Blockchain technology creates a virtually incorruptible, dispersed database of all transactions in a network. It's the technology that helped make Bitcoin a (relative) success, but it's often hailed as a potentially transformative technology in finance, business, and the law. There are contracts that use the blockchain, for example. There may one day even be entire government databases based on blockchain technology.
But, as James Ching recently pointed out, there could be a downside to all the blockchain hype. It's possible that blockchain evidence may be inadmissible hearsay.
How the Blockchain Works
The blockchain works by combining a "decentralized digital ledger" and powerful encryption that verifies and record transactions in a public ledger. Basically, the blockchain produces an encrypted, digital receipt for transactions, linked to previous transactions and distributed throughout the network. It's virtually impossible to falsify information stored in a blockchain database and the system requires none of the traditional intermediaries, like banks.
But, as Ching points out, if the blockchain's record of a transaction is not admissible in litigation, "it is virtually useless."
The Blockchain and Admissibility
The problem, as Ching sees it, can be seen in the Ninth Circuit's 2015 decision, U.S. v. Lizarraga-Tirado. That's the case in which the Ninth Circuit ruled that Google Earth was not inadmissible hearsay. Paciano Lizarraga-Tirado had been charged with illegally reentering the United States, a charge backed by a Google Earth satellite image of the scene of his arrests, showing him on the American side of the border.
Lizarraga-Tirado had moved to exclude the Google Earth evidence as inadmissible, but the Ninth Circuit eventually ruled that "because a satellite image, like a photograph, makes no assertion, it isn't hearsay." And Google Earth's GPS coordinates aren't hearsay because "the relevant assertion isn't made by a person; it's made by the Google Earth program." That assertion can avoid being hearsay through judicial notice of the program's accuracy or through authenticating testimony from a programmer or witness.
What's that have to do with the blockchain? Ching writes:
Lizarraga-Tirado postulates that computer-produced information can either be hearsay, in that it makes an assertion, or non-hearsay which may or may not be authenticated or be the subject of judicial notice. As a blockchain receipt is more like a contention than like a map, there is a potential hearsay barrier to the introduction of any result from a distributed ledger, permisionless or not and proprietary or not.
Typically, a receipt will be admissible as a business record if it meets the requirements of Federal Rule of Evidence 803(6). And blockchain evidence could be admissible if litigators could provide the same information as the court used in Lizarraga-Tirado to authenticate or judicially notice Google Earth evidence, Ching posits.
Under Lizarraga-Tirado and Rule 803, "the key factual issue in accepting blockchain receipts under the exception is the reliability of the algorithm underlying it. The key legal question is whether the process for producing the receipt must be proprietary in order to accurate and reliable for business purposes." Should a blockchain receipt be able to meet those requirements, it is "likely to have proprietary value as evidence."
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