On February 9th, 2023, Senator Robert Peters filed Illinois Senate Bill 1887, the Digital Property Protection and Law Enforcement Act, expressing concern for consumer protection, as blockchain networks are not able to “enforce court orders regarding digital property.” This bill misconstrues the nature of how blockchains work and would chill blockchain-related innovation in Illinois.
The bill would require that upon a valid request from the Attorney General or a State’s Attorney, “a court may order any appropriate blockchain transaction for digital property or for the execution of a smart contract,” a program stored on a blockchain, and must process such court-ordered transactions “without the need for the private key.” For each day that a “blockchain network” fails to comply, these networks could incur penalties of $5 to $10,000. The fact that a network “has not adopted reasonable available procedures” would offer no defense for non-compliance.
The bill also would require that any person using a smart contract to deliver goods or services in Illinois ensure that the smart contract can enforce court orders. Failure to do so triggers a remedy where the offending individual must return all digital property or consideration to the plaintiff that incited the court order.
A Question of Possibility
Theoretically, the bill would enable courts to order blockchain networks to refund transactions without the need for a private key in cases of fraud, decease of a key holder, etc. Otherwise, “blockchain operators”—miners, validators, nodes, etc.—are liable for damages and legal fees, and impossibility is no defense. Because such a requirement would fundamentally undermine the essential utility of decentralized networks, it should be struck down.
First and foremost, blockchains are immutable ledgers by design. Each network participant (node) of a blockchain network has a copy of the ledger and when blocks are created, each node receives said block and validates it based on the authenticity of its transactions. A copy of the ledger that is shared among a majority of the network is then accepted as the correct chain of transactions.
Therefore, once a transaction is confirmed in a block, an Illinois court order would have to convince a majority of a global network of unrelated miners/validators to reverse it. And because “forking” transaction histories undermines the immutable ideal of decentralized networks, it is safe to say that such a scenario is highly unlikely.
Second, the bill’s provision to enforce court-ordered transactions without a private key cannot be done on a blockchain. Blockchains use public-key cryptography, which is a method of communicating messages with paired public and private keys so users can conduct peer-to-peer transactions and not depend on third-party security and authentication.
If a globally dispersed group of individual miners and validators are unlikely to re-architect decentralized networks in order to reverse transactions and undermine their immutability—and in so doing essentially undermine the core value of the networks to begin with—what would the bill accomplish?
The danger here lies in the chilling effect: if the Illinois legislature does not realize the technical barriers to compliance, they could place unwarranted punitive measures on users for inevitable violations. Putting aside questions of administrability, this law represents a shift in the direction of judicial control over private keys—ironically, encroaching on consumer rights to securely transact in crypto in the name of consumer protection.