The Capital
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The Capital

PART 1. Blockchain Technology As A Document Management Tool

By IMBA-Exchange on Altcoin Academy

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According to experts of the International organization for Standardization (ISO), “blockchain and distributed systems technologies are becoming an important new direction in the development of information technologies; they can be used in many industries to solve a wide range of problems. On the basis of these technologies, it is possible to create new solutions with great potential to accelerate business processes and significantly reduce costs, especially in cases where there is a need for reliable and unchangeable documents within the framework of transactions between individuals or organizations, without the involvement of a trusted third party for this purpose.

Interest in blockchain is growing, and almost every day around the world there are numerous new initiatives in the field of blockchain, distributed registries, and smart contracts”.

Membership: Countries in the International Organization for Standardization

Innovative Features And Potential Impact Of Blockchain Solutions

The following innovative features of blockchain solutions and their potential impact can be distinguished.

  • A key innovation in the use of DLT-systems is a new model of trust, which, unlike traditional systems, does not rely on the authority of the organizer of the system and trust in its participants, nor on the rules of a particular jurisdiction and generally does not require the use of trusted third parties, including certification centers and time stamp services. DLT-the system itself tends to become the universal intermediary who arranges direct communication between the parties to the transaction.

A number of States are already using blockchain solutions as an additional tool to ensure trust in electronic data and documents, independent from the state and from any specific commercial organizations. In principle, the mechanism of consensus in the blockchain system can be configured in such a way that all decisions will be made on the principle of direct democracy (with the “weight” of votes of participants, as a rule, differs significantly depending on their computing power, share in the system and/or other factors).

  • The important point is that in a blockchain system built on the type of Bitcoin, there is no official owner and jurisdiction, no operator to whom it would be possible to make demands and claims (which, depending on the circumstances and the tasks to be solved, can be both good and bad).

Such uncertainty may be useful where, for example, barriers to cross-border interaction related to state sovereignty need to be circumvented and the ability of individual States to interfere in the management of the system, to extract information and to impose sanctions. A blockchain solution can be intentionally created as a neutral trusted “stateless “intermediary. In the absence of an official owner and operator, it is difficult for the law enforcement authorities of a particular country to gain access to confidential information relating to the participants of the DLT system.

  • The principal distribution and/or decentralization of blockchain solutions makes them disaster-resistant, as well as resistant to the impact of certain States. Transactions in DLT systems such as Bitcoin are difficult to track or block, and in combination with the anonymity of participants, such systems can be used, for example, to bypass sanctions.

In the context of destructive sanctions activities of a number of countries that interfere with the normal operation of systems such as SWIFT, Visa, and MasterCard, the introduction of DLT-systems may be a measure that stabilizes financial ties between different countries, including conflicting with each other.

  • It follows from General considerations that solutions based on blockchain technologies and distributed registries can be very effective as a tool to support initially decentralized and not centrally controlled activities and processes. Conversely, traditional solutions are expected to continue to be more effective where activities are centralized or centrally controlled.

The analysis of available materials shows that innovators pay surprisingly little attention to distributed activities so far, all the while trying to replace successfully working traditional solutions with distributed ones in areas where the use of blockchain (under equal conditions) does not promise any special advantages.

  • It seems that the future of blockchain technology and distributed registries are likely to be associated not with “pure” blockchains, but with hybrid solutions that combine strengths and compensate for the weaknesses of traditional and innovative technologies.

As for the legal problems, the solution of which can most determine the further fate of the blockchain (primarily the issue of compliance with the legislation on the protection of personal data of different jurisdictions), such problems can be most easily solved in the case when decisions based on distributed registers are created or accredited by the state, and the rules for processing the same personal data can be established by special laws — as is done in Russia for the main state registers, registers, and cadastres.

Because the technology of the blockchain and distributed registries are very expensive from the point of view of computing and consumption of energy and — in the case of public blockchains will be greater legal uncertainty, their use is not very promising where traditional coping system. In the vast majority of cases, ostensibly indicating the advantages of blockchain, traditional systems are quite capable of reaching a much higher level of efficiency, provided that the existing business processes and the legislative and regulatory requirements for them are similarly revised.

The main driving force for the introduction of DLT technologies so far is the circumvention of existing, sometimes inconsistent, outdated and/or burdensome national and regional regulatory mechanisms and the creation of non-state-controlled transactional systems that support, inter alia, cross-border activities. At the same time, it is quite possible that States, for one reason or another, would prefer (at least for a while) not to get involved in the fight against DLT systems, but also not to revise existing norms, to close their eyes to the fact that the new technology bypasses these norms. It may be recalled that this approach has been and continues to be used in the implementation of, for example, informants and a variety of electronic payment systems that allow certain transactions to be carried out in a simplified manner.

Given the numerous legal problems, it can be assumed that blockchain technology and distributed registries are most likely to develop “under the wing” of the state — within the framework of state or state-accredited systems, the activities of which (including the very difficult issue of personal data protection) can be regulated by special legislation.

Legal Problems

From the point of view of the law, DLT systems are just a subspecies of information systems and business tools. The use of blockchain technologies does not exempt stakeholders from the need to comply with all relevant legislative and regulatory requirements. While the law is also likely to change in order to remove obstacles to the introduction of innovative technologies, these changes will be gradual and long-lasting. In the meantime, blockchain solutions will have to fit into the existing legal system, as well as interact with traditional (paper and electronic) systems used for the needs of public administration and business — for example, with centralized state registers, registers, and cadastres, with systems such as MADO and SMEV, etc.

Legal security of the blockchain system can be ensured if its development, implementation, operation and decommissioning are carried out in such a way that over time, despite changes in legal, technological or social conditions, the following requirements are met:

  • Documents that are stored (or managed through) the blockchain system must retain their business or legal value as long as necessary.
  • Interaction with courts and regulators in all jurisdictions (especially in situations where courts require documents and information or require them to be removed, modified or blocked) should not cause catastrophic consequences for the system (for example, because of a violation of the underlying principle of invariance of records).
  • It should be possible (technical and legal) to submit certain documents to the court or regulator (it should be determined who and how will certify them).
  • The authenticity, integrity, usability, and confidentiality of both the system and the documents stored therein should be ensured in a manner that can be demonstrated to the regulator and the court.
  • Comply with the existing legislative and regulatory requirements for the period of storage, protection of personal data.
  • It should be clear who is responsible for the correct functioning of the system and who compensates for the damage.
  • Operators (or a community of stakeholders) monitor legislative and regulatory changes and take appropriate action.
  • Efforts are being made to solve the problem of ensuring the long-term safety of information in the blockchain.

Experience In The Use Of The Blockchain In Document Management And Archiving

To date, a number of countries have gained experience in the real use of blockchain solutions in document management and archival business. Also within the framework of a number of international research projects, theoretical studies are conducted, as well as practical experience is studied and analyzed. In terms of the few actual practices, Estonia and Georgia are the most illustrative.

In recent years, a number of blockchain studies of archival and documentary orientation have also been carried out.

In Part 2 of the article, we will consider the experience of using blockchain technologies as a document management tool in some countries: Estonia, Georgia, Canada, and the UK.

Material developed by the Legal Department of EdJoWa Holding

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