Blockchains are touted as subsequent technology databases that promise to facilitate safe and environment friendly transactions between unknown events. Nevertheless, one of many major pillars of a blockchain’s safety is the truth that individuals with entry to the blockchain can see the complete historical past of transactions executed on the blockchain – the end result being that every get together has an equal alternative to confirm the accuracy of knowledge saved. But when all the data saved on the blockchain could be seen by anybody with entry to the blockchain, what occurs when that data qualifies as “private data” underneath Canadian privateness legal guidelines? Organizations that acquire use or disclose “private data” are topic to a wide range of compliance obligations, which as we set out under, could be troublesome to reconcile with sure blockchain fundamentals.
What’s private data?
In Gordon v Canada, the Federal Court docket defined that non-public data is data that can be utilized to determine a person if the data “permits” or “leads” to the doable identification of the person, whether or not on the premise of that data alone, or when the data is mixed with different data from different obtainable sources. Accordingly, an organization that merely “de-identifies” or “pseudonymizes” information should be topic to Canadian privateness legislation necessities as a result of there’s a risk that such information could be “re-identified”. This poses a novel problem to the builders of blockchain infrastructure, and the companies that function atop blockchain infrastructure, when the metadata that’s essentially ingrained in blockchain transactions could also be re-identifiable. Such metadata might represent private data when it reveals the place transactions are despatched from, who they’re despatched to (not essentially the title of the recipient, however the tackle of the recipient), how a lot cash was despatched, and at what time.
Take decentralized functions (DApps) for instance, that are constructed from software program deployed on the blockchain (e.g., good contracts) which might be sometimes designed to execute enterprise operations for firms. The operations of the good contracts that successfully facilitate the performance of the DApps are sometimes made publicly obtainable to each node within the blockchain community as “bytecode”, which could be reverse engineered to disclose the identical transactional data as metadata in peer-to-peer transactions.
So, what does it imply if such information, saved and processed on public blockchain networks, qualifies as private data? The result’s considerably of a paradox.
The blockchain – privateness paradox
Data printed to a blockchain can’t be deleted, however most fashionable privateness laws grant people a “proper to be forgotten”. How can a person or information topic train their proper to be forgotten when the data recorded on a blockchain’s ledger is everlasting?
The very foundation of belief in decentralized networks outcomes from the transparency of the ledger. All contributors in public blockchain networks belief within the sanctity of the data as a result of they will all see and analyze that data equally and in actual time. But when all the data is clear, it turns into accessible to anybody and will, theoretically, be utilized by unknown actors for unknown functions. Accordingly, how can an entity that leverages blockchain expertise to execute transactions and/or retailer data present the suitable protections for information topics round how their data could also be used or disclosed?
Public blockchains are deliberately decentralized so that there’s not one accountable entity. Furthermore, the networks composed by means of public blockchains usually span jurisdictions, and will include lots of, hundreds, or tens of millions of people that all technically have the flexibility to tell updates to the blockchain (a capability akin to managerial resolution making). Below these circumstances, how can a regulator implement actions towards the supporters of a public blockchain, when obligations round maintenance, administration, and ongoing growth are unfold throughout a neighborhood of unassociated people?
Finest practices for managing private data within the blockchain context
No official suggestions or interpretations of the way to course of private information on public or non-public blockchains have been printed in Canada. Nevertheless, a broad interpretation of non-public data, which is customary underneath Canadian legal guidelines, might deter blockchain stakeholders from processing private information on public blockchains, as a result of information on a blockchain is accessible by anybody with entry to that blockchain, and distributed/saved amongst all nodes within the public blockchain community.
Within the non-public blockchain context, administration of particular person rights over private data is feasible as a result of there are designated and accountable entities that management the variety of stakeholders with entry to the blockchain. Below such circumstances, stakeholders might require compliance with privateness rules as a method of accessing the non-public blockchain and its related utility(s). Stakeholders may additionally be faraway from the community for failures to conform, and a sufficiently centralized non-public blockchain could also be overwritten by contributors by means of collaboration to answer sure privateness infringing incidents.
The stakeholders behind DApps in both public or non-public blockchain contexts even have the flexibility to proactively mitigate privateness legislation dangers by designing applicable privateness insurance policies and implementing finest practices that contain:
- Combining on-chain and off-chain information
The blockchain utility ought to keep away from storing private information as a payload on the blockchain (i.e., together with figuring out data within the message accompanying the fee itself), and as an alternative have blockchain transactions function mere pointers or an entry management mechanism to extra readily managed storage options off-chain.
- Using privateness centric applied sciences and cryptographic strategies
Encryption strategies at the moment being utilized by privacy-centric chains embody ZK-SNARKS, Ring Confidential Transactions, and mixing strategies, all of that are meant to masks the id of the sender or recipient and/or permit contributors to substantiate transactional legitimacy by cryptographically proving that they know one thing with out revealing the character and id of the data.
- Conducting information transformations
Different privateness enhancing encryption and destruction strategies could also be used to guard a person’s privateness rights, reminiscent of hashing information or making use of different information transformation strategies to private data, and revocation of entry rights to a blockchain utility (or total blockchain in a personal blockchain community). Nevertheless, Canadian regulators haven’t addressed whether or not such measures are ample to satisfy the calls for of Canadian privateness laws.
Organizations leveraging blockchain expertise to gather, use or disclose private data should take care to stay knowledgeable and compliant to necessities underneath Canadian privateness legal guidelines.
- Workplace of the Privateness Commissioner of Canada, Metadata and Privateness: A Technical and Authorized Overview (October 2014) at 6↩
- Di Filippi, “The Interaction Between Decentralization and Privateness” The Case of Blockchain Applied sciences” (2016) n. 7 Journal of Peer Manufacturing: Various Internets 5 (SSRN) at 8. ↩