What are Electronic Signatures?

What is a Signature?

A signature is proof of identity, and intent, in the form of a handwritten depiction of one’s name, nickname, or a mark on a document. Signatures can be in the form of physical (wet) signatures, mechanical signatures, electronic signatures, etc.

Regardless of the form, the signature has to be attributable to a specific person, or an entity, and has to also encompass a uniquely identifiable representation of a name, mark or symbol. For physical signatures, the case is rather clear. On the other hand, for electronic signatures, the case is somewhat different.

What is an Electronic Signature?

Digital signature flow diagram - from data to electronic signatures, then to digital signatures.

(Image: Acdx [CC BY-SA 3.0 or GFDL], via Wikimedia Commons)

An electronic signature is any signature that is in electronic form. Electronic signatures can also be defined as electronic processes that signify approval in agreements or forms. Electronic signatures as a legal concept can be electronic sound, symbols, or processes attached to, or associated with, contracts or other records and adopted by any person or entity with the intent to sign such records.

Whenever multiple parties need to countersign documents, if all the paperwork has to be physically sent back and forth for physical signatures, it can take up to weeks to get a deal done. If parties use electronic signatures instead, the deals can be closed in matter of minutes.

Electronic signatures are being used on a variety of business documents. Starting from simple service contracts to complex real estate transactions, electronic signing is on its way to becoming the new standard for signing documents.

What is a Digital Signature?

Not all electronic signatures are equal in terms of evidentiary weight. The term “e-signature” is often confused with “digital signature”. While e-signature is first and foremost a legal concept, digital signature is more of a technological reference. A digitally secured electronic signature is a type of signature which requires signatory authentication using certificates. A digital signature is based on mathematics, with mathematical cryptography ensuring the authenticity of the signature and providing protection against forgery. Digitally secured electronic signatures are in many jurisdictions treated as being equal to physical signatures. While the European Union is strict in preferring digital signatures, the US legislation is more lenient in this aspect.

Using Blockchain Technology to Sign Documents

Blockchain is a promising technology when it comes to facilitating digitally secure electronic signing of documents. It is possible to use blockchain technology for digital signing when the key attributes of a digital signature are considered.

Digital Signing: Already integral to Blockchains

To illustrate, consider the process of digital signing on the Bitcoin blockchain (as it is the oldest and most established blockchain). The Bitcoin blockchain uses digital signatures to authorise Bitcoin transactions and to prove ownership of bitcoins. All of the authorised transactions are, and remain, visible on the Bitcoin blockchain and verifiable by checking their respective digital signatures.

Immutable Contract Data on Blockchains

The Bitcoin blockchain scripting system also allows the embedding of small amount of data into each transaction. This in turn enables the ability to record immutable pieces of data onto the blockchain. While the amount of allowable data is not enough to store entire documents, it is sufficient to store cryptographical hashes. Cryptographical hashing is a functionality enabling the recording of a certain state of a document, which is an essential requirement in digital signing.

Identity on the Blockchains

Another essential element of signing on the Bitcoin blockchain is the proper identification of the parties involved. For a digitally secure signature, a valid certificate issued by a certification authority has to be connected to a Bitcoin blockchain keypair (in other words, a bitcoin account). If the parties accept less secure signatures, a valid certificate is not required. In many jurisdictions, common practice does not require digitally secured signatures, and the certificates are not required.

Signing on the blockchain takes place when the signatory is signing off on a transaction that also contains the cryptographical hash of the document. When a transaction is added to the blockchain, it will be stored on the blockchain with no possibility of modifying the content.

In addition, blockchain also allows for multi-signature transactions to be stored. For example, suppose an agreement requires at least 2 directors of a company to sign off, or the signing will be incomplete. If only one of the directors sign on the transaction, the transaction will have incomplete signature, and such incomplete transactions will not be admitted to the blockchain records.

Therefore, for electronic signatures, the blockchain technology is able to prove that:

  • The signature is bound to the signed document

    As discussed beforehand, signatures are valid only when accompanied by their corresponding transactions. If the signature is moved or changed, it will become invalid. The same applies to the contents of a hashed document – when modified, the hash will change.

  • The signature is bound to the identity of the signer

    Once proper KYC is performed to identify an owner of a Bitcoin blockchain account, it is clear and easily provable that any transaction from that particular Bitcoin account originates from the account owner.

  • The signer cannot deny the signing of any signed documents

    As the signing of a document is immutably recorded on the blockchain, it is impossible to deny the act of signing. It is easy to verify and prove the specific Bitcoin blockchain account that has signed on each individual document, as well as the identity of the owner of the particular account used for the signing.

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