The Signature Tsunami: A Gathering Storm

By James Whalen
Sept. 23, 2014

When any significant, confirmable interaction occurs, the signature is probably the
most critical aspect of the transaction. Every document of importance (whether it
relates to a business deal, a legal process or agreement, or even a private
arrangement) requires a signature at the bottom. It confirms that the signer has
reador writtenthat document, and agrees to the terms presented within it.
Without such an assurance, these documents would serve no legitimate purpose,
and would have no ability to resolve disputes.

With more and more of the worlds interactions moving to online spaces, it is logical
that important documents and the signatures that accompany them should follow
into a format that fits this trend. Major and minor transactions and agreements are
now often completed from opposite sides of the planet, and need to be verified to
the same degree as they would be if they took place locally.

The problem, however, is that the relative anonymity of the Internet rids these
interactions of the types of authentication that are present when documents are
signed face-to-face. When a person signs a piece of paper, their signature takes the
form of their individual handwriting style. Each person has a signature that is
slightly different from everyone elses, and so each signature carries some level of
confirmation that the correct person has signed the document in question.

However, electronic signatures in their current form do not provide such
verification. When a person signs a document online, they simply type their name
into a form and click a button. Unlike paper signatures, there is nothing similar to
handwriting style that provides evidence that the signer is who they say they are.
Anyone could type any name they please into an online form, and there is no way to
tell if the signer is who they claim to be.

Because of this major flaw, electronic signatures present a serious threat to every
person who utilizes them in their current form, in a wide variety of contexts.
Property managers could discover that their renters are not who they said they
were, and cant actually pay their rent. Banks could find that they have loaned
money to the wrong person and wont be repaid. An individual buying a house might
have their title improperly signed, causing them to agree to pay hundreds of
thousands of dollars more for their house than they should have. A defense lawyer
could be at risk of someone signing a confession, relegating a client to a sentence
that he or she does not deserve. Peoples lives and livelihoods are on the line every
time an important document uses an e-signature, and its only a matter of time
before this vulnerability turns into an epidemic.

Fortunately, an alternate technology called digital signature is able to cover the
important hole in the currently popular electronic signature format. Digital
signatures use digital certificates in the form of a public key and a private key, which
are assigned to each individual user. These certificates are attached to the users
personal information and verified by a third party, called a certificate authority. This
process creates an irrefutable link between the owner of the digital signature and
the signature that they provide online, creating a defense against false contract
signatures that is, in some ways, even more robust than the verification provided by
handwriting analysis. With this process, the potential for electronic signatures to
collapse the entire system of contractual legitimacy is almost entirely eliminated.

The importance of proper signature attribution was demonstrated by the buildup to
the 2010 Foreclosure Crisis in the United States. Between 2004 and 2009 Linda
Green, a former employee of a mortgage company called DocX, supposedly signed
over two million documents. It was later discovered that many employees of the
company were signing her name on important mortgage documents without
reading them, a practice that was later referred to as robo-signing. As a result of
these employees inattention, large numbers of foreclosures were incorrectly
carried out, putting multiple banks on the hook for billions of dollars in damages
and unfairly putting compliant homeowners out on the streets. The responsible
employees were never punished, because their signatures could not be properly
attributed to their signers. The only reason that anyone even discovered that
multiple employees were responsible in the first place was because Linda Green
was signed in a variety of handwriting styles. With the electronic signature format,
this pattern of misconduct may never have been uncovered at all.

Despite the massive impact that the Foreclosure Crisis had on the economy in the
United States and around the world, nothing was ever done to prevent a similar
problem from occurring again. Robo-signing may still be happening, and the
adoption of electronic signatures could make that even more difficult to expose.
Despite American inaction, some other technological leaders have begun to address
the danger that e-signatures pose: Indias high court recently ruled that only digital
signatures can be recognized as legally binding, and the European Union is currently
developing similar legislation. Both have begun taking steps toward securing a
future of online interaction that doesnt threaten the entirety of the economy and
legal system. The United States, on the other hand, has jumped headfirst into the
adoption of electronic signatures.

The one sector that has begun to recognize the importance of digital signatures is
that of electronic notarization. Eighteen states have adopted e-notary laws that
require digital signatures for authorization. Notarization is a strong second line of
defense against false contract signatures, and its therefore important that they are
safe from this phenomenon. But not every document requires notarization, and
those that dont still run the risk of forgery. The first line of defense is far more
important than the second, and its therefore illogical that the second is now so
much more protected in a large part of the United States. However, the fact that
digital signatures have been adopted in the notarization industry on such a wide
scale indicates that the format does hold a significant advantage over e-signatures,
and provides evidence for the necessity of a change in how online documents are
signed.

Until digital signatures become more prevalent, every online document and
transactionand every person and entity involved in themis at constant risk of
exploitation. There is a constant threat of a major meltdown in the worldwide
Internet economy, or a legal disaster in which massive numbers of contracts become
null and void. Fortunately, the solution already exists. All thats left is its
implementation. But for now, the threat of a large-scale disaster continues to loom.