California Legislature Passes Blockchain Working Group Bill

The California Legislature has passed Assembly Bill 2658, which provides a legal framework for the recognition of blockchain technology in the state’s insurance code.

Introduced by Democrat Ian Calderon, the bill sought to amend Sections 1624.5, 1633.2, and 1633.75 of the Civil Code, Section 25612.5 of the Corporations Code, Section 16.5 of the Government Code, and Section 38.6 of the Insurance Code, with relation to blockchain technology, electronic signatures, and smart contracts.

New Inclusions and Definitions

Under previously-existing California law, the Uniform Electronic Transactions Act offered legal protection and enforceability to the use of electronic signatures in creating contracts, specifying that in the events of a requirement for writing or a signature, an electronic record or signature should suffice.

No mention was made, however, of electronic records or signatures secured using blockchain technology, which was a point of legal ambiguity for blockchain-based businesses. The new bill expands the definition of “contract” under California law to include “smart contract,” which provides legal basis for use of blockchain-based electronic signatures in sealing contracts.

It also specifies that any individual doing interstate or foreign commerce using blockchain technology to secure information they own or have rights to has access to the same ownership and usage rights in California.

Under the bill, Section 1633.2 of the Civil Code is amended to include a legal definition of blockchain technology, and Clause “e” in the section is amended to read as follows:

“‘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.”

Clause “h” is also amended to read as follows:

“‘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.”

Clause “i” is amended to include the sentence: “A signature that is secured through blockchain technology is an electronic signature.” Clause “p” is also added to give a legal definition of “smart contract” under California law.

It reads: “‘Smart contract’ is 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.”