Grounds and Legal Mechanism of Digital Transformation of the Issuance of Official Documents Using NFT in Russia

Mazein Artem Vladimirovich ORCID: 0000-0002-5598-7784 Senior Lecturer, Department of Legal Support of Public Administration and National Security, Ural Institute of Management – Branch of the Russian Academy of National Economy and Public Administration under the President of the Russian Federation; MIREA - Russian Technological University 620034, Russia, Sverdlovsk region, Yekaterinburg, ul. 8 Marta, 66 artemmazein@mail.ru Other publications by this author

Kozhevnikov Aleksandr Konstantinovich Student, Department of Legal Support of Public Administration and National Security, Ural Institute of Management - Branch of the Russian Presidential Academy of National Economy and Public Administration 620144, Russia, Sverdlovsk region, Yekaterinburg, ul. 8 Marta, 66 Alex_kozh00@mail.ru

IntroductionAt the present stage of scientific and technological development, the most developed countries are faced with the influence of the industrial concepts of "Industry 4.0" and "Industry 5.0".

As noted by A.V. Mosienko, these concepts require a reorientation of the industrial and managerial structure to the development of the Internet of Things and "sustainable human-centered industrial systems of increased intelligence" ^[20].

In conditions when the average Russian citizen uses Internet communications for 7 hours and 50 minutes a day, such concepts are becoming more and more in demand in the Russian Federation ^[1]. At the same time, the rapid development of digital skills of Russian citizens is becoming a factor contributing to the development of digital transformation of the state and society. In this regard, the President of Russia in January 2020, in a Message to the Federal Assembly, stressed: "it is necessary to expand the demand for innovations within the country itself. In this regard, I think it is right to accelerate the digital transformation of the real sector of the economy." This position of the head of state soon formed the basis of one of the national development goals until 2030 – ensuring digital transformation.

One of the most advanced technologies that has become the basis for digital transformations around the world has become the blockchain technology (Eng. block – block, chain – chain). A lot of developments are currently based on blockchain technology – cryptocurrencies, registers of contracts, real estate cadastres, online voting platforms and so on. Blockchain technology for the formation of NFT (Non-fungible Tokens), non-interchangeable tokens, has been experiencing rapid development in recent years. An NFT token is a "digital right to a physical or digital object" ^[28]. There is an example when the blockchain company Injective Protocol bought his painting "Morons" from a modern artist Banksy, and subsequently burned it live, having previously created its digital image – a unique NFT token, the cost of which exceeded the original cost of the original painting. Currently, interest in creating digital images of various objects is increasing.

It is obvious that NFT tokens can and should be used not only to certify the rights to some art objects, they can also become a unique digital expression of certifying official documents emanating from the state, agreements of participants in civil turnover, the appearance of employment contracts and other legal documents. For example, back in 2020, in the monograph "Blockchain in the service of the state", Russian researchers voiced the idea of the possibility of using blockchain technologies to store citizens' passports ^[10].

These circumstances determine the relevance of the subject of this study. At the same time, the expediency of conducting a corresponding study increases taking into account the global confusion of digital relations with ordinary legal relations, as noted by Academician T. Ya. Khabrieva ^{[29, p. 16]}. Moreover, Professor E. V. Talapina notes the general lack of regulation of blockchain technologies in Russia ^[27], which requires a thorough scientific analysis of these issues.

In this regard, the authors put forward a working hypothesis – in the conditions of unregulated blockchain technologies in Russia, the use of NFT tokens as a form for official documents emanating from public authorities is difficult and requires consistent formation of legal conditions: the implementation of a law-making experiment at the first stage and the introduction of widespread special regulation at the second stage. Such a sequence of actions will allow analyzing existing and potential threats and eliminating them, while taking into account the interests and wishes of citizens.

The purpose of this study is to determine the legal grounds for regulating the use of NFT tokens as a form of official documents emanating from public authorities, as well as to formulate proposals for improving the legal regulation of relevant relations.

The solution of the following tasks should contribute to the achievement of this goal:

- defining the goals of digital transformation and their impact on the modernization of the system of official documents;

- establishing the general characteristics of blockchain technology, including the creation of NFT tokens, and determining the advantages that can be used to issue official documents in the form of NFT;

- formulation of proposals for improving administrative legislation on official documents based on the analysis of current legislation.

