You may have seen in the news over the last couple days how researchers have found that the Bitcoin blockchain is being used to store illegal content, like images of child abuse or hacker code you can use to break encryption on DVDs. Using a blockchain to store files other than transactions is entirely possible; in fact some tokens deliberately exist to be an alternative file storage system (like Filecoin), despite the Bitcoin blockchain not being created for this.
How to store data on the blockchain
When you send money using your bank, there is often a little section for you to put a description of the transaction – as long as it is just a few characters. There is a function called ‘OP_RETURN’ that does the same thing with Bitcoin, which means that people can use it to post short messages. This is a deliberate function of the network. In fact, the first ever transaction has a message that reads "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". It is almost like a cryptic clue to blockchain’s mission statement.
Storing much larger amounts of data was not part of the design however, and it most often involves fragmenting. This is where you have to make many transactions, each with a different piece of the data, before some clever software stitches it all together at the end.
There is another way to store larger amounts of data where you essentially send your Bitcoin to a made up recipient (in Bitcoin language this means replacing the valid receiver keys with arbitrary data). This comes at a cost however, as there is no bank to ask for your money back. This is why it is called ‘burning your Bitcoin’.
A 21 KB image of Nelson Mandela (which is already on the chain, by the way) would burn about $380 of Bitcoin at the current price of $8,400.
Why you would want to store data
While there are valuable uses for blockchain data storage, people would usually choose a chain specifically designed for that purpose. For example, there is a notarisation industry that will certify that a document exists. For larger pieces of data, you could post content free from censorship (e.g. whistleblowers) or archive memorable/historical data (e.g., there are at least six wedding-related photos currently on the Bitcoin chain).
On the other hand, people can spread copyright infringements or commit blackmail with threats of posting private information. Interpol and Kaspersky Labs started warning years ago that you could use similar methods to embed malware into the blockchain. This has not happened yet with Bitcoin, but it only seems a matter of time.
What has already happened however (and is all over the news), is the appearance images (and links to more) of child abuse on the chain. The consequences of this is that possession of the Bitcoin blockchain could be a very serious criminal offence, although we will have to see how the police or courts respond to this.