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Legislation on digital contracts is being passed in some states, regardless of how it is understood or qualified. The new, complicated bills could affect mortgage processes. How can it be managed?

Like it or not, we seem to be stuck with the term “smart contract.” The technology, which can be used to automate transactions on a blockchain, is still so new that no one really agrees on its definition. Nevertheless, several states in the US are moving quickly to codify it into their laws—which, given where things stand, might not be so smart.

The trend: Earlier this month, Tennessee became the second state to go out of its way to legally recognize smart contracts (PDF); Arizona passed similar legislation last year. In both cases, lawmakers amended existing statutes governing the use of electronic forms and signatures to explicitly include the terms “blockchain” (in Arizona’s case), “distributed ledger” (Tennessee’s choice), and “smart contract.” Several other states have considered similar changes.

Why states suddenly <3 crypto: The bills seem to be little more than pro-crypto posturing meant to attract investment and entrepreneurs. Tennessee’s new law, for example, states that a legal contract can’t be invalidated just because it is “executed through a smart contract.” But such clarification is not needed, according to Perianne Boring and Amy Kim at the Chamber of Digital Commerce, a blockchain trade association in Washington, DC. Existing federal and state laws already provide an “unquestionable legal basis” for this, they argue.

The dreaded “patchwork”: But those laws also provide uniformity, whereas Tennessee’s smart-contract law is not even identical to Arizona’s. If enough states create differing versions, “it’s just going to be chaos,” says Peter Van Valkenburgh, director of research at Coin Center, a policy think tank that advocates for blockchain technologies.

False certainty: New laws are likely to add confusion and unnecessary complexity and cost, says Andrew Hinkes, a lawyer and adjunct professor at New York University’s Stern School of Business. That could hamper technological development. “Laws should not attempt to define technologies that do not have a widely held definition in their relevant technical communities,” says Hinkes.

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