Speaking about the degree of development of this problem in science, one should agree with the increasing attention to it. In the last few years, the issues of digital transformation of the state and society at the monographic level have been considered in the works of A. A. Kirillov ^[14], A.V. Mosienko ^[20], T. Ya. Khabrieva ^[29]. Technological aspects of the use of blockchain technologies in the public sector have become the object of research by A.V. Varnavsky ^[10], S. Y. Kudryashov ^[19], I. S. Kozina ^[15]. The problems of legal regulation of the use of blockchain technology are being developed by K. B. Razdorozhny ^[23], E. V. Talapina ^[27], A. Y. Churilov ^[31] and others. At the same time, the issues of using NFT tokens are considered, as a rule, very pointwise. Perhaps the only monographic work on this issue is the work of V. A. Sushkov "Metaverses, DeFi and NFT: a guide to the world of innovation" ^[26]. For the rest, it should be noted the growing interest in this issue. If in 2021 48 articles containing references to NFT were indexed in the database of the scientific electronic library Elibrary, then in 2022 their number increased 5 times to 238 units.

The theoretical significance of this work is determined by the concept of an official NFT document developed by the authors, as well as the results of the analysis of key features of blockchain systems and NFT, which allow us to talk about the prospects of translating documents on physical media into NFT form. The practical significance lies in the mechanism put forward by the authors for the legal implementation of the NFT document system.

Methods and methodology of the study.When writing the article, general scientific methods of analysis and synthesis, induction and deduction were used. The formal legal method of research allowed the researcher to study Russian legislation on digital transformation, on official documents.

Results and discussionStrategic goals of digital transformation

As already noted, at the present stage of development, many economic and managerial processes are undergoing changes taking into account their digital transformation.

At the same time, the digital transformation itself as a system of measures for the introduction of digital technologies in the spheres of the national economy and public administration is not limited only to the transfer of paper document flow to electronic, or a shift in emphasis from offline trading in favor of remote. The study of the scientific literature devoted to the stated problems allows us to state that the essential purpose of digital transformation is as follows:

1) formation of network platforms for interaction in order to obtain a predictable result from any control action ^[11];

2) ensuring open integration interaction between authorities, organizations and the population ^[22];

3) modernization of the institutional structure of organizational and managerial processes, including norms, laws, values ^[25];

4) consolidation of new principles of interaction, among which the principle of proactivity prevails, eliminating the need to receive applications for the provision of services ^[24].

At the same time, the introduction of new information and communication technologies is not an end in itself, but only a technical condition for the implementation of these areas of digital transformation. Therefore, new subjects appear in the system of habitual relations, translated into a new digital format, and their objects are transformed ^[32]. For example, today many key decisions at the federal level are made with the involvement of the Federal Situational Center of e–Government, and at the regional level - on the basis of materials from regional management centers. The system of objects of legal relations is expanding due to various digital assets.

From a legal point of view, the essence of digital transformation is to achieve the tasks defined by Decree of the President of the Russian Federation No. 204 of May 7, 2018, among which:

1) creation of a system of legal regulation of the digital economy based on a flexible approach in each area, as well as the introduction of civil turnover based on digital technologies;

2) ensuring information security based on domestic developments in the transmission, processing and storage of data that guarantees the protection of the interests of the individual, business and the state;

3) creation of end-to-end digital technologies mainly based on domestic developments;

4) the introduction of digital technologies and platform solutions in the areas of public administration and the provision of public services, including in the interests of the population and small and medium-sized businesses, including individual entrepreneurs.

Thus, digital transformation becomes a strategy for the modernization of activities in various fields. First of all, public authorities are interested in the transformation of managerial activities within the framework of public administration, since this will ensure a qualitatively higher level of interaction with the population, and in the sphere of the national economy, since this will ensure an increase in gross domestic product due to the expansion of its innovative component.

At the same time, the increasing speed of information technology development against the background of digital transformation "contributes to the continuous expansion of the spectrum of threats to information security" ^{[15, p. 1]}. This requires the active use of the most advanced technologies that provide a sufficient level of information protection.

