[Huobi Focal Point (Vol.12)]

This report is produced by Huobi Research; please cite “Huobi Focal Point” for reference.

Abstract

Depositing evidence on the chain is an important link between the blockchain world and the real world. In June of this year, the Hangzhou Internet Court ruled on the legal validity of evidence stored on a blockchain. The ruling was the first of its kind in China and received widespread attention. Recently, the Supreme People’s Court provided further judicial interpretation regarding the storage and deposit of evidence on blockchains. This in turn became a historic milestone. But exactly under which circumstances can the legal validity of evidence deposited on blockchains be applied? Which factors do the courts need to examine and review before the evidence is ruled as acceptable? What are the differences between evidence deposited on blockchains and traditional third-party electronic evidence storage methods? What other cases of storing evidence on blockchains can we expect? This research paper will provide the ins and outs of storing electronic evidence on blockchains.

Full Report

1. Key Points

On September 7th, 2018, the Supreme People’s Court announced [The Provisions of the Supreme People’s Court on Cases Involving Internet Related Trials] (hereinafter referred as “Regulations”), which shall be implemented afterward. These provisions are related to the trials of Internet Courts and relevant regulations that are adopted, the scope of acceptance for cases, establishing a platform where lawsuits can be filed online, online processing for prosecution materials, evidence exchange, litigation, and other legal documents.

Among them, Article 11 stipulates that “Electronic data submitted by the parties shall be stored through electronic signatures, trusted time stamps, HASH value verification, blockchains and other forms of evidence collection, through fixed and tamper-proof technical means or electronic platforms for obtaining evidence. If the platform certification can prove its authenticity, the Internet Court should confirm and accept it as valid”.

This is the first time that the Supreme People’s Court made a judicial interpretation of the authenticity of electronic data stored on blockchains. The legal validity of the blockchain deposit has been further confirmed. This is a combination of Internet technology and method of depositing electronic data. The deposit of the certificate provides more possibilities for the innovation of institutions and rights protection models, and also adds more creativity to the asset-winding and business chain of the economy.

2. The Milestone: The Judicial Effectiveness of Depositing Evidence on Blockchains Applies to a Variety of Scenarios on the Internet

We believe that the implementation of the Supreme Court’s “Regulations” on the milestone of depositing evidence on blockchains not only establishes the legal validity of storing evidence on blockchains at the level of legal interpretation, but also further specifies eleven types of cases that fall under the jurisdiction of the Internet Court. This means that the judicial effectiveness of depositing evidence on blockchains applies to a variety of scenarios on the Internet.

According to the official in charge of the Office of the Supreme People’s Court, the jurisdiction and regulations of the Internet Court have been highlighted. For example, in the case of online contracts, “the signing and execution of such entities on the Internet”, and online tort cases are emphasized. For “occurring on the Internet”, the emphasis is that copyright infringement that occurs on the Internet should involve relevant works that have been published or distributed online.

It is worth mentioning that the “Regulations” of the Supreme Court have carried out important and useful supplements on the basis of the jurisdiction of the original Hangzhou Internet Court case. The first is to extend the violation of the right to personal rights on the Internet to infringing the personal rights of others on the Internet, and disputes arising from civil rights such as property rights.

The second is the addition of online litigation cases filed by procurator organs on behalf of the public interest. Administrative disputes have been further defined as administrative disputes such as online information services management, online commodity trading, and related services management.

There are laws and regulations covering the implementation of depositing evidence on blockchains and related certificates. The Internet litigation platform needs to link and interact with the electronic evidence platform of various online data interfaces. On June 28, 2018, the electronic evidence platform of the Hangzhou Internet Court officially went online. The platform establishes a dedicated data channel for evidence and online trials, which can connect with third-party data holders (such as e-commerce platforms) and third-party data service providers (such as operator platforms, electronic contract platforms, depository agencies). Platforms and other electronic data sources are conducive to the effective collection, security and efficient extraction of electronic evidence. In less than three months, the amount of evidence processed on the evidence platform exceeded 1.9 million.

It can be foreseen that depositing evidence on blockchains will no longer be empty talk in China. Instead it will become a powerful tool for people to defend their rights and interests regarding online digital assets, intellectual property, corporate trade secrets, and personal information. It is also expected to be quickly implemented, widely used, and popularized.

