Blockchain Weak Links: Is It Really a Panacea for All Issues in FS?

A look back in 2015 shows that blockchain stands out as an unprecedented innovation in terms of momentum that was created. As covered by us previously on many occasions, blockchain use cases have gained huge traction not only in terms of funding but also in terms of banks and financial institutions partnerships. Especially, the non-financial use cases have started to attract a host of startups to build a multitude of solutions that can leverage blockchain. To prevent falling behind, every major bank now has a dedicated team looking at the potential and ways to explore blockchain.

However, there have been doubts over some of the solutions that are being developed. More so because of the magnanimous hype around blockchain that might have lifted all boats, including the weak ones. In particular, the services that are trying to enable notary over blockchain have started to take the heat with various experts pointing out that the ability to revolutionize the current state of the notary system has been limited. For example, an interesting case is that of blockchain weddings. As Sandra Upson (Senior Editor at Medium) rightly points out, what does it mean to have one’s wedding notarized on the blockchain? Who recognizes this agreement? How would it affect, say, visitation rights at a hospital or a custody battle? Bitcoin enthusiast Jean-Pierre Buntinx (Bitcoin Consultant) offers this insight: The BITNATION Public Notary is not valid in any jurisdiction except in ‘blockchain jurisdiction.’ If a couple gets married on the Public Notary, it doesn’t mean they get married in the jurisdiction of Estonia, or in any other nation-state jurisdiction. Instead, they get married in the ‘blockchain jurisdiction.’

Replying to a question if there is a chance that blockchain technologies shall replace notaries, Joseph Wang (Chief Scientist, Bitquant Research) put forward his opinion stating that it is not possible. He said, A notary can testify in court that a document was signed by a given person, and sometimes, more importantly, that the person signed the document knowing the contents of the document and that he was not under duress (i.e., no one was pointing a gun at the person when they signed, the person was not drugged, etc.).

The fact that someone signed a document is almost never under dispute. What does come under dispute are the circumstances under which they signed a document.

This falls under the The Dark Knight Rises fallacy after the scene when Bane transfers the stock of Wayne Enterprises by holding the stock exchange hostage. The law doesn't work this way, which means that you have to have someone that can testify as to who signed and the situation under which they signed.

Dan Anderson (Developer, Family Media LLC) has elaborated on the same:

I would say that it's unlikely, at least in the near future, that blockchain technologies will replace notaries. There are a few of reasons for that. So, here are the major issues that would need to be overcome before such a future outcome:

1. Notarizing something is largely about proving that it was actually you who signed your signature. Often, for legal reasons, you need a separate witness from the notary, as well. A cryptographic signature is not sufficient to prove identity. It can prove ownership of a bitcoin address, however.

2. In a courtroom, the only notarization that would matter is the old-fashion kind. So, until the bitcoin blockchain is understood and accepted as evidence, I wouldn't count on it replacing the existing notary system.

3. Any ‘notarization’ system relies on the OP_RETURN built into the bitcoin protocol. It's possible, although unlikely, that this feature of bitcoin could be removed. Already, some nodes prune this portion of transactions.

So what are the different startups like Proof of Existence and Stampery trying to solve?

Proof of Existence proclaims the following as common uses:

  • Demonstrating data ownership without revealing actual data
  • Document timestamping
  • Checking for document integrity

Stampery, another blockchain -based notary service provider, says that lawyers working with sensitive documents are one of its main user groups. The common uses and benefits they proclaim are: proof of ownership, proof of existence, proof of integrity, legally binding, state-of-the-art security, and bulk services.

As of now, Blockchain-based verification systems cannot prove the circumstances under which documents are signed but provide proof that a certain document existed at a certain point of time. Startups like Stampery, Proof of Existence solve these cases for now. Also, the ability to digitally bind all government identity proofs at one place and the ease/convenience of using such services is the major offering of these startups.

As the technology evolves and products start getting commercialized, we could be able to further extend these services. However, as of date, physical notaries are expected to exist and it could be years before we see a major disruption in this.

One thing is certain in this debate—notarization with blockchain will not go forward without problems. There are some specific issues in the fine print. The companies in this space would be tested in 2016/17.