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    Illinois Legislature Considering Legislation Recognizing Legality of Smart Contracts

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    The Illinois state legislature is considering a bill which would put the state among the select few specifically granting legal recognition to blockchain “smart contracts” by placing smart contracts on an equal footing with traditional written contracts.  Key provisions of House Bill 5553 include among others:

    • An express prohibition of any effort to deny smart contracts legal effect or enforceability solely because they rely on blockchain technologies;
    • Submission of the blockchain record satisfies the Statute of Frauds legal requirement that the “record” be in writing; and
    • Specific recognition that the signature requirement is satisfied if the blockchain record includes an electronic signature or reflects the “intent of a person to provide a signature [that] satisfies the law.”

    At the same time, HB 5553 proposes excluding smart contracts from official recognition if:

    • Another state law requires a written agreement and the blockchain contract is not in a form that is capable of being retained and accurately reproduced for later reference;
    • A record must be posted, displayed, sent, communicated, etc. in a particular manner, then the blockchain record would not satisfy such a requirement;
    • One party to the smart contract “inhibits the ability of another person to store or retrieve information contained in a blockchain”; and
    • A written document must accompany transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.

    The bill also would limit the powers of local government entities to tax or regulate the use of blockchain-based smart contracts.

    HB 5553 passed in the Illinois House on April 19, 2018 and is now pending before the State Senate.

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