states come within the ambit of the Electronic Signatures Act (2000). Thus, smart contracts can be validly recognized in all states in the US.

State laws

As we already know, smart contracts can be validly enforced in the US under certain laws and legalities even though they are not explicitly mentioned. However, three states (Arizona, Nevada, and Vermont) in the US have passed laws specifically to give legal recognition to blockchain-based smart contracts. 


Arizona House Bill 2417 (AZ HB2417) was passed by the Arizona State Legislature in 2017. This Bill made laws in Arizona that gave legal recognition to smart contracts explicitly. Article 5(E)(1) defines blockchain technology as a ledger that may be public or private, operating with crypto tokens or without them. It further states that the data stored in a blockchain is protected with cryptography. The Article defines blockchain as something that is ‘immutable, auditable, and shows uncensored truth.’

Article 5(E)(2) defines a smart contract as an “event-driven program.” Smart contracts run through a distributed and decentralized ledger that governs assets and their transfers in that ledger. The terms “blockchain technology” and “smart contracts,” which are explicitly mentioned in Article 5(E) are given legal validity through Article 5, clause (A) – (D) of the bill. 

Article 5(A) gives recognition to signatures made using blockchain technology as “electronic signatures having legal validity.” Article 5(B) gives similar recognition to records preserved using blockchain technology as “electronic records having legal validity.” 

Article 5(C) is the crucial provision from the point of view of smart contracts as it recognizes the existence of smart contracts in commerce. It states that a contract would not be denied legal validity or enforceability because it is in the form of a smart contract. Thus, the Arizona House Bill recognizes smart contracts in commerce to be as valid as ordinary contracts. 


The Nevada Senate Bill 398 (NV SB398) brought blockchain technology into its ambit and granted legal recognition. This bill was passed in accordance with the federal legislation’s Uniform Electronic Transactions Act. It recognized blockchain technology as a form of electronic record. The bill prohibited the state government from taxing and restricting the use of blockchain technology for electronic transactions. The existing Nevada state laws recognize electronic records and signatures as valid. The 2017 amendment inserted Sections 1, 3, 4, and 6 through  NV SB398 that defined blockchain technology and gave legal recognition to electronic records and transactions made using blockchain, the same as other electronic transactions. 

Section 1 of the bill defined blockchain technology as a form of electronic record that is:

  • In uniform order.
  • Consistently maintained by computer codes and programs. This ensures non-repudiation.
  • Uses cryptography to provide security and transparency to the data.

NRS 719.060 defines a “contract” as a legal obligation arising between parties from an agreement made between them. Section 2 of NV SB398 stated that this definition of contract and other provisions of the Nevada Revised Statutes Section 719 would apply to contracts made similarly using blockchain technology as they do to those made without it. 

NRS 719.090 defines electronic records. Section 3 of NV SB398 further clarified that this definition would include the use of blockchain technology as a form of an electronic record. 

Sections 4 and 6 of NV SB398 restrict the powers of the government when it comes to blockchain technology. Sections 4 and 6 prohibit the state government from:

  • Imposing taxes on the use of blockchain,
  • Requiring users to get a license or permit to use blockchain,
  • Any other prerequisite before using blockchain. 


Vermont (H868 Sec I.1. 12 V.S.A. S. 1913) passed in June 2017, states that facts or records that are verified using blockchain technology are authentic. Although it does not specifically speak about smart contracts, giving legal validity to blockchain-based records in courts impliedly gives legal validity to smart contracts in Vermont. 

Title 12, Chapter 081, Subchapter 001 under S.1913 of the Vermont Statutes speaks about “blockchain enabling.” It defines blockchain as a decentralized, chronological, secured cryptographic database that is maintained on the internet and computer networks. Any form of software, hardware, or combination of both that enables the use of blockchain is known as blockchain technology under the statute. 

Clause (b) of the chapter states that, as per Vermont Rule of Evidence 902, an electronic record that is made using blockchain technology is self-authenticating or authentic. A precondition for granting this authenticity under the clause is that the record be accompanied by a declaration by a qualified person under oath, stating the following information:

  • The date and time at which the record was entered using blockchain.
  • The date and time at which the record was received in the ledger.
  • Proof that the record is consistently maintained in the blockchain.

A record made using blockchain which possesses these essentials shall be given legal authentication under the Vermont state laws. A smart contract can possess all these qualifications and, thus, can be made legally enforceable and binding in Vermont.  


Blockchain technology and blockchain-based smart contracts are relatively newer concepts in the world, and adaptability takes time. However, the ideology is gaining momentum amongst individuals, corporations, states, and organizations who understand the potential it holds. Developed nations like the US, which aims to be the first one to bring revolutionary changes to the world, have been slowly adopting and recognizing blockchain and smart contracts as any other ordinary means of communication and agreement. The US government, both federal as well as certain states, has come forward by bringing legislative reforms to incorporate smart contracts into their contract laws and give them legal enforceability. It is not untrue that blockchain-based smart contracts come with a set of advantages and disadvantages. It is because of the burdens that it currently poses that its growth and adaptability have been relatively slower. However, revolutionary changes take time and they change the world for the better. They bring a perspective that was once only imagined. It was the same when the world was introduced to the “internet.” Blockchain technology and smart contracts have similar potential and it would not be too far when it would become everyday use. 

Frequently Asked Questions (FAQs)

Are smart contracts legal in the USA?

Smart contracts are slowly gaining legal recognition in the US. While the federal laws do not explicitly speak about smart contracts and their legality in the US, they have recognized records and contracts made using blockchain technology as legal. Additionally, certain states, like Arizona, have passed specific laws that provide legal recognition for smart contracts.

Where can smart contracts be applicable?

Smart contracts can be used in the finance sector, for trading, investing, etc. It can be implemented in healthcare services, real estate, and numerous other industries. 

Can I sell an NFT without smart contracts?

A digital asset becomes an NFT only when it is executed through a blockchain-based smart contract. Thus, a smart contract is a prerequisite for selling an NFT. 

What is the language in which smart contracts are written?

Smart contracts are written using the C# computer language. It is then protected with encryption using hash functions and hash results. 


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