Bitcoin's major flaw could mean its downfall

A blockchain is an unchangeable, open register with all the transactions that have ever been made in the currency. Photo / 123RF

The juggernaut that is Bitcoin has been rocked by a child porn scandal, after illicit content was found in its blockchain.Researchers in Germany sifted through more than 1000 files in the ledger system that provides the backbone for Bitcoin, and discovered 99 per cent of them contained hundreds of links to child pornography, among other outlawed content.

The blockchain is the underlying technology that makes cryptocurrencies possible, and is an unchangeable, open register with all the transactions that have ever been made in the currency.

"Our analysis shows that certain content, e.g., illegal pornography, can render the mere possession of a blockchain illegal," RWTH Aachen University researchers wrote in their report.

This discovery essentially makes ownership of Bitcoin illegal in more than 100 countries — including Australia — because of laws about the possession and distribution of child pornography.

While the public ledger is meant to store financial information related to Bitcoin transactions, other information can also be inserted into the blockchain by users on the system.

The data capacity on the Bitcoin blockchain is only 80 bytes, which is far too small to harbour many images, however it's more than enough for links and pointers — which is primarily what researches discovered.

"Since all blockchain data is downloaded and persistently stored by users, they are liable for any objectionable content added to the blockchain by others. Consequently, it would be illegal to participate in a blockchain-based [system] as soon as it contains illegal content," the paper added.

The revelation will inevitably come before legislators, with a defence likely to argue that links to illegal content should not be in the same league as illegal content alone, but given the severity of child pornography, it will prove to be a tough battle for Bitcoin and possibly other cryptocurrencies.

Interpol actually identified the threat of illegal content being embedded in blockchain systems in 2015. They didn't find any malware files however discovered random information could be interspersed in Bitcoin's public record.