Blockchain: immutable ledger, but admissible evidence?

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Being the front-runner the new "disruptor", blockchain technology necessarily has many different practical applications. As the use of this technology continues to impact various sectors, a crucial issue for customers, courts and legal advisors is whether these digital registers will be eligible in legal proceedings.

This article begins with a brief overview of blockchain technology, then addresses the problem of current blockchain evidence blocks and concludes with considerations for lawyers seeking to insert blockchain receipts (discussed later) in trials and companies implementing blockchain solutions. .

Blockchain technology

A blockchain is a type of digital ledger or decentralized database that is continuously updated and distributed to various participants in a network. The "ledger", or database, records the occurrence of some underlying event, whether it is a criptovalute transfer (blockchain technology acts as the foundation of cryptocurrencies like bitcoin, litecoin and ethereum) or a digital agreement to perform some services (such digital agreements, or "smart contracts", are performed automatically using software designed to translate the terms of the contract into code and automate the execution). "Each transaction is stored with others in a data unit called a block, and, as the name blockchain suggests, those blocks securely connect to one another, forming a" chain "of records. that date back to the beginning of the ledger. "

Several blockchains add blocks to their ledger through a variety of methods known as "consensus protocols", which include proof of bitcoin work (discussed below) and evidence of the game, along with other less common mechanisms. Regardless of the details of a given consent protocol, a blockchain has a method by which the protocol decides whether a given block and the transactions it contains are legitimate before adding a block to the chain. Each block added to the chain refers digitally to the block that precedes it immediately on the chain. Thus, any attempt by an individual to cancel or modify a transaction in a block already added to the chain would alter the character of each successive block (think of a domino effect) and generate an inconsistent ledger with every other copy of the ledger that has been distributed through the network. This process makes blockchain records immutable and makes blockchain a perfect tool to ensure data integrity over time.

Probable obstacles and Blockchain solutions

The admissibility of blockchain receipts – a document highlighting some underlying assets that have been recorded on a blockchain – is more likely to arise in the context of the evidentiary rules that govern rumors. (The issues addressed in this article may also imply rules on judicial communication, see Federal Rules of Evidence (FRE) 201 (b) (2)), and authentication, see FRE 901, which both consider accuracy and accuracy. # 39; Reliability of the evidence offered. Because the standards governing admissibility in the context of authenticity and judicial communication are largely similar to those governing admissibility in the context of rumors, this article focuses on rumors.) Hearsay is an out-of-court statement offered to prove the truth of the alleged issue, and is generally inadmissible unless you qualify under an exception in the rule. Hearsay's rules, and exceptions to rumors, encourage contenders to rely on court testimony, and attempt to find a balance between the prohibition of inaccurate testimony and the authorization of sufficiently reliable court statements.

Particularly relevant to blockchain receipts, the exception "corporate records" to the rule of hearings allows a party to place certain business records into evidence to prove their content because the circumstances in which the records are created ensure or reinforce their reliability. The Advisory Committee on Federal Standards notes that the "systematic scrutiny" and "the actual experience of companies in relying on" business registers give these tests an "unusual reliability" that guarantees the exception.

Blockchain technology is designed to create an immutable activity book that, like company records, gives it an unusual reliability that alleviates many of the problems of authenticity and reliability inherent in traditional testimonial evidence. The revenue generated by a blockchain-based system is both authentic and reliable in two ways: (1) verifying every single transaction; and (2) registering authentic transactions in a shared ledger.

Take the bitcoin cryptocurrency for example. The bitcoin protocol ensures that every on-network transaction is authentic by verifying digital signatures. When Alice sends a coin to Bob, she digitally signs the coin, announcing that she is the owner of the coin and intends to send it to Bob. The Alice-to-Bob transaction is then transmitted to the network nodes, which verify Alice's signature and check the existing ledger to make sure it has been authorized to send the coin. In this example, the bitcoin protocol essentially guarantees that the Alice and Bob transaction is authentic by confirming that Alice is who she claims to be, and that she is the last registered owner of the currency.

Blockchains preserve this authenticity over time by linking together verified transactions in a chain and distributing a copy of that transaction in multiple locations. Remaining in the bitcoin example, the bitcoin protocol adds blocks to its chain through a consensus mechanism known as a working test. In a job proofing system, miners compete to solve a cryptographic puzzle, and the winner is rewarded with the right to add the next block (which includes information about Alice and Bob's transaction) to the ledger. Once most of the network participants agree that the miner's answer to the puzzle is correct, a block containing the Alice and Bob transaction is added to the chain and a new copy of the ledger reflecting their transaction is distributed to the network . While this process is repeated, the transaction of Alice and Bob is cemented in the ledger because altering their transaction would disturb every subsequent block. According to the design, therefore, blockchain technology preserves the authenticity over time, one of the distinguishing features of the admissible tests.

Although admissibility makes sense on a conceptual level, legislatures and courts have yet to embrace this fact. Vermont, as an exception, has explicitly adopted legislation that precludes the debate on probative issues related to blockchain-based registries. In 2016, Vermont promulgated 12 V.S.A. §1913, which states that a digital record recorded on a blockchain is both admissible and authentic according to the Vermont Rules of Evidence. Section 1913 establishes that a blockchain registration is admissible for objections to issues when it is accompanied by a written statement from a qualified person attesting the details of the transaction.

