The Impact of Blockchain on Data Privacy

Organizations and the Irony of Data Privacy

The daily news is filled with alarming stories about data breaches. As a result of users’ experiences and complaints, “data privacy” has become synonymous with “data breaches” in recent years. It is deeply concerning that identity theft and fraud are on the rise, yet companies continue to collect data freely.

Despite the claims that governments use the same data for “investigations and maintaining law and order”, some businesses collect user data for marketing purposes. However, news reports have repeatedly exposed the misuse of user data, leading users to lose confidence in government agencies and organizations. As a result of these entities mishandling data, data breaches have increased over time. Some organizations have exploited this privilege for financial gain by acting as data custodians. A prominent example of this unfortunate reality is the Facebook scandal during the 2016 US elections.

Discussions are taking place on online forums, seminars are happening, and Congress is enacting regulations concerning data privacy.

What Is Blockchain?

A blockchain is a distributed ledger that keeps an ever-growing list of ordered records, known as blocks. These blocks are connected via cryptography, creating a chain of blocks. Each block contains the previous block’s cryptographic hash, a timestamp, and transaction data.

In more technical terms, a blockchain is a decentralized, distributed, and public digital ledger powered by cryptographic components like hashing algorithms and digital signatures. These blockchain components work together to ensure the security and immutability of the data. Hashing algorithms create unique fingerprints for each block, and digital signatures verify the legitimacy of transactions. This combined approach ensures that once data is added to a block, it cannot be altered without changing all subsequent blocks, making tampering highly detectable.

What Is Data Privacy?

In the internet age, data privacy refers to an individual’s right to control their personal information. It protects user data from unauthorized access, misuse, disclosure, theft, or other privacy violations. Data privacy becomes especially crucial when it involves sensitive information like personally identifiable information (PII).

The online world is brimming with platforms, apps, and websites vying for user attention. Many of these platforms employ a “freemium” model, offering services for free. But there’s a catch: they collect user data in exchange. This data becomes the lifeblood of these platforms, allowing them to generate revenue through targeted advertising or data analytics. Dominant companies like Facebook, Instagram, Google, and Twitter are prime examples of this approach.

Recent instances of data misuse by some tech giants highlight the growing importance of data privacy. However, data privacy concerns go beyond social media. It applies to all organizations that handle user data, regardless of the industry.

Blockchain Core Concepts and Their Impact on Data Privacy

Blockchain technology relies on several fundamental concepts that significantly impact data privacy. Below are the core concepts of blockchain technology:

• Decentralization
• Consensus Mechanisms
• Transparency
• Immutability
• Cryptography
• Smart Contracts

The impact of blockchain technology on data privacy stems from its inherent characteristics, as outlined above. By understanding these core concepts, we can gain a better grasp of how blockchain can contribute to data privacy protection.

1. Decentralization

Data privacy breaches mostly occur because data is usually concentrated in a single database or a few databases with known locations. This is where blockchain differs, as it operates on a decentralized network of computers, known as nodes. This unique operational structure across numerous computers simultaneously ensures that no single entity has complete control over users’ data.

Decentralization solves the primary problem by removing control power from a single entity, making unauthorized access to users’ data a more complex adventure. With blockchain technology, consensus is needed to access this data. Consensus implies that other users or stakeholders must agree to the request before the requesting party can gain access. This way, access is not granted in secrecy, as the system will record the node that sent the request.

2. Consensus Mechanisms

There are different types of consensus mechanisms, but they all have one goal: to shift power from a central controlling unit, as seen in traditional data management, to decentralized stakeholders. This consensus system maintains the integrity of the system. To prevent bad actors from distorting the data, these systems require a majority of participants to agree on the authenticity of transactions. By ensuring consensus, only permitted updates to the blockchain are made, improving data privacy. In other words, without consensus, data will not be edited, deleted, or added.

3. Transparency

The record of activities surrounding the data or database is transparent. This transparency enables all participants (stakeholders) in the network (node) to view and validate the transactions, thereby guaranteeing that no data alterations occur without consensus. Blockchain’s transparency feature seems counter-intuitive, but its application is a game changer in data management. Some use it in a way that it reveals partial, non-sensitive data, while others use it with zero-knowledge proof, i.e., disclosing no user data. Developers also use this transparency feature to monitor the activities of those responsible for protecting users’ data.  Instead of storing users’ data on the blockchain, this later application uses the blockchain as a gateway. In this manner, neither sensitive nor non-sensitive data is disclosed, but the activities of stakeholders concerning their access and modification of the data are.

4. Immutability

This characteristic of blockchain ensures data integrity by preventing tampering and making data stored by blockchain nearly impossible to alter. Theoretically speaking, stored data can’t be altered.

