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Illinois Legalizes Smart Contracts and Other Blockchain-based Records

As of January 1st, Illinois's Blockchain Technology Act took effect, opening the door for the legal use of blockchain-based contracts. Sponsored by Rep. Keith Wheeler (R), Illinois is just the latest state to pass such legislation which would allow smart contracts to be legally recognized as admissible in court.

This legislation is significant as a starting point for blockchain-based records to be recognized as a viable alternative to paper-based records - a direction many see the industry heading.

The law reads: "A smart contract, record or signature may not be denied legal effect or enforceability solely because a blockchain was used to create, store or verify the smart contract, record or signature".

Illinois's new law now extends the legal recognition that's already enjoyed by paper-based contracts to blockchain agreements, making them recognizable as legal entities by the state. The law also protects the crypto sphere from taxation and regulations from the local government.

Alison Mangiero, president of the open-source blockchain-based platform TQ Tezos, said, "The law ensures that businesses and individual community members will not have to navigate a patchwork of local blockchain regulation."

Tatyana Ruderman, counsel at InfoLawGroup’s Chicago offices, said the law will bring huge benefits to companies looking to utilize blockchain-based record systems. But in the same breath, she also noted the law’s vague wording in certain places. Enough so that she predicts it's likely to face legal challenges when used in court.

Ruderman also expects that other states will be slow to follow in the footsteps of Illinois. "Just because Illinois has implemented the law, [it] does not mean that neighboring states like Indiana will [as well]."

"It may not make sense for businesses who operate outside of Illinois to implement blockchain-based contract management only in Illinois and not elsewhere,” she said, suggesting that this may be an area where it makes sense for industry regulators to come together and agree on accepted standards to fill any legal gaps that may arise down the road.