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California changing legal codes to include blockchain

California has submitted and act to change Civil Codes, Corporation Codes, Government Codes, and Insurance Codes all relating to electronic records.

AB 2658 was introduced on Feb 15 of this year titled “Electronic records: the Uniform Electronic Transactions Act: blockchain technology”.

The bill briefly states the following.

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. The bill would also specify that a person who, in or affecting interstate or foreign commerce, uses blockchain technology to secure information that the person owns or has the right to use retains the same rights of ownership or use in this state with respect to that information as before the person secured the information using blockchain technology.

Specifically they want to change SEC. 2. Section 1633.2 of the Civil Code to include a new subsection C that states:

(c) “Blockchain technology” means distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger, that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.

After renumbering the subsections following subsection see they also want to amend the new subsection e in the following way:

(e) “Contract” means the total legal obligation resulting from the parties’ agreement as affected by this title and other applicable law. “Contract” includes a smart contract.

The new subsection h would be amended to state:

(h) “Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means. A record that is secured through blockchain technology is an electronic record.

The new subsection i would be amended as follows:

(i) “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record. For purposes of this title, a “digital signature” as defined in subdivision (d) of Section 16.5 of the Government Code is a type of electronic signature. A signature that is secured through blockchain technology is an electronic signature.

Lastly another addition of subsections would be subsection p which would add:

(p) “Smart contract” means an event-driven program that runs on a distributed, decentralized, shared, and replicated ledger that can take custody over, and instruct transfer of, assets on that ledger.

The complete document can be read on the California Legislative information website.

Whereas most of these changes are relatively logical, such as including digital signatures as part of the signature definition, other pose some serious questions and thought.

For example a smart contract, is a self enforcing contract that really has no ability to be challenged by a court, either the contract is carried out as it is written or the consequences are carried out as they are defined within the contract.

It will be interesting to see how courts in the future intend to uphold or challenge any given smart contract based on the way they are designed, and even more interesting to see how legal systems intend to deal with them if they find the do in fact violate a persons civil rights, corporate rights, governmental codes, or most interestingly insurance codes.

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