Arizona Passes Blockchain Bill - Code is now law?

The Arizona legislature passed a bill today that is a landmark bill defining the roles and statuses of Blockchain, Crypto Currency, Digital Signatures and Smart Contracts.

For such a comprehensive bill, the full text is remarkably short and I encourage you to read it in full and not just take my word for it.
https://legiscan.com/AZ/text/HB2417/id/1497439

Here is what this law does.

First off it legitimizes the "distributed time-stamped ledger" aspect of Blockchains and turns them into a sort of notary, or more accurately "a witness" as to the date and terms of the content that they contain.

In otherwords it allows canonical copies of information such as transactions and contracts to be sourced from blockchains.

The second aspect is that it legitimizes digital signatures and causes them to have the same force and effect as written signatures, thus the only defense against a contract with your digital signature is that you were hacked, i.e. you assert the document is a forgery. Prior to this, there could be an argument made that a digital signature was an acknowledgement of receipt but not a consent to the terms.

Now your signature is your consent. So be careful what you sign at least when it's coming from people in Arizona.

The third and perhaps the most important aspect is related to smart contracts.

This law does NOT, as some have claimed "give the force of law to smart contracts".

Ethereum and ETC people, you are wrong about this.

What it does, is allow a smart contract to be a representation of the terms of the contract and to execute said terms free from interference so long as both parties continue to consent.

It also allows a smart contract to be referenced as a set of actual terms contained within the contract. This means that instead of pure legalese, regular contracts can contain computer code and references to computer code to clarify the intent of the parties.

Now that does sound at first blush like the "code is law" argument. And in a Napoleonic code country, that would in fact be the case if this law were to pass. Because those countries specify that what is written and only what is written, is the sole content of the contract. Common sense, fairness and especially jurisprudence need not apply.

But the USA is not a Napoleonic code country.

The USA is a common law country.

We have 200 years of contract law decisions and a concept called stare decisis that all fall firmly into the camp that a written contract is only an agreement in so far as the contract represents the actual intents of the parties to said contract.

Which means that if there is a dispute as to the intent of the contract, then you retain the same legal rights as you did before.

This means that if there is a dispute, the contract can still be brought before a judge for a little of the old solomonic wisdom.

The difference is that the judge will now need to evaluate the smart contract elements as though they were the "plain and simple text of the agreement", instead of simply a "method or device of execution". This raises the status of a smart contract in the eyes of the law. Even more so if those are derived from a set of strict and well recognized templates with accompanying mathematical proofs.

However a bug or flaw in the source code would render the smart contract deficient, just like a mistake in a regular contract that made said regular contract deficient or unenforcable. This means if your contract code is buggy a judge would be required to toss it out as well.

Most written contracts have a "perfection of agreement clause" which reads something along the lines of "If it is found that any part or portion of this contract is found to be deficient, unenforceable, illegal or otherwise invalid, the remainder of this contract will remain in force".

The reason for that clause is to specify the intent the of the parties to continue with the remainder of the contract even if some portion is flawed. Because the default judgement without that clause is for the entire contract to be null and void.

On the whole, my opinion is that this law is a great law and puts Arizona firmly in the forefront of granting legal recognition to a whole new universe of economic opportunity.

There is one flaw with the bill that I find a bit disturbing and it's this...

NOTWITHSTANDING ANY OTHER LAW, A PERSON THAT, 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 WITH RESPECT TO THAT INFORMATION AS BEFORE THE PERSON SECURED THE INFORMATION USING BLOCKCHAIN TECHNOLOGY.

The unintended result of this is that anything you upload to a blockchain is "copyright ... you?" and if you don't have the original creator's permission you could accidentally inject their copyright into said blockchain.

The problem with this is that the purpose of copyright is to provide strict limits on who may make copies of information and for what purpose. But once put on the blockchain, there isn't any way to remove it. Furthermore each block in a blockchain depends on the previous block by definition, or you don't really have a blockchain. You have something else and are just using blockchain as a buzzword.

Therefore someone could upload a copyrighted work and the original rights holder could cause trouble for each person who downloads blocks built on top of that block. This would require a hardfork to resolve successfully.

This is a great example of clause that had good intentions but could quickly lead to issues for blockchain developers.

