Since the advent of the General Data Protection Regulation (GDPR) regulation, organisations, both large and small, have been affected, including companies involved in blockchain and cryptocurrency that have to ensure that their infrastructure is GDPR compliant.
Blockchain and cryptocurrency
The fundamental logic behind blockchain is its security and encryption that makes data unreadable to others without the decrypt key, which will return the encrypted data to its original context. Transactions once written to the blockchain are unchangeable, they cannot be deleted, as this would corrupt the blockchain. Data Subject Access Requests (DSAR) is one of the data subject rights conferred under the General Data Protection Regulation (GDPR). Data Subject Access Requests (DSAR) is one of the data subject rights conferred under the General Data Protection Regulation (GDPR).
With the blockchain, an individual can review the complete audit trail of the cryptocurrency transactions for example; this gives complete transparency to all blockchain and cryptocurrency transactions that are written to the public blockchain. Transparency on private blockchains is different, as access becomes limited to those with access to the private key.
Blockchain and persistent storage
Create-retrieve-append-burn is the methodology of storage on the blockchain. Once a transaction is written to the blockchain, it cannot be deleted or cancelled, the blockchain can only be appended to, and existing data remains unaltered.
Therefore, in the manner that cryptocurrency such as Bitcoin or Etherium is transferred, the action cannot be changed once the transaction has been committed to the blockchain. This does imply cryptocurrencies if stolen or illegally transferred, as it is not possible to undo these actions.
The regulations and rules of the GDPR are well documented with one of the fundamental values being the right to have your personal information erased. Organisations should perform a GDPR audit on a regular basis to identify the key risks and determine how to mitigate these risks. Another key element of the GDPR is the regulations behind how your data can be transferred outside the EU. With websites, for example, this can be easier to manage, but with blockchain and cryptocurrency, this becomes more complex as there is no control over where the nodes of the blockchain are hosted. These nodes could be located anywhere worldwide!
When the GDPR regulations were formalised, blockchain was in its infancy as it is likely this was not fully considered by the decision-makers. The GDPR regulations presumed it would always be possible for data privacy to be maintained by deleting unwanted data. With the data written to the blockchain, this is most certainly not the case.
How do you ensure that blockchain and cryptocurrency are GDPR compliant?
GDPR effects on what can be stored on the Blockchain. In line with the GDPR Regulations, personal data should not be written to the Blockchain, as the data cannot be amended or erased once written. Organisations need to put in place GDPR compliant policies and procedures to ensure that they are compliant and could use policy generators to do so.
A possible solution for blockchain and cryptocurrency transactions is that the personal data is not stored on the blockchain, but personal data is stored externally to the blockchain but linked by a reference generated on the blockchain.
How this GDPR, blockchain, cryptocurrency workaround works is given below:
- A company has its software systems which store transactional data on the blockchain.
- The company must ensure they are GDPR compliant. So personal information related to cryptocurrency transactions must be stored outside of the blockchain but implement a high level of security.
- The software system sends a request for the personal data; the request is verified and checked to ensure it has the permission to view the data. If the request is valid, a link is returned that will send the software a key to access the data that is stored offline.
- With the link to the personal data, the software can update the personal information or erase the personal data if requested, ensuring GDPR compliance.
- With regard to the blockchain and cryptocurrency transactions, the system can verify that the data has not been corrupted or tampered with by comparing the hash value of the retrieved data and the hash value provided by the blockchain. If the two hash values match, this is the confirmation that the data privacy is valid and has not been tampered with.
Are these workarounds beneficial?
These approached cannot be as efficient as writing and obtaining personal information directly from the blockchain. These options are only considered in order to comply with the GDPR regulations.
What are the benefits?
- These workarounds can ensure that the method is completely GDPR compliant.
- It becomes possible to remove data in line with the GDPR Regulations, creating the necessary flexibility in the blockchain and for cryptocurrency transactions.
What are the downsides?
- Transparency of data, is a key to the blockchain, is reduced. Once data is stored offline, it is no longer easy to identify who has access to the data.
- The ownership of data stored on the blockchain is no longer clear. Once data is stored outside of the blockchain, the ownership of the data is no longer so clearly identified.
- It is still necessary to have P2P integration.
- For each new company added to the system, it is necessary to add a new P2P connection.
- The blockchain functions differently to its designed usage. The blockchain becomes a lookup table to reference other data, instead of the infrastructure for storing transactions such as cryptocurrency.
- With data spread across different entities, there are higher risks of security breaches or personal data being compromised, especially. When considering high-value transactions exists with cryptocurrency.
- The process becomes more complicated. The more complex processes become, increase the risk of errors and systems that are more risk to security issues.
The goal of GDPR
The GDPR’s main goal is to return the ownership of personal data to the individuals. One of the critical elements of the GDPR is the right to have your personal data erased. The blockchain relies on the encryption keys, by no longer having access to the encryption keys, this makes the data inaccessible. But this is still not sufficient to be classed as data erasure. As the personal data will always be stored on the blockchain.
With the blockchain, technologies continue to evolve and cryptocurrency becomes a feature of everyday life. GDPR gives us the opportunity to improve an individual’s ownership of their personal data. Try to maintain trust with third parties that may hold their data. To ensure GDPR compliance, there is no simple way to store personal information on the blockchain and retain GDPR compliant, with the need to be able to delete or update personal information. As things stand, this will limit how the blockchain technology can be fully utilised, meaning that more dated technology must continue to be used to store the personal data that cannot be stored on the blockchain.
This approach takes away so many of the apparent benefits of the blockchain, including:
- How secure is the data stored outside of the blockchain? Is this data encrypted?
- How easy is it to access the data outside of the blockchain? The blockchain offers the best platform for security and data storage
- Who owns the data when it is not stored on the blockchain?
- Is this data stored in other locations? Who has access to this data? And has this data been shared with others, in the EU or outside of the EU?
There are many areas to consider; maybe the GDPR will be amended in the future to incorporate blockchain and cryptocurrency