As other authors have pointed out (see James Ching, "Blockchain Evidence Inadmissible Hearsay?" (7 January 2016)), the closest that the courts have come to address this problem are the cases that analyze the admissibility of declarations of the car. For example, in United States against Lizarraga-Tirado, 789 F.3d 1107 (9th Cir. 2015), decided by the Court of Appeals of the United States for the Ninth Circuit, the court has admitted, with an objection by hearsay, an image of Google Earth showing a "location" of the defendant's headquarters. Where Google Earth automatically generated the pinpoint chart without human interaction, the court noted, such evidence can not be considered a "declaration". Id. To 1109 (citing FRE 201 (b)) ("Looking at" sources whose accuracy can not reasonably be questioned "- here, the program – we can" determine accurately and readiness "[]& # 39; That the turn was positioned automatically. ") The court also found that any problems of accuracy or reliability could be overcome" with the testimony of a programmer or witness of Google Earth who frequently works and relies on the program. "Id. In many ways, the & # 39; The court's attention to accuracy reflects the requirement of the Vermont statute that the consultant accompany the blockchain test with a written statement from a qualified person explaining the transaction.

Considerations for professionals and professionals

To maximize the likelihood of eligibility, consultants seeking to include blockchain evidence should take into account the Vermont legislation, the policy objectives of the evidential rules and Lizarraga-Tirado. Each of these sources suggests that consultants should be ready to strengthen their blockchain evidence with expert testimony. To compile a persuasively simple and technically sound description of blockchain technology, lawyers will need to develop their knowledge of blockchain technology and establish relationships with appropriate experts.

Ideally, an expert will provide a simple explanation of the mechanics of a particular transaction in a way that highlights the intrinsic reliability and authenticity of a blockchain. Both the consultant and any expert should highlight how the received blockchains are generated automatically, as in the case of Google Earth Lizarraga-Tirado, in response to a particular set of events. The evidence presented in this way addresses many of the concerns behind the rules on judicial and authenticity and the so-called "black box dangers" that arise when a researcher is not clear about how it is generated. a machine statement or the proposition for which it is located. (See Andrea Roth, "Machine Testimony", 126 Yale L.J. 1972, 1977 (2017)).

To clarify the first obstacle, the consultant should consider two approaches: (1) enter the evidence under the "business records" exception; or (2) where appropriate, frame the evidence as an electronic contract.

• To qualify for the exception "corporate record" FRE 803 (6) by hearsay, the consultant must demonstrate through the testimony of a programmer-keeper or an equally experienced individual that the receipt blockchain was generated at the time of transaction and maintained during a regularly conducted business. One possible problem with this path is that FRE 803 (6) requires that each link in the information chain be the product of a "regularly conducted activity". The notes of the advisory committee illustrate this point with a report from the police that transmits information obtained from a third party. ; although the official acts on a regular basis in the creation of the relationship, the third party does not. See FRE 803, Advisory Committee Notes. In the context of a public transaction (a bitcoin exchange, for example), a court might find that, although the receipt blockchain (similar to the official report) was produced as part of a regularly conducted business, the underlying transaction was not. Counsel could more easily overcome this obstacle in the context of the business use of blockchain technology in which a receipt is generated as a result of a core business function involving one or more companies.

• If a specific blockchain receipt reflects an intelligent contract, the receipt may not be exhaustive. "In the simplest terms, an intelligent contract is a computer code that executes code-level transactions based on predefined terms." (Chamber of Digital Commerce, "Smart Contracts"). Therefore, the extent to which a particular intelligent contract is a legally binding agreement may open a way to admissibility under the rules by hearsay because the terms of the contracts are generally admissible as "verbal acts". (The Advisory Committee on Federal Standards notes that a verbal act is one in which the statement itself affects the legal rights of the parties, sometimes referred to as statements that carry an independent legal meaning.) Therefore, a contract Intelligent with the same legally binding force as a traditional contract could bring an independent legal meaning and fall outside the definition of hearsay. (We note that although some states, such as Arizona, Nevada and Delaware, have recently passed legislation that recognizes the legitimacy of smart contracts guaranteed through distributed register technology, there is strong argument that the federal law ESIGN and Law on uniform electronic transactions at the state level, which harmonises the electronic signature standards in 47 US states, confers a legally binding status on smart contracts (Digital Chamber of Commerce, "Legal Primaries" of the Smart Contracts).

In addition to litigation, organizations implementing blockchain-based solutions should also consider these issues in the implementation of new systems. Whether it is to implement blockchain-based record management solutions or standardize smart contracts, companies should design blockchain solutions with the goal of explaining to a judge or jury exactly what their "records" are and why the tests are authentic and reliable. For example, a company might consider the adoption of a record keeping system in which it still registers information in a centralized location, but also transmits information to a blockchain to ensure authenticity over time. This type of "mirror" solution (see Victoria Lemieux, "A typology of record keeping solutions and some reflections on their implications for the future of archival conservation") can create fewer challenges than more innovative systems such as completely tokenizing registers , like those solutions muddy traditional notions of what constitutes the real record (whether it is the intelligent contract code, a description that describes the code, the object or the value represented by a particular token, etc. ).

Time will tell if Congress or the Supreme Court will modify the Federal Rules of Evidence to include a uniform solution to these questions, or if the courts will incrementally resolve these issues as soon as they arise. It remains to be seen whether other states will follow the leadership of Vermont in the adoption of rules that address these probative uncertainties. In the meantime, professionals and professionals should consider these problems when working with blockchain-based solutions and litigation cases related to blockchain records.

Neil Gray is a partner in the practice of Reed Smith's financial services litigation in New York. Maxwell J. Eichenberger is an associate in the Chicago study and a member of the technical group and the IP data.

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