More organizations continue to adopt blockchain technologies. According to Grand View Research, the global blockchain technology market value was estimated at 10.02 billion in 2022. Analysts forecast a compound annual growth rate of 87.7 percent between 2023 and 2030. Cryptocurrency holds the top spot for blockchain in business, but other use cases are growing in popularity. Sectors embracing these technologies more frequently include financial services, government, and healthcare. The market opportunities will only continue to expand as interest and knowledge persists.

So, what is so appealing about blockchain? Looking at the inherent operational features will answer this question. It allows users to record transactions securely and permanently over a distributed network of computers. There is no need for a third-party facilitator and the transaction history is immutable. Think of a financial institution adopting a blockchain payment system to facilitate global transactions. This can enable cross-border transactions with ease. Other trending use cases include smart contracts, cryptocurrency payment for services, cryptocurrency-backed financing, and security enhancement.

As with all emerging technologies, there are special considerations when dealing with litigation or regulatory investigations. Blockchain has come up more frequently as discoverable ESI alongside increased adoption. Agencies like the SEC and CFTC are opening investigations more often to ensure crypto exchanges and organizations utilizing blockchain technology are acting appropriately. One example is an investigation into an organization’s initial coin offering.

Anticipating Challenges

All new data sources today pose some level of collection and review challenges. Blockchain is no exception, especially since the technology behind it is unique and complex. It is crucial for an organization’s legal department to remain informed and work with their entire enterprise to develop blockchain-specific policies. There are implications for forensics, information governance, eDiscovery, privacy, and compliance. This can be a lot to juggle, especially when the department lacks deep expertise of unique issues that touch these areas. Finding the right partnership can make a world’s difference. Here’s why. 

A provider with blockchain experts can advise on litigation and investigation implications, allowing the organization to gain a strategic advantage and be armed with key insights. For example, getting advice on what to be mindful of when deploying or encountering blockchain technology and proactively accounting for this in information governance plans can be a game changer. This approach will help limit future eDiscovery issues by knowing where data is located and having policies around storing sensitive data types in this technology. Generally, with encryption blockchain is deemed usable for storing sensitive data. However, organizations should think through this carefully. There is ongoing discussion about whether it is appropriate to keep certain data, such as medical information, on public blockchain.

Forensic capabilities are crucial for eDiscovery as tracing transactions within a blockchain can be challenging. Depending on the organization’s level of blockchain involvement, a managed services offering may prove ideal. Make sure to ask potential provider partners not only about forensic collection and analysis skills, but also about approaches to transaction lifecycle tracing and data preservation. All of this will contribute to a strong strategy for blockchain-related litigation and investigations.

Lastly, legal departments need to remember that they may encounter blockchain as an ESI source even if their organization does not utilize this technology. The opposing party – or even an uninvolved entity – may have relevant information located on a blockchain network. For example, last year in the fraud case Jacobo v. Doe a judge allowed a party to serve discovery requests to cryptocurrency exchanges to help identify an unknown defendant. This is also instructive as it provides litigators with new avenues to explore when identification issues arise, as cryptocurrency transactions are permanent and unable to be altered.

Final Thoughts

In sum, when new technology is adopted, the legal implications should always be addressed proactively. Failure to do so can have negative consequences that would otherwise be avoided with the right resources in place.

With the fall of the FTX and other crypto exchanges, there will be more regulatory scrutiny around digital currencies and blockchain. Therefore, informed usage of this technology is an absolute must. Organizations and their legal departments need to become well-situated to embrace these technologies where appropriate and have partnerships in place to overcome the hurdles.