Smart contracts in blockchain explained

Blockchain. It’s persistently in the tech news. And on July 23, Arkansans can start signing electronic contracts and records using “smart contracts,” or computerized legal transactions using blockchain.

But before you start thinking this is something that will never impact you, let’s talk about what exactly is blockchain and the importance of electronic signatures.

Blockchain technology is software that provides a distributed, decentralized, shared and replicated ledger that, when combined with a commercial transaction, automatically verifies and executes the contract when “signed.” Think a password-protected, peer-to-peer spreadsheet that only the relevant people can access and make changes to, but that also can’t be corrupted and compromised.

Most people know blockchain through its use for Bitcoin and other cryptocurrencies, but the use of blockchain extends far beyond cryptocurrency. IBM, Walmart and other technology companies have looked at the use of blockchain in tracking the provenance of wine, or the source of contaminated mangos to protect consumers.

Blockchain technology use in supply chain transactions can expedite tracking the source of contaminated produce from seven days to 2.2 seconds through collaborations between suppliers and vendors. Blockchain technology has the potential to offer more capabilities to existing written agreements, speeding business transactions and reducing the time for audits and other record review processes, but we need more adoption of blockchain technology by business to get there. For example, with a standard supply chain arrangement using smart contracts, a carrier can receive automatic payment upon acknowledgment of the receipt of goods from a customer.

Which brings us back to why the new change is important to Arkansas.  Arkansas began recognizing electronic signatures for contracts in 2001, bringing Arkansas in line with about half the country. The Arkansas legislature at the time recognized that commerce requires the law to keep up with technology and how business facilitates transactions, and if it didn’t act then, Arkansas would be at a disadvantage. Arkansans saw their opportunity and now electronic transactions have been widely adopted across a variety of industries.

Now, with the addition of blockchain signatures or “smart contracts”, Arkansas is more on top of change, joining a handful of states recognizing smart contracts as being legally enforceable electronic contracts.  This change, led by the Blockchain Ready Studio, allows Arkansas to continue to support commerce, but it also opens the possibility of welcoming technology companies that want to create more blockchain technology for use in commerce, agriculture, or supply chain logistics.

Arkansas isn’t alone in making itself friendlier for blockchain technology firms. Wyoming recently has taken steps to enact thirteen new blockchain-enabling laws, from digital-asset-friendly laws to “sandbox” provisions for experimentation and innovation for blockchain tech firms. Wyoming’s goal ostensibly is to promote the growth of blockchain technology and attract capital, revenue, and jobs for technology companies to Wyoming and, according to the Wyoming Economic Development Association, it’s working.

Blockchain technology has the potential to make our world run smoother and faster. Given the backbone industries of Arkansas’ economy and the University of Arkansas’ Blockchain Center of Excellence, Arkansas is a perfect legal and commercial environment for the growth of blockchain technology. Here’s to more acceptance of the technology and more cooperation between business and government to make Arkansas stronger.

Meredith Lowry is an intellectual property attorney with Wright Lindsey Jennings in Rogers. The opinions expressed are those of the author.