blockchain and electronic archiving systems complement each other

How blockchain and electronic archiving systems complement each other

Blockchain technology, an extremely useful tool in logging information about transactions for transparency purposes, is also starting to be used to record contractual agreement references and traceability information. 

 

 

However, the business documents associated with each of these transactions need to be archived in accordance with the law (as do most company management documents) under conditions that can guarantee their integrity. They also need to be available in the event of inspections or disputes.

Originally, blockchain was created to support cryptocurrencies such as bitcoin. Blockchain (a technology for linking transactions that was used in IT many years before cryptocurrencies emerged) looks set to "change the world", according to The Economist. Many observers believe that the global infatuation with this transparent and distributed process of recording information (it is primarily a ledger) about transactions signals the emergence of a fourth revolution in the traceability of exchanges – following the invention of paper, the use of printing and the invention of the computer. This revolution is being closely watched by industry observers in every sector of activity where traceability is a concern. As such, banks, insurance firms, manufacturers and distribution companies look set to invest around $2.9 billion worldwide in these technologies in 2019, according to consultants IDC.

 

Blockchain: new ledgers

The Carrefour and Casino groups use blockchains to record all of the traceability information about various food products. In the US, the Food and Drug Administration (FDA) is looking into the possibility of setting up a blockchain network completely dedicated to monitoring the drug supply chain. Meanwhile, in a completely different sector of industry, AXA has launched a "flight delay" insurance policy using a blockchain. The cover taken out by each traveller is entered into a blockchain and linked with air-traffic databases so that claims are automatically triggered if a delay occurs.

From a technical viewpoint, a blockchain is a replicated and decentralised ledger that can only be modified by adding transactions. New transactions are validated and recorded by mining nodes. Experts say there are more than 9,000 'full nodes', or light verification nodes, for the bitcoin blockchain alone, the server processing power of which is used to build and validate blocks. Instead of being centrally located on a single server, the information is contained in ledgers stored on all of the participants' computers, based on the model of peer-to-peer (P2P) exchanges, eliminating the need for intervention by a centralising body. Each block contains all of the timestamped exchanges.

The advantage is that "numerous tasks can be automated, described, traced, stored and shared using this technology" (FNTC). This also happens securely, as the data is encrypted via a cryptography system that simultaneously uses two different keys (one private and one public).

 

Limitations – and they aren't just technical

 

However, there are several limitations to how blockchain can be used in the context of archiving documents that has evidential (legal binding) value:

• the processing capacity and its scalability is one of the main challenges. For example, until 2017, the bitcoin blockchain only allowed four transactions to be validated per second, compared with around 20 per second in 2018. To compare, a key French third-party archiver alone processes more than 13 new archives every second. This ramp-up challenge is still very much an issue, although there is no doubt that blockchain technology will evolve in the future;

• the protection and control of identities (of depositors primarily, but don’t forget the issue that the document has to be attached to the physical person it came from – with the answer so far being provided by electronic signatures);

• the ecological impact, as mining and retaining a document requires IT resources, storage and electricity in all of the network nodes – of which there are several thousand in the case of the bitcoin blockchain;

• it is not possible to "re-create" a document that has been lost or not stored based on its fingerprint in the blockchain, as this cryptographic technology is unidirectional;

• the retention of documents.

At this stage, the documents themselves cannot be archived in the blockchain, mainly for confidentiality and personal data protection reasons, as well as and in particular the low "storage" capacity. This is limited (to 1 MB in bitcoin's case) and non-existent or extremely expensive in other cases. This is the case with Ethereum. The price of the "gas" (i.e. the platform's running costs) is at least €4.40 per 1 Kb. This figure is based on an ETH price of €172 on 30/10/2019. This gives some idea of the price of processing, in the S-DATA field for storage, a simple PDF document of 300 Kb - around 20 pages - kept in the blockchain. There is also the cost of the associated transaction and the cost of the "smart contract", if applicable.

This document retention setup also clearly raises the issue of the "location" of the documents, any personal data they may contain and therefore compliance with current regulation on this subject. Although encryption partially resolves this issue, it runs counter to the longevity and legibility of documents over time. Furthermore, a document de facto becomes public as soon as the encryption algorithm has been broken, and the document cannot be re-encrypted with a more robust algorithm. The same questions are raised about any electronic signature that might be contained in the document (how, via blockchain, can it be "validated" and protected from technological developments linked to the increase in computing power and the risks of the algorithm used becoming compromised?).    

This means that the blockchain is not a document storage solution, rather a ledger designed for tracing transactions/operations… or the existence of documents.

This technology is used to record in a block – one "shared" with other elements that have nothing to do with this transaction – a "reference" to a document (its fingerprint) and to associate a timestamp with it. This is less accurate than those currently used by banking systems – electronic signature and archiving platforms –, which need to guarantee timestamping accurate to 1/100th of a second. The accuracy may be altered by several hours, which can shift a transaction from one day or one month to another, proving troublesome for certain types of transactions/documents.

If there is a dispute, in reality this relates to a commitment or an item contained in a document (in the case of a contract, a termination clause, a notice period, a commission rate, a price, the terms of an exclusivity clause, etc.). The court (or the expert enlisted by the court) will ask for the document in question to be produced. An organisation therefore needs to be able to:

• find this document at any time,

• demonstrate that it has not been altered so it can be deemed legally valid.

 

Archiving AND blockchain rather than archiving in the blockchain

 

The solution emerging in every sector therefore involves combining the best of both worlds. A company can use a blockchain containing information about transactions/operations and their dates, and an electronic archiving system in which it deposits documents with evidential value generated by all of its activities.

In the event of a legal dispute or administrative appeal, the fingerprint of the document in question can be retrieved from the blockchain, the fingerprint calculation with the same cryptographic algorithm can be applied to the archived document and both fingerprints obtained can be compared (the fingerprint calculated during anchoring in the blockchain and the footprint calculated during the current verification). If they are identical, this means that the document has not been altered and matches the transaction recorded in the blockchain.

As such, the blockchain guarantees the traceability of transactions conducted and the unalterable link with the associated document, thanks to "chaining" and cryptography. Meanwhile, the electronic archiving system guarantees retention with no risk of loss, confidentiality, traceability of access and "re-legibility" over time thanks to the document format longevity check. It also validates and preserves any associated electronic signature and the ability to give electronic documents evidential value, in accordance with the requirements of the ISO 14641-1 standards, as well as the "eIDAS" European Regulation. Each validated archive is given a deposit date, a format check (it would be a shame if a document couldn't be read a few years later during a dispute), the metadata for finding it based on business logic (type of document, issuer, number or name of the file, customer, branch, transaction ID etc. based on the company's organisation), a unique archive identifier (UAI) and a "unique fingerprint", calculated based on the document and its metadata.

Although the blockchain provides relevant responses in terms of traceability and trust/transparency in all types of exchanges, it is not a replacement for a document electronic archiving system, as it does not have a document management function and above all is not enough, on its own, in the event of a commercial or legal dispute. This is because only the fingerprint (and timestamping) of a document anchored in the blockchain is not sufficient, given that the original document (in which one of the clauses is the subject of the dispute or administrative appeal) is needed so that it can be "produced" for the judge or administrative body, while also demonstrating its integrity and that it is actually the document referenced in the blockchain (the only conditions of admissibility).