Vermont has recently taken some legislative steps that could see the state using Bitcoin’s technology for state records, smart contracts and other applications in a drive to become “a leader in the field.”

Legislative moves

On June 3, 2015 Vermont Governor Peter Shumlin signed into law “No. 51. An act relating to promoting economic development. (S.138),” which contained “Sec. A.3. Study and Report; Blockchain Technology.”

This mandates that a report be written by January 15, 2016, which has “… finding(s) and recommendations on the potential opportunities and risks of creating a presumption of validity for electronic facts and records that employ blockchain technology.”

There was also an amendment (not yet signed into law) by Senator Balint which appears to be Vermont’s roadmap if there are favorable findings in the report due early next year. On April 8, Amendment to S.138 added in a third reading “Sec. 47. 9 V.S.A. Chapter 2: Electronic Verification Of Facts And Records: § 11. Blockchain Enabling.” It states in part that:

“Blockchain technology shall be a recognized practice for the verification of a fact or record, and those facts or records established through a valid blockchain technology process shall have a presumption of validity for matters to be determined subject to, or in accordance with, the laws of the State of Vermont.”

Blockchain good, Bitcoin bad

Of note neither the bill signed by the Governor nor the amendment put forth by the Senator reference “Bitcoin” but rather the distributed immutable worldwide ledger database that Bitcoin runs on - the blockchain.

There has been an increasing trend recently of individuals disassociating themselves with Bitcoin and co-opting the blockchain. In part, this has to do with the unfair negative association of Bitcoin with cases ranging from Mt. Gox to Silk Road. Both of these services conflated legacy systems (entrusting third parties with private keys) with Bitcoin to patch together unsafe conduits for trade.

Legislation such as that from Vermont seems to follow this same path of burying Bitcoin and at the same time embracing it. This also has to do with the recent Bitcoin 2.0 awakening that the Bitcoin blockchain public ledger is not merely a rail to move virtual currency, but a powerful means to transmit information and has even been referred to as a “truth machine” among other applications.

Smart contracts

The amendment was drafted by Oliver R. Goodenough, Director of the Center for Legal Innovation, Professor of Law at the Vermont School of Law. In an April 1, 2015 Memorandum to The House Committee on Commerce and Economic Development, Re: Making Vermont’s Legal Structure Hospitable to e-Commerce, Goodenough provided a background and a summary of his testimony which included a “Draft Vermont Blockchain Enabling Law,” which includes some verbiage that’s virtually identical to the amendment.

Goodenough’s testimony includes a section entitled “General e-Contract Recognition” and following is an excerpt:

“Significant progress is being made in systems that will permit the statement of contractual obligations in software. This ranges from academic work such as my co-authored paper with Mark Flood of the Treasury’s office of financial research to the application work of companies like Etherium [sic] and Exari. Vermont has already explicitly recognized this possibility in its digital corporation legislation. Extending this principle to other contexts would again make Vermont a leader in the field […].”

The memorandum’s citations are very interesting and also includes a reference to an Office of Financial Research (OFR) of the U.S. Department of Treasury Working Paper “Contract as Automaton: The Computational Representation of Financial Agreements” from March 26, 2015---just a few days prior to Goodenough’s testimony.

The paper includes a reference to a YouTube Ethercast, “Ethereum Contracts as Legal Contracts, Computational Legal Studies,” which features Tom Johnson, a patent attorney delivering a presentation at the Silicon Valley Ethereum Meetup at the Plug and Play Tech Center. Johnson describes how Ethereum and smart contracts can be a legal contract.

Unlike Bitcoin, Ethereum features a Turing-complete, universal scripting language, and was recently launched on July 30. According to Wikipedia, Ethereum is a “blockchain-based virtual machine featuring stateful user-created digital contracts and a Turing-complete contract programming language.”

In a nod to a 2008 article by founding executive editor of Wired Magazine Kevin Kelly, the working paper concludes in part that:

“[…] Putting computational tools to work in the context of law and justice has the potential to revolutionize aspects of the legal system, with significant consequences for markets, government, and society. Law is being ‘Turing’d’; it is time to recognize the fact and to work to make the process as beneficial as possible”

The concept of smart contracts is widely believed to be conceived of by cryptographer Nick Szabo. “Smart Contracts: Formalizing and Securing Relationships on Public Networks was published by First Monday Peer-Reviewed Journal in September 1997. The abstract from this paper below explains what a smart contract is reads like it could have been written just yesterday:

“Smart contracts combine protocols with user interfaces to formalize and secure relationships over computer networks. Objectives and principles for the design of these systems are derived from legal principles, economic theory, and theories of reliable and secure protocols. Similarities and differences between smart contracts and traditional business procedures based on written contracts, controls, and static forms are discussed. By using cryptographic and other security mechanisms, we can secure many algorithmically specifiable relationships from breach by principals, and from eavesdropping or malicious interference by third parties, up to considerations of time, user interface, and completeness of the algorithmic specification.”

Vermont’s track-record

Earlier this year, state regulators forced Vermont's only Bitcoin ATM to shutter the machine because it was violating state law. However, Vermont Finance Commissioner Susan Donegan told Coindesk that Vermont doesn’t need a an equivalent of New York State’s BitLicense

In 2012, Jeremy Hansen, an assistant professor of computer science at Norwich University made headlines when his independent campaign for Vermont State Senate announced that he would accept bitcoin donations.

In 2014, John Ford of Vermont a self proclaimed “commoner, Fringe dweller, with interests in monetary reform” posted a manifesto of sorts entitled “Banking On A Altcoin For A Free Vermont” on his website Vermont Currency Commons.

Ford envisions a Vermont Coin or Vcoin and notes that “Vermont […] may have a(n) advantage in building out a fully distributed altcoin ecosystem due to its small size and the ability to innovate more cohesively.”

The same might be said of Vermont embracing the Blockchain. We’ll just have to wait and see how the Study and Report on Blockchain Technology plays out. Stay tuned.

Note: Senator Balint and Professor Goodenough did not immediately respond to request for comment on this article.