One of such technologies that provides "increased security and guarantees of confidentiality of restricted access documents, secret and other information through the use of encryption algorithms" is blockchain technology, which is becoming the most popular network technology of interaction today ^[10].

General characteristics of blockchain technologies and NFT, the principles of their organization that determine the demand for such technologies for storing and transmitting information The international standard ISO 22739:2020 defines that the blockchain is "a distributed registry with confirmed blocks organized in a sequential chain only for addition using cryptographic links" ^[21].

E. V. Bylinkina defines that blockchain is "a kind of distributed registry designed only for adding information, data to which is written in blocks using cryptographic algorithms in such a way that each new block includes information about the previous block" ^[8]. This technology makes it practically "impossible to change the contents of one block without changing the rest", while the nodes in which this information is stored are decentralized and all transactions in the blockchain system are transparent to each of its participants ^{[17, p. 6]}.

Considerable interest in blockchain systems is due to their key function - to hash (transform) input information. Hashing, which is a mathematical algorithm for converting arbitrary information, including using quantum computing, allows you to get some hash. In fact, this transformative function ensures proper cryptographic protection of information, which becomes very significant in the conditions of increasing threats to information security.

Thus, there are three key principles underlying the construction of almost any blockchain system:

1) immutability – it is impossible to change the data already entered;

2) decentralization – data is changed not by an individual participant, but by the entire network;

3) consensuality – the requirement for a consensus on the rules of transactions in the network.

At the same time, these principles may be in demand not only from the point of view of building the blockchain system itself as a platform for converting the entered data, but also by the owners of the relevant information, since these technological bases ensure its proper protection, storage and verification. In particular, the technological principles of immutability and decentralization of the construction of blockchain systems together can ensure the implementation of the principles of reliability and information security, which are enshrined in Article 3 of Federal Law No. 149-FZ of July 27, 2006 "On Information, Information Technologies and Information Protection".

At the same time, the decentralized nature of the blockchain system does not entail the loss of information about the persons who hashed the information in it. Moreover, depending on the subjects who can enter new data in the nodes of the distributed registry, a private blockchain, a blockchain with limited access and a consolidated blockchain are distinguished ^{[31, p. 25]}. And if the so-called "public" blockchains, which an unlimited number of people have access to, are familiar to many (since they are systems for creating cryptocurrencies), then private blockchain systems are only gaining popularity in various fields ^[19]. And it is precisely such blockchain systems that can be used by public authorities to store, protect and verify certain information, including official documents granting rights or releasing from obligations.

To certify the ownership of the computational results of the participants of blockchain systems, some blockchain systems issue a kind of digital certificates - tokens ^[12].

At the same time, depending on the purpose of the blockchain system, these tokens may have an interchangeable nature (for example, to generate a unit of cryptocurrency), or non-interchangeable (for example, to create digital images of various physical objects). Let 's define their characteristics:

1. Interchangeable tokens are digital assets, each unit of which is equated to another similar unit of the same type of assets. Given this feature, they are traditionally used as a currency, and their key function becomes a payment one. Today, many states have not yet legalized digital currencies, while in Russia the concept of digital currencies is established in Federal Law No. 259-FZ of July 31, 2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation". Currently, Article 14 of this Federal Law prohibits the use of digital currencies as a means of payment for residents;

2. Non–interchangeable tokens - NFT (non–fungible token) is a unique set of metadata cryptographically transformed in the blockchain system, identifying a certain object or some information ^[5]. In fact, NFT is a digital image of some object, which ensures the integration of virtual and real reality ^[2].

The essential features of NFT are:

1) irreplaceability, which consists in the impossibility of using another similar token instead of one NFT;

2) indivisibility, which means that it is impossible to transfer part of the token to someone else;

3) scarcity, which consists in the inability to freely access a digital object ^[4].

These signs allow us to conclude that the original NFT is created in a single copy and only one person can own it. At the same time, the NFT itself may contain signs indicating this person. In this regard, it is appropriate to mention the remark of Chinese researchers that NFT provides "the imposition of an object on a subject" ^[3], unambiguously certifying the ownership rights of certain subjects of any objects. This characteristic of non-interchangeable tokens determines the interest in NFT on the part of the legal community, since NFT is a reliable way to confirm the rights to any objects in the conditions of digital transformation.

