Author Karin Eggerath, Business Data Partners Senior Consultant

It is almost impossible to go a day without seeing the terms ‘blockchain’ and ‘bitcoin’ across news, social media, and tech websites. Here at Business Data Partners, we are keeping a close eye on blockchain and the associated technologies to ensure we can support our clients and future clients when the opportunity arises. In the media, the view on these technologies varies from positive to negative and the grey area in-between. Recent debate has focused on what exactly these technologies enable. Could the possession of cryptocurrencies be illegal under current UK law? A recent Guardian article suggests exactly that.

The Report

The Guardian headline, “Child abuse imagery found within bitcoin’s blockchain” certainly catches a readers attention. The report contains research from the German University of Aachen, where it was discovered that links to images of child pornography were found in the blockchain of bitcoins.

The blockchain is the open-source, distributed ledger that records every transaction. In terms of bitcoin or cryptocurrencies, the distributed ledger is a listing of all transactions made. The blockchain  contains metadata for the date, time, type of transaction, and other non-financial information.

When looking at a selection as part of their study, of the 1,600 files contained in one blockchain, researchers found eight links to sexual content including one thought to be an image of child abuse. Two other bitcoins contained 274 links to child abuse content, 142 of which linked to dark web child pornography providers.

While a simple bitcoin transaction itself, which many industries use for legitimate payment, does not necessarily require a copy of the blockchain, bitcoin mining does require the downloading of parts or even the entire blockchain. With mining being an essential part of the bitcoin process, generating new bitcoin and recording the transaction in blockchain, the researchers go on to conclude:

“Since all blockchain data is downloaded and persistently stored by users, they are liable for any objectionable content added to the blockchain by others. Consequently, it would be illegal to participate in blockchain-based systems as soon as it contains illegal content.”

What does this mean?

As a technology still very much in the early stages of development, no case law directly related to the possession of bitcoin exists yet. However, as the researchers correctly point out, the mere possession of child abuse images is illegal in countries such as the US, UK and Germany.

In 2015 Interpol issued a warning to bitcoin users; the design of bitcoin not only means that malware can be easily be inserted into the blockchain, bitcoin could even be used for the “sharing of child sexual abuse images where the blockchain could become a safe haven for hosting such data”. This means bitcoin and their associated blockchain becomes a vessel for criminals to store illicit content and goods in.

How can we prevent the misuse of technologies?

The bottom line is that financial institutions need to make changes to the way they monitor the purchase and exchange of bitcoin on customers’ accounts. If bitcoin can become the source of illegal content such as child pornography, a small amount of bitcoin being exchanged for a large sum could well be the physical exchange of money for illegal images / material. The way institutions perform transaction monitoring and rules used for anti-money laundering checks will need to reflect this.

One way to monitor is to employ methods used by Universities. Universities use software to scan digitally submitted work. Once submitted, it compares words, phrases and entire sentences contained within, to millions of other scholarly articles, books and thesis to detect plagiarism. Could financial institutions and law enforcement employ similar technologies to scan entire blockchains on users’ computers to detect illegal content?

What the future of blockchain and regulation looks like

Business Data Partners are closely following blockchains progress and legislation. Not only does the allow us as a company to stay aware of technologies, it will allow us to support our current and future financial services clients when the time comes.

As for the wider debate on what the future looks like, the need for legislation is increasingly becoming the most contentious issue surrounding bitcoin and blockchain technologies. The sale of stolen bitcoin wallets on the dark web has long been a common practice, essentially a form of money-laundering. However, if law enforcement agencies can read the blockchain and discover where the money has come from due to every transaction’s metadata is recorded in the chain, then illicitly obtained funds could soon be discovered, seized and returned to their rightful owners.

UK banking institutions, such as Lloyds and Virgin Money, have already blocked the purchase of bitcoin from their credit cards. Maybe it is time to legislate and take another step into the right direction to stop criminals from misusing this new currency. Bitcoin exchanges require stricter regulation, working in direct partnership with law enforcement to allowing scanning of bitcoin blockchains to discover what they contain before allowing exchange into real currency.

If you would like to know more about the work Business Data Partners does and how we can help you with both established and emerging technologies, get in touch via the website today.