Is Bitcoin the Key to Digital Copyright?

The technology behind Bitcoin may allow for controlled sharing and transfer of digital assets.

Bitcoin has been going through a rough patch lately. The slow motion implosion of the once-largest exchange. The arrest of a notable evangelist. The bug that the media blew out of proportion, but that attackers still exploited. This is what the world has heard about Bitcoin in the last few weeks.

Yet not a day goes by that I don't come across some new use of the technology: Either a new use of Bitcoin's decentralized ledger itself, like event contracting using verified facts from a third party such as Reality Keys; or a new application of the decentralized trust concept that Bitcoin introduced, like the OpenLibernet project, which aims to give people an incentive to build out a censorship-resistant mesh network.

A case in point is how Bitcoin's technology could help solve one of the gnarliest problems of 21st Century copyright. If you buy a book at Barnes and Noble, you are free to give it away to a friend after you've read it, or sell it to a used book store. But you can't if you buy that same book for your Kindle or iPad. To lend, sell, or give away a digital copy of a digital book or song is copyright infringement.

Copyright law grants copyright owners the exclusive right to sell, lend, or give away copies of their protected works. This "distribution right" is separate and apart from the better known "reproduction right," which is the exclusive right to make copies of a protected work. This means that a flea market vendor of pirated DVDs is infringing copyright even if he didn't make the copies himself.

What allows us to sell a book we've bought and read is an exception to distribution rights known as the first-sale doctrine. It limits copyright owners' rights to the "first sale" of any particular copy of a work. And by copy, the Copyright Act means a physical copy. Once copyright owners sell a book or CD, their interest in that copy ends. The buyer is free to sell, lend, give away, or even destroy the copy.

The same is not true about ebooks or MP3s for the simple reason that there are no physical copies of the works. They are merely digital files zapped to your Kindle or iPhone. You are free to sell your devices with books and music on them, sure, but that's not the same thing. Yet courts have been consistently literal in their reading of the statute. Never mind that it was enacted almost 40 years ago, before there was digital media.

Resistance to digital first-sale is animated in part by the fact that selling a digital good is not as straight-forward as a physical one. If I give you a CD I no longer want, it's pretty clear I no longer have the CD. But if I email you an MP3 I bought on iTunes, I will retain a copy unless I delete it. And emailing you that MP3 implicates not just the copyright owner's distribution rights, but their reproduction rights as well. Unlike a CD, there's no good way for me to give or sell you an MP3 without making a copy and thus infringing on copyright.

Redigi is a company that's attempting to square this circle. You can use their software to upload songs you have purchased from iTunes. Once the songs make it to their servers, Redigi deletes them from your hard drive so that only one copy exists at a time. You can then make your songs available for purchase and you lose access to the ones that sell. It's a neat trick, but in March of last year a federal judge didn't buy it. He found the digital second market was infringing copyright because even though there's only one copy left at the end of the day, it's a new copy, not the user's copy.

There are also other problems with Redigi's scheme. While its software uploads and deletes songs from your computer, it has no way of knowing whether you've got copies of those same songs on other devices. And when you plug in an iPod or iPhone and it detects a previously deleted song, it only asks you to delete it voluntarily. Digital first-sale will probably require amending the Copyright Act, but that's a tough sell when it's so easy to keep a copy.

The problem is that there is too much trust involved. You have to trust Redigi to stay online. You have to trust the users not to keep surreptitious copies of the music they sell. Bitcoin could offer an improvement over this system.

As I have said before, Bitcoin is at root a decentralized public ledger, and what it allows for the first time is the transfer of digital property from one person to another without the need for a central authority like Redigi. The Bitcoin network allows one to transfer tokens called bitcoins, and to date these tokens have been used to represent money. But there's no reason they could not represent a particular instance of a song or a book or a movie.

Particular music files could be associated with a particular user's public Bitcoin addresses and encrypted in such a way that the user's corresponding private key is needed to play the songs. Selling, lending, or giving away a song or a book would be as simple as sending it to someone else's public address. At that point, only recipient's private keys can unlock the file. And this would all be cryptographically provable, without requiring trust.

An astute reader will have noticed that this would essentially be a kind of universal digital rights management (DRM) scheme, and that's certainly the case. But unlike traditional DRM, the system would not rely on central corporate authority, but on a decentralized network that is quickly emerging as a new standard Internet protocol. Alternatively, no DRM can be employed and the blockchain can simply serve as registry to legitimate transfers.

The point is not that employing Bitcoin technology is the best way, or even a good way, to address the digital first-sale issue. But it highlights how versatile and revolutionary the capacity to transfer ownership of digital assets that Bitcoin introduced is—no matter what's happening to the currency today.