RE: Legality of unlawful data on blockchain?
It's a new branch of philosophy that we've barely explored, that pretty much came around with the advent of the Dark Web. Given that it's still a young, ever-evolving entity, the legality issues are likely going to fall flat for some time as things mature and progress.
To me, Childporn is always going to be on the pedo's hard drive, but we don't blame the printing company or the Mailman for distribution. We never shut down delivery services for delivering the photos, or illegal drugs because it became a vital enterprise. If they had any degree of reasonable control and failed to act regardless, that's another story.
Aside from the blockchain itself, I imagine individually and as a front end company, at worst you'd end up in front of congress in a zuckerberg-type discussion about how to do things better as told by confused old people:
Haha, I'm not really concerned about the consequences. Just trying to understand the law. Continuing to break the law because there's a low chance of being caught still makes you a criminal.
Anyway, when someone uploads some illegal data to the Steem blockchain, every single witness' hard drive holds this data. Not just witnesses, any one that wants to run a Steem node. That's the problem, and how it differs to your analogies.
Is it possible to encrypt as it passes through your systems? That would probably make all the difference (I'm illiterate so that might be a stupid question)
Doesn't matter if it's encrypted or not, it's still illegal.