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While blockchains are currently used for accounting of transactions, entries on blockchain ledgers can include embedded content such as messages or pictures. This embedded, and sometimes encrypted content, which is recorded in a blockchain is an area where legal issues abound and create potential liability for all blockchain users even when unaware of the embedded data.
For example, one area of concern is protection of copyrights in such decentralized systems where copyrighted materials can be pirated through embedding in blockchains without permission from copyright holders and then distributed. As an initial matter, it will be difficult to identify the culpable parties to issue Digital Millennium Copyright Act takedown requests to and then there is the difficulty of how to even effectuate compliance with such a request when dealing with an immutable ledger entry. Secondly, infringement actions in such cases may be difficult to pursue given the decentralized nature of blockchains. Indeed, there will be issues of determining liable parties and how far that liability goes. Potentially, every node on which the embedded infringing material/pirated data is stored could be a source of liability.
A second area of concern is inclusion of illegal material which can take on various forms and span from links to child pornography to leaking of classified state secrets. As all operators of blockchain nodes are forced to keep a copy of the embedded illegal material, this creates potential liability for those blockchain users from just possession of that illegal material even if unaware. Additional areas of concern are the potential for embedding of private data for unsavory purposes such as blackmail through disclosure of private nude photos and videos and embedding of malware which could then be spread via the blockchain and lead to a slew of problems, including but not limited to destruction of data, financial losses, and inoperability of devices. Again, node operators may be subject to liability for these privacy violations and the cybercrimes.
The overarching issue is that, given the immutable nature of blockchain, unlawful data can be stored on a blockchain permanently and since blockchain data is stored by node operators, those blockchain users become liable for any improper data added to the blockchain whether aware of that content or not. Indeed, it could create an untenable situation where it is illegal to even participate in a subject blockchain once unlawful content has become embedded within it so that node operators are faced with the choice of being subject to liability or forced to delete the unlawful content from the blockchain which in turn threatens the blockchain’s reliability as it is no longer immutable.