On related note, you can think of a JPEG image as an instruction to retrieve CP from your CPU and LED screen if you will. When it comes to law, there's no logic since all laws are written and interpreted by faulty humans with some weird ideas in their heads (like "lets beat the shit out of people who disobey").
Nothing. The way arbitrary data is stored in the blockchain is encoding it in the financial transactional data.
For example, you could use a similar method to "store" data using Paypal: use the amount of cents in each transaction to encode a byte of data (e.g. $1.17 means 0x75 etc.) and make transfers to random people until enough bytes have been transferred. That's it, your copyrighted data or CP is now forever "stored" on Paypal servers.
I don't think this accusation will hold up in any reasonable court. Taking into account the cost of storing data (20 bytes in a single output of minimum 5400 satoshi + fees) your hypothetical instructions and code to retrieve the images would be of comparable size to any images you can reasonably store.
The same thing that happens to every other data put in transactions - if they're included in blocks every node (full verifying node [0]) downloads it and stores it locally forever.
If the judge is really determined to put you in jail he will find CP, cocaine and unpaid taxes everywhere in your life. Law operates beyond logic and reason: only authoritative opinions and scripture interpretations matter. Ask that question to those who will put handcuffs on you, not to fellow peaceful citizens.
How is that related? If someone puts CP intentionally into the block chain that has nothing to do with math. The spread of child pornography is a criminal offense and they could just force every miner to split the chain or charge them for spread of CP.
> By that logic you could make anything illegal, legal.
I'm not a lawyer but from a technical point of view it's almost impossible to remove any kind of data from a truly distributed network. Be it Bitcoin's Blockchain, BitTorrent or the internet itself. That's just a fact, no judge order will change it, sorry.
And as M4v3R said it'd be very expensive to add a big file like a picture to Blockchain anyway.
It is perfectly possible to do so, but it would be quite expensive to do so. It is easy to embed ASCII data (some 40-80 bytes) in one transaction, but that's it. To embed an image, requiring at least few kilobytes of binary data, you would need to pay a significant amount of fees.