3. Differences Between Storing Evidence on Blockchains and Other Third-Party Methods

The legal validity and judicial acceptance of depositing evidence on blockchains should not be separated from the independent development of cyber law in China. On August 18, 2017, the world’s first Internet court was established in Hangzhou. On June 28, 2018, the Hangzhou Internet Court publicly announced the judgement of a case over online copyright infringement. For the first time, it confirmed the legal validity of electronic data stored on blockchains and provided a comprehensive judgement. The technical details of storing evidence on blockchains and the factors of influencing the court’s decision are described.

According to the Hangzhou Internet Court, blockchain is a decentralized database with open, distributed, and immutable features. It is an electronic data storage platform with low cost, high efficiency and stability. It offers several advantages. During a trial, the legal effect of an electronic evidence storage method should be comprehensively determined based on the principle of internet neutrality, technical explanation, and case review. The specific review method is explained below:

1. Review the authenticity of electronic data sources. This includes third-party certification platforms, qualification and compliance, determining if the technology that generates electronic data is reliable, and verifying the channels for sending data can be checked;
2. Review the reliability of electronic data storage. This includes electronic data uploaded to the public blockchain, the contents of each blockchain storage, mutual verification, verify if block node generation time is logical;
3. Review the integrity of electronic data content. This the electronic data hash value, which should be checked to determine if it is consistent and not modified;
4. Review the degree of correlation between electronic evidence and other types of evidence and confirm the legal validity and proof of the evidence.

It can be seen that the advantage of “proving one’s innocence” by depositing evidence on blockchain is recognized by the Department of Justice, after meeting all relevant conditions.  The traditional method of securitization mainly relies on a notary. However, a notary has difficulty meeting the requirements of electronic data storage in terms of response time, application, and operating costs. Therefore, a number of third-party evidence/legal document deposit organizations have emerged. The forensic application allows the parties to attach the evidence on electronic data at relatively low costs. Using a third-party to store evidence/legal documents does not actually solve the problem. Generally speaking, there is not only a time difference from the front-end deposit certificate to the notary office, but also the issue of tampering. This is because after the parties use the depository application of a third-party institution to obtain evidence and begin the judicial process, they need to submit through a notary, an appraisal center, and other authoritative institutions to issue a notarized certificate and appraisal report, in order for the electronic deposit certificate to become legally valid.

We believe the reason why the blockchain evidence storage certificate is distinguishable from the electronic signature, trusted timestamp, and HASH value check in the judicial interpretation of the Supreme Court is because blockchain is based on encryption technology. The two important technologies of consensus mechanism and decentralized storage are also introduced.

Differing from an ordinary deposit certificate, the third-party electronic contract platform is stored locally on the server of the organization that owns the data or a leased server. The blockchain deposit certificate is composed of a third-party platform, which is jointly verified by judicial appraisal, audit, notarization, arbitration, etc. This supports electronic data storage and retrieval services on the blockchain.

Since all participating verification nodes adopt the same set of consensus mechanisms, data backup is performed on each computer or server in the consortium chain network, which greatly improves data security and resistance to tampering. Therefore, if a dispute occurs, the parties involved can retrieve the evidence at any time. The organization in charge of arbitration can also obtain and verify the data directly from the nodes of its operation and maintenance, and no longer needs to wait for other organizations to issue the certificate.

4. What’s Next?

1. Arbitration Token

Arbitration for evidence storage is an important section of the electronic certificate industry chain regarding blockchains. In the segment for obtaining or retrieving evidence, since blockchain is a distributed storage method with multiple parties and allows multiple consensus verification nodes such as judicial organs, arbitration institutions, and audit institutions to share electronic evidence in the consortium chain, it is theoretically possible to achieve second-level data transmission. This not only reduces the time it takes to retrieve evidences, but also optimizes the arbitration process and improves efficiency of multi-party collaboration.

In 2017, Weizhong Bank joined the Guangzhou Arbitration Commission and Hangzhou Yibi Technology to establish an “arbitration chain” based on the underlying platform of the FISCO BCOS blockchain. In February 2018, the Guangzhou Arbitration Commission issued the industry’s first decision based on the “arbitration chain”.

Through the “arbitration chain”, the arbitrating institution can participate in the entire process, from the initial stage of evidence generation, to multi-party consensus for real-time witnesses, and if a dispute occurs, the verified data can be regarded as direct evidence. This in turn greatly shortens the arbitration process.

2. Litigation on Behalf of Public Interests

Compared with supervision over criminal cases, the sources of public interest litigation are more extensive. The data provided by administrative agencies is a relatively small amount, while more clues can be obtained from a wide range of social industry data institutions such as enterprises, institutions, organizations, and institutions.

