The recent opening ceremony of the world's first public bitcoin monument in the city center of Kranj, Slovenia. (Borut Zivulovic/Reuters)

German researchers have found about 1,600 files of non-financial data, some of which link to or contain child pornography and other objectionable material, on the system that stores bitcoin transactions.

The discovery could place certain users of the bitcoin network in legal jeopardy, the researchers said, and could pose an obstacle for greater adoption and mainstream acceptance of bitcoin and other cryptocurrencies. Bitcoin “miners” and people who have volunteered to use their computers to maintain the network may be liable for the possession of illegal content, the researchers said. But people who own and trade bitcoin but don't participate in the bitcoin network are not directly affected.

The researchers analyzed about 1,600 files on bitcoin's blockchain, the public ledger that serves as the infrastructure for cryptocurrency transactions. Most of the files were harmless, the researchers concluded, but some contained copyright violations and the disclosure of people's identifiable information, and at least eight files had sexual content. Some files depict or link to “mildly pornographic content,” and two files contain 274 links to child pornography websites, the researchers found. Another file is believed to depict a nude image of a minor, the researchers said.

“We thus believe that future blockchain designs must proactively cope with objectionable content,” the researchers from Aachen University and Goethe University Frankfurt wrote in their research paper, which was presented last month at an international conference on financial cryptography in Curacao.

Experts say that the files likely got there when people added the material as notes to transactions or inserted them as if they were transactions themselves. People using the blockchain can add non-financial data to describe a transaction's purpose, insert benign messages or record information for other financial services. Anyone with access to the bitcoin software has the ability to upload content to the blockchain, including miners, exchanges and other individual users.

It isn't known who uploaded the offending material. The seven researchers did not respond to a request for comment.

Although users on Facebook, Twitter and YouTube may see objectionable content posted by others, people who maintain aspects of blockchain-based systems may actually be in possession of such content even if they did not produce it themselves. That's because people who maintain the bitcoin network have to download the entire blockchain or parts of it. 

“Since all blockchain data is downloaded and persistently stored by users, they are liable for any objectionable content added to the blockchain by others,” the researchers said. It's difficult to pinpoint who added the objectionable files because users on the bitcoin blockchain are pseudonymous and can generate a new address for every transaction.

The researchers said there is legislation in several countries, including the United States, that suggests that illegal content held on the blockchain would be unlawful to possess for all its users. The researchers suggested that technologists creating new blockchain designs could address these issues, perhaps by preventing people from inserting such files or halting their spread, to protect users from potential liability.

Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab, said that the offensive material the researchers found in the blockchain does not present a major problem right now because the blockchain was not designed as a large-scale file storage system — meaning it’s still hard for people to use it to post offensive content. But as developers create new blockchains primarily for hosting files, the posting of offensive material could become an issue, he said.

As with certain communications platforms on the Web — such as social media, blog platforms and chat forums — engineers could set rules or create filters for illicit material. “The choice of accessing all sorts of content already exists, and that is a result of having the Internet,” Catalini said. “What's novel here is we have a new technology, but the solution is the same.”

While bitcoin's value soared last year, the cryptocurrency market has faced heightened scrutiny, even as more people are turning to virtual currencies as an investment option.  Google said recently that it will ban cryptocurrency-related advertisements on its platform, following a similar decision by Facebook earlier this year, in an attempt to stem misleading ads. The Federal Trade Commission is also cracking down on alleged cryptocurrency schemes and filed a lawsuit last week.

As of Wednesday, the total market capitalization of cryptocurrencies was more than $350 billion, according to the cryptocurrency tracker coinmarketcap.com.