While blockchain and the General Data Protection Regulation are currently two of the data management industry’s hottest buzzwords, they have more than just buzz in common as the industry continues to ponder their respective impact. They share the same level of excitement as well as the same level of scepticism.

Interestingly, they may be linked in another way – the fact that blockchain could play an important role in helping organizations comply with GDPR rules.

PWC defines blockchain as a digital, decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network so that participants can transfer assets across the Internet without the need for a centralized third party.

According to Gartner’s Emerging Technologies Hype Cycle, blockchain is at the “peak of inflated expectations,” meaning that it is a hot topic among audiences, and there are numerous ideas and theories about how it can be used. While there are many use cases, the reality is very few are up and running. And, although it’s predicted to become an important technology, nobody really knows if it will go mainstream, what it will mean, which technology will become the de-facto standard, and when it all will happen.

The GDPR, on the other hand, is a good bit more tangible with a deadline for compliance of May 25, 2018. By this date, all organizations worldwide doing business with EU customers must assess their information strategy, technology, processes and staff against GDPR rules regarding personal data and implement changes to remain compliant.

The GDPR has an enormous impact to companies around the globe, as it requires any business that stores and manages personal data of EU citizens to handle this information in a transparent and structured manner. Regardless of whether this personal data involves a prospect, customer and/or employee, under the GDPR individuals will be given new data rights, which include the “Right to be Forgotten” and the “Right to Data Portability.”

Originally adopted by the European Parliament in April 2016, organizations have been given ample warning, yet it remains unclear if many organizations will be able to comply with the pending deadline.

How Blockchain Can Impact GDPR: A Look at How It Could Help Financial Services

Notwithstanding the relative uncertainty of both initiatives, many have begun to consider whether blockchain technology could be used to improve customer data management processes, as it relates to the upcoming GDPR rules. But how?

That is the basis of a master’s thesis we recently published. This thesis investigates how the banking industry can comply with GDPR by leveraging public blockchain technology for identity management. It also seeks to understand if blockchain technology can facilitate the managing and auditing processes of personally identifiable information (PII) in a way that will support companies complying with this new regulatory framework.

Privacy and data protection have become a critical concern, which is what prompted the GDPR to be introduced in the first place. The idea we proffered in the thesis is to make a consent management system on blockchain, as this can help manage the process of what each individual is willing to share. In the financial sector, for example, knowing each party’s identity before a transaction can be executed has been around for a while.

Know Your Customer (KYC) is applicable for every bank worldwide and is all about identifying your customer and verifying their PII. The process is repetitive, which means mistakes can occur causing duplicate versions of PII. Designing a consent management system based on blockchain could provide a simple, accessible and immutable audit trail that eases the audit and compliance tasks for organizations while providing individuals with an easy and trusted way to get an overview of with whom they have shared their personal information.

Sounds like blockchain fits perfectly with the GDPR’s main objective of protecting personal data, right? Not exactly.

Since public blockchains are immutable, once information is stored in blockchains it cannot be changed or deleted. And while otherwise appropriate for other use cases, this is where blockchain technology appears to clash with the requirements of the General Data Protection Regulation. With the GDPR, individuals will have the right to be forgotten – meaning that organizations will have to delete ALL personal data of an individual upon request.

But since it’s nearly impossible to delete things off the public blockchain, GDPR and blockchain may not be compatible -- or are they? It all comes down to two issues:

  1. Who is managing the blockchain and who manages the consent?
  2. Is data put “beyond use” considered “forgotten” under GDPR?

Managing Consent

In some cases, managing PII information may be handled by the individual themselves as there may be an opportunity for them to sell this information to companies at a premium. However, blockchain can be used to manage consents—another vital aspect of the new regulation that in some cases requires organizations to collect consent specific to its purpose.

This means that each individual in a database has different consents linked to him or her, as opposed to today where organizations use “omnibus”-consent or “one-consent-for-all.”

Putting Data Beyond Use

Authors of a recent study by Deloitte entitled Blockchain & Cyber Security: Let’s Discuss contend that implementing the right to be forgotten in a technology that guarantees nothing will be erased actually has multiple solutions. The authors write:

“One solution is to encrypt the personal information written in the system, to ensure that, when the time comes, forgetting the keys will ensure that sensitive information is no longer accessible. Another possibility is to focus on the value of blockchain to provide unalterable evidence of facts by writing the hash of transactions to it, while the transactions themselves are stored outside of the system. This maintains the integrity of transactions, while enabling the ability to erase the transactions, leaving only vestigial traces of forgotten information in the blockchain.”

Furthermore, the United Kingdom’s Information Commissioner’s Office (ICO) has provided guidance that states putting data beyond use satisfies the standards for data privacy in the UK’s Data Privacy Act so long as the data controller holding it:

  • Is not able, or will not attempt, to use the personal data to inform any decision in respect of any individual or in a manner that affects the individual in any way;
  • Does not give any other organization access to the personal data;
  • Surrounds the personal data with appropriate technical and organizational security; and
  • Commits to permanent deletion of the information if, or when, this becomes possible.

Blockchain Can Help, But There is Still Work to Do for Full GDPR Compliance

So, as you can see, while there are still some unanswered questions regarding the capabilities of blockchain technology to support the GDPR efforts, the technology seems to have significant potential.

Still, there are at least three areas that need to be addressed: available technology, the regulation itself, and the people that will be managing and/or affected by it. Each must work together in real-life, as adopting and using such a solution will require a different approach.

As discussed earlier, it is important how the data is being managed by the organization and whether the blockchain is public or private.

As the regulative efforts seek to provide individuals with increased control of their personal information, a critical topic to reassess from a regulatory perspective is the requirement for banks to obtain and store PII data locally. Without this requirement, PII could be accessed remotely by the bank instead, which will ensure a single source of truth where individuals have full control of their attributes and who has access to which information.

Additionally, the option for trusted parties to provide their verification would allow individuals to continuously build the trust and validity of their digital identity over time, without relying only on one single organization.

More technical research into the topic of data storage and blockchain will be needed to answer whether the right to be forgotten can be satisfied in such an autonomous system. One thing that is certain is that the use cases for such a solution would stretch across all industries and solve many challenges encountered by financial institutions, as well as many other organizations.

The bottom line? While there is some question whether public blockchain can legally be used for storing personal data at this point, there is the potential that it may someday fully align with the GDPR requirement and “the right to be forgotten.” Blockchain can be well-suited to manage the consents under the GDPR, but it must address GDPR’s need to have information removed from it.

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