The use of blockchain for decentralized data storage makes it difficult for data to be tampered with and can build a credible mechanism between the procuratorate and related units, so that the entire process of data acquisition, storage, analysis, transfer, etc. is credible and authenticated. This not only guarantees data privacy, but also ensures that procuratorial and investigation authorities do not miss any important information relevant to their responsibilities.

In June 2018, under the guidance of the Procuratorate Technical Information Center of the Supreme People’s Procuratorate, the Procuratorate of the Wuhan Economic and Technological Development Zone took the lead in using blockchain and satellite communication technology to investigate and collect evidence for a public interest litigation case. The investigation found and confirmed soil hardening in the farmland during the process of constructing illegal buildings.

Among them, the blockchain technology can verify authenticity of the data when the satellite’s remote sensing image data is generated. This can guarantee the authenticity of the data used for evidence, thus solving the challenge of long-term “difficulties in obtaining evidence” in the field of public interest litigation.

3. Electronic Invoices

When it comes to electronic invoices, false application of VAT special invoices, tax fraud, and tax evasion have always been problems encountered in taxation. Using blockchain technology, a unified multi-party consensus will be established among enterprises, taxation authorities, accounting firms and other financial accounting participants, and a fiscal block public business blockchain and distributed ledger platform will be established. This not only helps taxpayers trace and verify electronic invoices, it also aids the taxation department in implementing and supervising taxpayers’ invoice applications, circulations, and filings.

In May 2018, Tencent and the Shenzhen Municipal State Taxation Bureau jointly established the “Intelligent Tax” Innovation Laboratory. On June 22, the Guangzhou Department of Taxation took the initiative in launching the electronic tax invoice “tax chain” platform and authorized Guangzhou Gas Group Co., Ltd. to join. On July 13, the “tax chain” platform welcomed the first batch of 100 enterprises to the pilot program.   On July 5, Donggang Co., Ltd. and Jingtong Technology established an electronic bill blockchain laboratory and released blockchain based electronic invoice services. On August 10th, Shenzhen Guomao Rotary Restaurant rolled out the country’s first blockchain based electronic invoice service, and Shenzhen became the national blockchain electronic invoice pilot program city.

4. Copyright Registration

For a large number of works on the internet (such as micro-video, pictures, online literature, etc.), the threshold for copyright registration under the China Copyright Protection Center is high. First, the registration period is long, and the official review period usually takes twenty business days. The registration price is often high, and the market price of registered single-piece works can be as high as several hundred yuan, which is mainly caused by the inefficiency at the technical level. Through the decentralized consensus algorithm of blockchain technology, not only can the data recording process be reduced to almost a cost of 0 yuan, the verification, confirmation, and second-layer confirmation can also be implemented, which effectively solves the high cost and low efficiency pain points of the traditional copyright registration model.   In 2018, a number of third-party copyright service platforms based on blockchain technology emerged in China. Baidu and 360 respectively launched “Totem” and “Graph”, provided free registration service for original works, adopted blockchain copyright registration network, and cooperated with trusted time stamp and chain stamp to generate copyright DNA for each original image; Rhino Intelligence has established a copyright chain alliance with a number of related organizations in the intellectual property field, such as Chongqing Jiangbei Notary Office and Chongqing Copyright Protection Center. After the parties verify and confirm the copyright works, they can submit the “guarantee evidence” notarization online through the platform. Online registration of the Copyright Protection Center.  In summary, the legal effect of blockchain electronic deposit is confirmed by the Supreme Court in China, which not only marks the application and value verification of blockchain technology in the judicial field, but also has a milestone in the blockchain industry and judicial practice. The issuance and implementation of the “Regulations” affirmed that blockchain technology provides effective and transparent electronic trace certification for the judicial system, and also for China to further explore the Internet justice model, summarize and promote network governance in China. Experience provides a new direction. It can be expected that the deposit-winding will become a rigid demand in the whole industry and in the whole field and provide technical and institutional guarantee for the transformation and upgrading of the large-scale application blockchains in the economy.

Huobi Research

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Huobi Research of Blockchain Application (Huobi Research) was founded in April 2016 and started research and explorations in various aspects in blockchain area since March 2018. We cover blockchain technology research, industry analysis, application innovation and economic model explorations etc. We aim to establish a research platform and to offer theoretical foundations as well as judgements of trends in blockchain to the public, ultimately promoting the development of the entire industry.

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