5. Cryptography

Blockchain uses encryption techniques and hashing algorithms to provide secure data storage, access, modification, and transmission. This feature alone makes hacking more complex, as it is a more advanced security layer. Advanced cryptographic algorithms are part of the security architecture, which requires participants in the network to have cryptographic keys for authorization.

6. Smart Contracts

Blockchain technology supports smart contracts, which are computer codes that trigger an automatic execution or action when agreed-upon terms and conditions are met. Smart contracts contain pre-defined instructions, which the code, program, or software automatically carries out once the involved parties (persons) have complied with the attached conditions. Smart contracts can automatically enforce privacy standards, data access limits, and permission settings. This ensures that sensitive information is only accessible to authorized parties. Users can also use it to request the deletion or modification of their data. If the user making the request fulfills the specified conditions, the request will be carried out.

How Blockchain Will Reshape Data Privacy

The concept of blockchain, as detailed earlier, has practical applications in several areas of data privacy:

• Data Ownership and Control
• The Burden of Storage Facility
• User Consent Management
• Data Monetization
• Data Integrity and Auditability
• Private Records and Transactions

Below is a breakdown of how blockchain impacts data storage, access, transmission, and monetization. It further shows its potential to reshape the data management ecosystem in a way we’ve never seen before.

Data Ownership and Control

Traditionally, companies own and control user data stored in their centralized databases. Blockchain enables users to manage their data through verifiable credentials and self-sovereign identity solutions. Users can store this data in a secure digital wallet, putting them in control of who can access it.

The Burden of Storage Facility

While data collection benefits companies, it burdens them with storage costs and security concerns. Traditionally, data is stored across multiple servers for redundancy. Blockchain offers a decentralized alternative, where users store their data and online platforms request access permission when needed. This reduces storage burdens for companies and enhances user control. Our previous article on Web 5 explored how blockchain connects decentralized web nodes (DWNs), peer-to-peer networks (P2P), decentralized identifiers (DIDs), and decentralized web apps (DWAs). This ecosystem empowers users to host their data and grant access to online platforms, fostering data privacy.

User Consent Management

Since users can self-host their data, online platforms seek permission for each piece of data or credential they need. This is not a complex operation; it will be similar to installed apps on mobile devices seeking permission to access a phone’s local storage. If you own a mobile device, you must have seen this work. For example, if you want to upload a picture on Whatsapp for the first time, your phone will ask if you want to allow or grant such a request.

Smart contracts and decentralized ledger technology help individuals achieve the above. These technologies allow users to define and enforce their privacy preferences, giving them the authority to grant access to organizations, services, and online platforms. Note that users can grant and revoke access at their will.

Data Monetization

Organizations rely on data, and some may struggle to adapt to a privacy-focused environment. However, blockchain can create a new, user-controlled data marketplace. Users can choose to share their data with trusted third parties for compensation or other rewards, while still maintaining privacy. Here, it’s important to consider potential challenges, such as ensuring fair data valuation and user protection from exploitation.

Data Integrity and Auditability

Blockchain’s immutability and transparency features guarantee data integrity and auditability. This benefits sectors like healthcare, supply chain management, and financial auditing, where verifiable data trails are crucial.

Private Records and Transactions

While blockchain is often associated with transparency, technologies like zero-knowledge proof address data privacy concerns. Zero-knowledge proof allows verification of information without revealing the underlying data. Imagine proving you’re over 21 without showing your ID – that’s the essence of zero-knowledge proof.

The Future of Blockchain and Data Privacy

Zero-knowledge proofs and other technological developments in the blockchain field are transforming the data privacy landscape of the digital world. These innovations address the ongoing concerns of users who have experienced data misuse by tech giants. With these advancements, users stand a better chance at increased privacy while still accessing services and applications. As blockchain adoption increases, these developments will affect the system and potentially bring the long-awaited revolution expected in the data sector. However, until then, regulations like CPRA and GDPR will be the ‘watchmen’ protecting users’ data and bringing offenders to book.

Identity.com: Embracing Blockchain-Based Identity Solutions

As an identity-focused blockchain company, we value privacy-preserving technologies. This is one of the reasons why we embrace blockchain. As a company, we develop and build identity management systems based on blockchain as the foundation, focusing on keeping users’ privacy private. We contribute to a more user-centric future via identity management systems and protocols. We also belong to the World Wide Web Consortium (W3C), the standards body for the World Wide Web.

The work of Identity.com as a future-oriented company is helping many businesses by giving their customers a hassle-free identity verification process. Identity.com is an open-source ecosystem providing access to on-chain and secure identity verification. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable gateway passes. Please get in touch for more info about how we can help you with identity verification and general KYC processes.