In this regard, one of the expected applications of NFT in the future is digital NFT documents ^[6]. Taking into account the possible integration with digital signatures, NFT documents can become a secure way of storing and transmitting official information that is fixed in identity documents, permits, etc.

On this issue, there is a remark by M. V. Korotchenkova about the comparison of distributed registries of NFT documents and the deposition of various information ^[16]. Indeed, NFT actually acts as a new digital form of depositing information. We share the position of many researchers that in the form of NFT documents can be exposed:

1) official documents on a physical medium granting rights or releasing from duties (for example, a citizen's passport, a plastic driver's license, a birth or death certificate, a certificate of marriage or divorce, a diploma of secondary vocational or higher education);

2) information from various registries (for example, INN, SNILS, information from ERGN, extract from the Unified State Register of Legal Entities).

The key feature of official documents and information from registries, which acts as the basic basis for their transfer to the NFT, is their uniqueness. A citizen's passport that certifies the identity of one person cannot certify the identity of another, respectively, the non-interchangeability of such documents is the basis for their transfer to the NFT form.

It is also important to note that in the conditions of complex computational processes used for hashing data and creating NFT, the possibility of forgery of NFT documents is practically excluded. Therefore, the digital transformation of the system of official documents can provide them with increased protection against forgery and misuse. Against the background of the impossibility of creating copies of NFT documents (otherwise it would violate the principle of non-interchangeability) and the impossibility of their forgery, the number of potentially invalid transactions may decrease ^[9].

Moreover, the use of NFT documents can reduce the number of crimes provided for in Article 327 of the Criminal Code of the Russian Federation "Forgery of an official document granting rights or releasing from obligations". Every year, about 1.6% of all crimes committed are related to forgery of documents. For information, information on the number of persons convicted under Article 327 of the Criminal Code of the Russian Federation is shown in Figure 1.

Figure 1 – information on the number of persons convicted under Article 327 of the Criminal Code of the Russian Federation (with distribution by year)Prepared by the authors on the basis of https://stat.апи-пресс.рф/stats/ug/t/14/s/17

Legal grounds for the introduction of NFT documentsAccording to M. T. Khodova and V. V. Dzyubanova, the use of NFT is growing rapidly all over the world, but the legal regulation of NFT is still developing ^[30].

As noted by Yu. V. Brisov and A. A. Pobedkin, the regulation of this system in Russia is fraught with significant difficulties, since there is no established legal definition of the type of tokens ^[7]. The concept of NFT as a non-interchangeable token created in the blockchain system is not given in any regulatory legal act in Russia. This becomes an obstacle to the implementation of NFT documents.

D. S. Yemelyanov and I. S. Yemelyanov propose the following way of legalizing NFT – it is the creation of a legal framework for accounting for electronic things in the blockchain system, where NFT will act as a registration record of a person's rights to a specific thing, that is, a digital object ^[13].

Agreeing with this position, we note that conditions have already been created in the Russian Federation for the issuance of official documents in digital form. In particular, within the framework of law-making experiments, it is allowed:

1) formation by medical organizations of medical death certificates in electronic form (Decree of the Government of the Russian Federation No. 2161 of 12/18/2020);

2) creation of digital documents on education and (or) qualifications (Decree of the Government of the Russian Federation No. 1678 dated 02.10.2021), which are electronic documents containing sets of information necessary and sufficient to certify the level of education received by an individual and signed with an enhanced qualified electronic signature of an authorized person of an educational organization. These digital documents on education do not yet have legal force (paragraph 3 of the resolution).

At the same time, in both cases, it is assumed that a document containing certain information in electronic form, signed with an electronic digital signature, will be formed. However, within the meaning of these provisions, these documents are not NFT. For example, the Decree of the Government of the Russian Federation dated 02.10.2021 No. 1678 assumes that digital educational documents created as part of the experiment are not subject to issuance to graduates of educational organizations. At the same time, it is the ability to directly own and use them that is a characteristic feature of NFT documents, which, as it were, act as a digital form of the usual paper and other documents.

