Blockchain was originally created to validate the transactions of bitcoin and other cryptocurrencies. It can be described as a digital ledger of transactions that is an immutable database and distributed across a network of computer systems. Although touted primarily as a value transfer technology, at its core, blockchain is also a records and data management technology.1 Blockchain technology provides a system for recording information in a manner that makes it difficult to change, hack, or corrupt. All records are individually encrypted and, once a record is validated, it can’t be altered. The network is constantly checking that all copies of the database are the same to ensure that any of the records or data added to it haven’t been modified. All participants on the network have access to synchronized copies of this database. By design, blockchain technology is inherently resistant to the unauthorized alteration of records and data. Integrity is maintained through preserving the accuracy and reliability of records created and used on the blockchain.
Maintaining the integrity of records and data is one of the fundamental principles of recordkeeping and data management. Integrity means that a record must be accurate, complete, and authentic. This includes being unmodified and consistent in form and meaning over its life as a record.2 The life cycle of a record begins at its creation and ends at its disposition. To guarantee integrity, as part of broader information governance programs, organizations typically implement policies and procedures to protect records against unauthorized access and alteration. For example, a key indicator of the integrity of a record is the ability to produce auditable evidence of its complete provenance. This is particularly true where records and data are stored electronically and where it is challenging to control how a record is used and accessed. Systems must be in place to ensure that there is an audit trail to track a record through its life cycle and that only authorized individuals following a set procedure have access. These types of systems provide proof of the authenticity of records and data. This is where blockchain technology can be utilized to enhance the security of an organization’s records and data management systems.
Companies have been storing their records on electronic networks for some time, however there has been a growing tendency to find express legal validation of blockchain being employed for this purpose. The United States is at the forefront of this movement with state legislatures updating laws to allow certain records and data to be maintained using blockchain technology. In particular, the focus is on records and data concerning corporate governance and shareholders. In 2017, Delaware was one of the first states to pass legislation allowing blockchain to be used for the creation and maintenance of corporate records including articles of incorporation, stock ledgers, and shareholder lists.3 This past September, New Jersey passed legislation allowing shareholder records to be kept on electronic networks such as blockchain. Previously these records had to be physically located at the corporation’s registered office, or at the office of its transfer agent, however they can now be stored electronically as long as they can be converted into readable form within a reasonable time.4 So far in 2021, nearly twenty states have introduced legislation regarding the use of blockchain technology. For example, California introduced a bill that would make permanent the use of blockchain for the maintenance of corporate records. Currently, corporations in California are permitted to use blockchain technology for the retention of records relating to issuances and transfer of stock until January 1, 2022.5 Additionally, a number of states have established committees to study the practical use of blockchain in relation to government recordkeeping.
While the United States is at the forefront in legitimizing the use of blockchain from a legal perspective, the application of blockchain technology is increasingly being recognized around the world. In France, blockchain technology can be used to register and transfer unlisted securities.6 In Germany, the introduction of electronic-only securities is a central part of the federal government’s strategy on blockchain. Previously, securities laws in Germany required the use of paper certificates for transactions.7 In June of this year, the European Commission released a statement that the EU strongly supports an EU-wide rules for blockchain to avoid legal and regulatory fragmentation.8 In 2020, the Australian government released a report detailing plans for a national roadmap on the use of blockchain.9 In a joint March 2021 notice, the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada confirmed that crypto asset trading platforms need to be registered with a securities regulator.10 With increasing focus on blockchain and cryptocurrencies worldwide, as well as the ever growing need to secure digital records and data, laws will continue to be updated to accommodate this technology.
1 Lemieux, V.L., Hofman, D., Batista M., & Joo, A. (2019, May 30) Blockchain Technology & Recordkeeping. ARMA International Educational Foundation. http://armaedfoundation.org/wp-content/uploads/2019/06/AIEF-Research-Paper-Blockchain-Technology-Recordkeeping.pdf
2 Generally Accepted Recordkeeping Principles. 2017 ARMA International, www.arma.org/principles.
4 New Jersey Business & Industry Association. (2021, September 29) New Law Allows Corporations to Use Blockchain Technology in Recordkeeping. https://njbia.org/new-law-allows-businesses-to-use-blockchain-technology-in-recordkeeping/
5 Brett, J. (2021, August 22)Congress Has Introduced 18 Bills On Crypto And Blockchain In 2021. Forbes. https://www.forbes.com/sites/jasonbrett/2021/08/22/congress-has-introduced-18-new-bills-on-crypto-and-blockchain-in-2021/?sh=390c7b61263b; Morton, H. (2021, March 16) Blockchain 2021 Legislation. National Conference of State Legislatures. https://www.ncsl.org/research/financial-services-and-commerce/blockchain-2021-legislation.aspx
6 Reuters. (2017, December 8) France to allow blockchain for trading unlisted securities. https://www.reuters.com/article/us-france-finance/france-to-allow-blockchain-for-trading-unlisted-securities-idUSKBN1E22OA
7 Meyer, D. (2020, December 16) Germany prepares to put some financial securities on the blockchain. Fortune. https://fortune.com/2020/12/16/germany-crypto-securities-blockchain-strategy-government/
8 European Commission (2021, June 29) Legal and regulatory framework for blockchain. https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-blockchain
9 Australian Government - Department of Energy, Science, Industry, and Resources. (2020, February 7) The National Blockchain Roadmap: Progressing towards a blockchain-empowered future. https://www.industry.gov.au/sites/default/files/2020-02/national-blockchain-roadmap.pdf
10 Canadian Securities Administrators. (2021, March 29) Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements. https://www.osc.ca/sites/default/files/2021-03/csa_20210329_21-329_compliance-regulatory-requirements.pdf