This is not intended as legal advice. But there is a way to route around this law. VIVA for instance doesn't allow arbitrary data to be stored on the blockchain, just references to the data, i.e. links. The data itself is stored atomically in our Content Addressable Network. It is up to each node to decide whether or not to download and verify each reference. Ergo it is possible for nodes to create, distribute and subscribe to a "do not download" list of references that would otherwise be illegal in a business sense for said nodes to download. This doesn't eliminate the content from the network, but it prevents the distribution by otherwise unknowing parties while allowing nodes in different countries with varying laws to be compliant with the laws of the locale in which they operate.

There is an argument to be made that this is still "linking to the data" and some countries have determined that linking is itself copyright infringement, whilst others have determined that it is not. For countries where linking to infringing data is itself infringement, there could be a second list of "blocks we do not distribute", thereby leaving them out of the loop. For a currency like VIVA this is an acceptable solution since mints only validate transactional summaries, and there is an aggressive pruning cycle which limits how long a block would remain on the main chain of about 1 year. But other cryptos may have trouble here and each developer should start examining what happens to their coin if this becomes a legal standard.

I would urge residents of Arizona to start an effort to get that line adjusted so as to limit it's impact. A one word change fixes it. It's clear the legislators intent was to allow a content owner to not lose control of their content just for inserting it into the blockchain. But more needs to be done to prevent a viral copyright claim from bringing any blockchain to a halt.

One final bit and this is the part of the law I've been hoping for years would see daylight.

"BLOCKCHAIN TECHNOLOGY" MEANS DISTRIBUTED LEDGER TECHNOLOGY THAT USES A DISTRIBUTED, DECENTRALIZED, SHARED AND REPLICATED LEDGER, WHICH 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 AND AUDITABLE AND PROVIDES AN UNCENSORED TRUTH.

There is finally a good definition here of any cryptocurrency. Specifically...

DRIVEN BY TOKENIZED CRYPTO ECONOMICS

In one fell swoop the Arizona legislature has defined crypto currencies as "tokens within an economic system" and provided a legal framework for contracts which execute using them. This is going to make it much easier for people to deal in crypto currencies. Especially coins that are predominantly used as tokens or markers for other assets. Coins such as bitshares and VIVA immediately spring to mind.

By my reading of this law, you can now buy and sell these currencies and treat them just as you would any other equity, like stocks, bonds etc. Technically this has legitimized bitUSD and SBD as bonds in the legal sense of the word.

So I just want to take a moment and congratulate @dantheman, @stan and @ned for their foresight in this. Because this law provides a solid framework to legitimize a concept that they created, i.e. the DAC or Distributed Anonymous Company. Taken to the logical conclusion, you can now treat a DAC as a legal corporation with the exception of it lacking actual corporate personhood. So under the law your DAC would be viewed as a partnership and the same legal liabilities apply until you register it somewhere in order to get the limitations to liability conferred by corporate personhood..

Eitherway, Arizona is now lending extreme legitimacy to this and a lot of what I've been railing against on DACs is rendered moot by this single change to law.

So to answer the original question, Is code now law?

No it is not, but code CAN now constitute an enforceable contract under certain situations.

It must be uploaded to and acknowledged by a blockchain and it must be executed on a blockchain network.

As a programmer, you do not need to have a lawyer write your contracts, so long as you can specify clearly the intent of the contract within the code (comment your stuff thoroughly) and cover all the regular bases.

You should still have a lawyer review it. I also predict there will now be a market for para-programmers who serve the same function for smart contracts, that paralegals serve for written contracts. There are also likely to be hybrid contracts emerge that are part paper and part code.

Furthermore, DACs are now a real thing.

You have a legal basis for bitshares style DACs, recognized by a State.

Also bitUSD and SBD are effectively real money.

We have a law we can point out that says so and this is the first of it's kind in the world.
So if it were me, I'd be buying bitshares, steem and ether by the bucket load and dumping bitcoin, litecoin etc.

Oh and if you haven't heard, if you're running an exchange it looks like New Hampshire has gotten crypto friendly recently too.

Now if you'll excuse me, I need to go add bitshares to our exchange.
One final note, @riosparada is a real lawyer, so if he responds with a rebuttal or correction you should take his word for it over mine.

So what do you think? Do you find this exciting?
Let's brainstorm! What can you imagine yourself being able to do with this new framework?

As always, this post is 100% STEEM Powered!