The state’s “Blockchain Technology Act,” sponsored by Rep. Keith Wheeler (R), took effect from Jan. 1, uncovering a slew of inherent new legal situations for blockchain-based contracts. These contracts are now acceptable as testimony in court, identified as a viable alternative to paper-based records, and statutorily immune from local taxation.

“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,” the law reads in part.

Illinois accompanies other U.S. states in identifying smart contracts in legal settings. Vermont started the charge with its 2016 drive to make blockchain records fit in court. One year later, Arizona passed related legislation recognizing blockchain signatures.

The Illinois law enlarges the same legal recognition already owned by paper contracts to blockchain contracts and agreements so that they are acknowledged as legally binding in the eyes of the state.

It also safeguards the blockchain industry from local government intervention, indicating cities and towns cannot impose taxes and regulations or demand licensing or sanctions on blockchain systems or those who employ them.

“The law ensures that businesses and individual community members will not have to navigate a patchwork of local blockchain regulation,” stated Alison Mangiero, president of blockchain technology company TQ Tezos and a proponent of the bill.

Its backers in the Illinois State legislature recognized the bill when it was passed as a means of offering companies and businesses with a legal structure for welcoming new technologies. Governor J.B. Pritzker endorsed the measure into law in August.

Mangiero agrees. She said legal certainty and stability would allow firms to focus their efforts on developing new uses for the technology, including facilitating transactions.

Tatyana Ruderman, counsel at InfoLawGroup’s Chicago offices, stated the law might well sustain companies looking to employ blockchain-based records systems. But she said the law’s phrasing is questionable in places, enough so that she foretells it could face a legal issue.

“The law is likely to be tested in courts by parties who later want to try and invalidate a blockchain transaction, she said.

Ruderman further added its borders might hinder the Illinois law’s success. Just because Illinois acknowledges blockchain and smart contracts doesn’t indicate a different state, like neighboring Indiana, will do the equivalent.

“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.

“This may be an area where it makes sense for the industry to come together and agree on some standards to fill the gaps.”