According to the news, German researchers have found child porn in the blockchain, including lists of links and an actual image of a naked woman (e.g. here https://www.theguardian.com/technology/2018/mar/20/child-abuse-imagery-bitcoin-blockchain-illegal-content). However, other sources claim that this is old news and fake news (https://news.bitcoin.com/no-isnt-child-porn-bitcoin-blockchain/).
Even if this is true or not, in my understanding it is theoretically possible. By sending Bitcoin to a fabricated address that is actually part of an encoded image, a whole file could be included in the blockchain. The limit would be the maximum size of the block (1 MB in Bitcoin) which could be a very high resolution JPG image for instance.
This raises a lot of questions. Posession of child porn is illegal in many countries. Does that mean that everybody who downloaded the Blockchain comitted a crime? Courts and Lawmakers will have to find an answer to this because this problem will not go away. In the meantime we should think about what can be done to prevent such a thing in the future. One idea would be to prevent any bitcoin to be sent to an address that is not a valid Bitcoin address. This might require a hardfork. Hardforks are bad. Any further ideas?