We can assume that in the future, exposing such documents in the NFT, rather than simply transferring information from them to electronic registers, will be in demand by society. Changes are already taking place in this direction. So, in the summer of 2022, graduates of the Moscow Institute of Physics and Technology received master's degrees in the NFT format. It is noteworthy that these NFT diplomas are issued using the Ethereum blockchain system on the OpenSea platform. The diploma itself was presented in the form of a video object, in which information about the graduate student and his year of graduation was sewn. The second example from this field is the issuance of diplomas using blockchain at the University of Johannesburg also in the summer of 2022. On this issue, we emphasize the previously expressed idea that it is advisable to use non-public blockchain systems for official documents, namely those created by subjects of public administration. This may become an additional factor in protecting the relevant information.

The key idea on the way of digital transformation of familiar documents in NFT should also be the idea of eliminating the need for citizens and officials to personally initiate the creation of such documents. In the future, official documents in the form of NFT should be created on the basis of smart contracts - that is, on the basis of a certain algorithm that automatically determines the need to create an NFT document when certain conditions arise. For example, a diploma of higher education in the form of an NFT document should be generated automatically after uploading information about passing the state final certification to the blockchain system.

Taking into account the analysis carried out, in order to create a legal framework for the introduction of NFT documents into the practice of public administration, we propose the following.

1. It is necessary to consolidate the legal concept of an NFT document. In the provisions defining the status of individual official documents and the procedure for their issuance, it is necessary to add reservations that such documents can be provided in the digital form of an NFT document, which is created and issued by public authorities or authorized organizations, and is a unique set of metadata transformed cryptographically and certifying legally significant facts (by analogy from paragraph 1 of the Resolution of the Plenum of the Supreme Court of the Russian Federation dated December 17, 2020 No. 43 "On certain issues of judicial practice in cases of crimes provided for in Articles 324-327.1 of the Criminal Code of the Russian Federation").

2. To conduct a law-making experiment on the introduction into circulation of the mechanism for issuing individual official documents in the form of NFT. It is advisable to choose the most developed public legal entities in terms of digital transformation as a platform for conducting the experiment (the city of Moscow, the Republic of Tatarstan, the federal territory of Sirius). The documents transferred to the NFT form can be extracts from various state registers, licenses, certificates.

3. Scale the results of the experiment taking into account the analysis of its results. At the same time, it is necessary not only to improve the technological base for the digital transformation of official documents into the NFT form, but also to refine the legal mechanism for issuing, recording and identifying such documents, taking into account the results of sociological studies of their use.

Thus, digital inequality of intergenerational groups may become an important problem on the way of implementing NFT documents ^[18]. Therefore, in conditions of low digital literacy of representatives of the older generation, a complete rejection of paper documents provided to citizens cannot be considered at present.

In addition, it is necessary to responsibly analyze management practices, including the existence of complaints regarding the issuance of such documents. It is also necessary to analyze the statistics of crime in the field of forgery of documents and the change in its nature, taking into account the emergence of new forms of documents.

ConclusionsThe digital transformation of modern Russian society requires the introduction of new network interaction tools, the predominant among which are blockchain systems.

Cryptographic transformation of information allows some blockchain systems to generate non-interchangeable tokens (NFT). Taking into account this possibility, cryptographically protected NFT tokens allow you to create unique digital images of various objects that cannot be copied or shared. These qualities allow us to put forward the idea of translating the usual documents on physical media (paper passport, plastic certificate) into the NFT form.

At the same time, Russian law currently does not regulate the implementation of NFT documents. Therefore, the authors propose to consolidate the legal concept of an NFT document in the provisions defining the status of individual official documents and the procedure for their issuance. By an official NFT document certifying legally significant facts, the authors propose to understand such a document, which is created and issued by public authorities or authorized organizations, and represents a unique set of metadata transformed cryptographically.

For a comprehensive assessment of the mechanism for issuing NFT documents and its timely improvement, the authors propose to conduct a law-making experiment to introduce into circulation the mechanism for issuing individual official documents in the form of NFT, and further scale the results of the experiment taking into account the analysis of its results.