Block chain is storage technology that is claimed to be inherently secure.

It has nothing to do with computers interpreting or drafting contracts (this is the world of Artificial Intelligence security).  While the results of an AI project can be securely stored using block chain technology, but for the most part (and based on current technology), the two are separate.

A key element of block chain is that once a record has been stored using the technology, it cannot be altered.  A record could be any data (e.g. an element of an individual’s criminal record, the searches run against a property or a copy of a contract). This record is the “block” – it is like a digital safe whose contents can be only accessed, not altered.

If that record (or block) needs to be amended, a new duplicate is made and the amendments are made to that duplicate, not to the original.  This amended version becomes its own record (or block).  It is linked to the original block in a continuous chain.  Future amendments are also dealt with in the same way and once you have more than one block you have a chain of blocks hence block chain.

The “distributed ledger” is a reference to how the data is stored.  The description above imagines that the data is all stored in one digital safe.  However, in reality the data is scattered far and wide; it is “distributed” across many servers (not dissimilar to how the internet works).  Having the data distributed in this way is one of the things which makes it secure – if you cannot easily access the data in a single place you cannot easily delete it/amend it etc. (and even if you did, you would create a new record or “block” forever recording the fact that the amendment was made.)  It is partly this distribution (along with the way the chains are linked and the reliance on multiple networks to verify data) which makes the system secure.

Block chain in practice

Imagine a residential conveyancing transaction as below:

The first time a property is sold, a full range of searches are done and an investigation into title is made.  This data is stored in a block.  When it is sold, the buyer’s details are put into a new block and these blocks are linked by a chain.

The next time the property is sold; there is no need to repeat all of the searches or title checks.  Everything the parties need is in the second block.  The vendor provides the seller with access to the block and if the seller is happy they conclude the transaction.  This creates a new block which is added to the chain and so on.

In theory, the security and transparency of the system means that the parties have increased trust between them, more comfort in the information they can see and hence less need of lawyers to fulfil their traditional function.

The current use of block chain

Block chain is a technology where, currently, the hype exceeds the reality. It first came to the attention of many as part of the foundations of Bitcoin, where its ability to accurately record transactions had obvious security benefits.

Uses in the real world remain the exception rather then the norm but that could change. Wherever there is a need for a tamper proof record we will likely see block chain technology becoming more prevalent. From traditional banking, to real estate transactions, from livestock monitoring to software development, the technology is still in its relevant infancy but uses will rapidly multiply. As they do, we are likely to see instances where block chain is used even in circumstances where the additional benefits it brings are not needed or, in some cases, not legally justified.

What are the key legal issues?

Many of the basic principles of block chain are incompatible with individual’s rights under privacy legislation. For example, the permanence of the records goes against an individuals right to have their data deleted in certain circumstances (the so called ‘right to be forgotten’). Similarly, the nature of the distribution ledger is contrary to a data controller’s obligation to understand where personal data is stored and to have effective agreements in place with those who store it.

These incompatibilities make it difficult for businesses in the UK to take advantage of block chain technologies when it contains personal data, and where they wish to do so there will be significant hurdles to overcome.

Many businesses look to commercialise the data they hold. In the UK, rights in data are protected, for example, by way of database rights and copyright. Storing such data through block chain technologies could undermine these systems, for example, by forcing businesses to enter into unfavourable IP clauses with host providers or by distributing datasets so widely that they cannot be considered a traditional database.

Finally, businesses will have a responsibility to safeguard the data they hold. Block chain is touted as offering unbreakable security but those in the tech sector have heard those promises before. If something does go wrong, for example, data is corrupt, lost or stolen those businesses will have to deal the consequences. Without the ability to properly control the data, they may struggle to recover from such a circumstance. Backing up the data will therefore remain paramount but doing so will defeat many of the benefits of using block chain in the first place.