Blockchain And GDPR: A Rock And A Hard Place
Blockchain and other emerging distributed ledger technologies offer the promise of increased security, transparency and resilience based on the use of distributed, immutable records. At the same time, the European Union General Data Protection Regulation (GDPR), which takes effect May 25, 2018, governs the use and protection of personal data collected from or about any European Union resident.
Personal data is defined very broadly and includes any information relating to an identified or identifiable natural person.
Under current EU legal interpretations, this includes encrypted or hashed personal data as well as public cryptographic keys that can be tied to a private individual.
The penalties for failing to comply with the GDPR are harsh including fines of up to the greater of €20 million or 4% of a company’s annual worldwide revenue.
The GDPR: Centralised, Restricted and Removable
The GDPR was developed based on an assumption that collected personal data would be controlled by an identifiable data controller and processed by the data controller or by a finite number of identifiable data processors and sub-processors. In order to protect the use of personal data, data controllers and processors must control who accesses the personal data, where and to whom it is transferred, and by whom it is accessed.
The GDPR gives EU residents enforceable rights with respect to their personal data, including:
• the right to erasure of personal data when the personal data is no longer needed for the purpose for which it was collected, when the individual withdraws consent, or when continued processing of the data is unlawful;
• the right to require correction of incorrect data; and
• the right to restrict processing when the data accuracy is contested, when processing is no longer necessary, or when the individual objects.
These rights are understandable in the context of a centralized database controlled by a single data controller with a finite set of processors. But how well do they mesh with distributed ledger technology?
Blockchain: Decentralised, Distributed and Immutable
Blockchains can either be open to anyone (such as Bitcoin) or permissioned (limited to a specific set of participants). With a permissioned blockchain, the organisation that sets up the permissioned blockchain is the data controller and is responsible for compliance with GDPR.
In an open blockchain, every individual and organisation that adds EU personal data to the blockchain may be a data controller and may be responsible for compliance with GDPR. Similarly, every node on either an open or permissioned blockchain is, at a minimum, a data processor and may be a data controller depending on the blockchain governance arrangement.
Blocks typically include a header and encrypted content (the payload). Open blockchains allow anyone to view the header. Permissioned blockchains may have options for controlling who can view different parts of the transaction. The blockchain is a trusted record source because the data within each block cannot be changed and blocks cannot be removed.
Can Blockchains and the GDPR be Reconciled?
Not for open blockchains and not easily for permissioned blockchains using currently available technology and current EU data protection interpretations. The two biggest hurdles are control and data removal.
The data controller is liable for controlling access, dissemination, processing and sub-processing of personal information. This is effectively impossible for an open blockchain and will require significant attention and diligence for a permissioned blockchain.
As one example, the data controller needs to have a written data processing agreement in place with each data processor, which means with the owner of every node in the blockchain.
With respect to data removal, two possible solutions are:
- Off-chain storage
- Building in processes to make personal data permanently inaccessible (“blacklisting”)
Off-Chain Storage
One option is to store personal data outside of the blockchain and store only a reference (link) to the data and a hash of the data on the blockchain. This allows the removal (erasure) of the personal data without breaking the blockchain. However, this approach defeats many of the benefits of distributed ledger technology, such as security and resilience through redundancy.
Blacklisting
“Erasure” of data is not defined in the GDPR. Greg McMullen of the Interplanetary Database Foundation suggests that destroying the cryptographic key that would allow access to encrypted personal data should be considered to be the equivalent of erasure if the destruction is done in accordance with best practices and in an auditable way. We’ll have to wait for some rulings by Data Protection Authorities to see whether this view will be accepted.
Bottom Line
If you are building a permissioned blockchain, build it with the GDPR in mind. Understand:
- who will have access to any EU personal data
- how the data will be controlled
- how you will comply with requirements to control processors, and
- how you will respond to requests from individuals to view, correct, erase and restrict their personal information.
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