How can blockchain technology attract the attention of data regulators?

Baozou Comment : As a technology that has not been fully developed, blockchain technology has not attracted the attention of regulators. The reason is that a large number of innovative technologies have emerged, which are more accessible to ordinary consumers than blockchain technology. The following methods can attract the attention of regulators: emphasize the potential of blockchain technology and restore personal ownership of data; compared with cloud computing, blockchain technology can ensure that data is secure and confidential; blockchain verification system is a good start for blockchain supervision system.

Translation: Nicole

Steve Ehrlich is the lead analyst for emerging technologies at Spitzberg Partners, a New York-based consulting firm focused on innovative technologies.

In this opinion piece, Ehrlich discusses blockchain technology from the perspective of regulators tasked with protecting the security of consumer data.

I don’t envy DPAs

Steve Ehrlich

While virtually every top leader from these organizations is knowledgeable and purpose-driven, the pace of innovation seems to keep them busy, as if their feet are stuck in digital quicksand or on an escalator going in the opposite direction.

What keeps them so busy every day?

It initially focused on U.S. tech giants like Google, Facebook, Amazon, Uber and AirBnB. But another major challenge comes from tracking new trends in the use of technology and data. While regulators are grappling with the latest developments in social media and cloud computing, new technologies are constantly emerging.

The task for regulators is to keep pace with these areas of innovation and understand their possible impact on data protection. In the past few years, more resources have been applied to studying connected devices such as drones, as well as law enforcement, genetic testing, biometrics, etc.

The implications are huge, and it’s understandable why these technologies are getting so much attention. Many of them are already in our lives, like the Nest thermostat or Apple’s fingerprint reader.

In addition to the significant growth in the market, there is another factor that makes regulators pay attention to the innovation sector - they generate a large amount of user data, which becomes data stored in the "cloud" and is mined for profit. Equipped with Big Data analysis technology, these technologies allow companies to better understand consumer information.

In contrast, this is not the case with blockchain, which still has no way of influencing ordinary consumers.

As a technology that has not yet been fully developed, regulators have not taken it seriously or even paid no attention to it at all.

So how do you get them to consider blockchain technology?

First of all, we need to emphasize the future development potential of blockchain, in order to get regulators out of their comfort zone and provide a newer solution for blockchain technology in today's market.

Therefore, embracing blockchain technology can fundamentally change the economic situation of personal data. In other words, it can restore personal ownership of data.

Regulators around the world have been working to ensure that data controllers and companies have the legal right to collect data, obtain user consent, and take appropriate measures to ensure that individuals can get their data back to competitors of their choice (such as rival banks).

Blockchain-based identity solutions could change that, relying on cryptographic multi-signature technology and distributed computing power to store a person’s “digitally unique information.”

Next, we can integrate this technology well into the current environment.

This requires a number of steps: first aligning the concept with core data protection principles and then comparing blockchain technology with similar market solutions such as cloud computing.

Data Protection Principles

Today’s regulations are largely based on the eight principles proposed by the Organization for Economic Cooperation and Development (OECD) in 1980: collection limitation, data quality, functional classification, access rights, security protection, openness, individual participation, and accountability.

Blockchain-based technology brings many benefits to existing technologies under these standards. For example, the use of new cryptographic authentication protocols makes identity theft more difficult.

In addition, future products built on blockchain can also provide a transparent way to ensure that companies do not threaten consumer data.

Today, every company has a simple and clear "Privacy Policy" that describes in detail what personal data they collect, how the data is used, how long it is stored, how to access the data, and other issues related to the data lifecycle.

After agreeing to the policy, consumers typically trust that the company will keep their word. However, with blockchain technology and smart contracts, these agreements are programmed into the company’s programs, and by using certification schemes, these contracts can be standardized, programmatically holding companies to their word.

Blockchain technology can provide companies with new solutions to store company records. When a company needs to store a lot of customer data, it needs such a solution. Companies around the world increasingly need to store large amounts of data accounting processes for auditing and compliance.

In most cases, meeting these needs involves providing employee access to company data. This is a use case tailor-made for a blockchain solution that can manage, verify, and protect company data.

Comparison with cloud computing

In order to illustrate the advantages of blockchain under the core data principle, it is important to develop a contract between blockchain and existing products in the market.

When regulators talk about blockchain technology, I often highlight the difference between permissioned blockchains and open blockchains and ledgers. Once the conversation gets a little more into that area, it starts comparing these blockchain types to public, private and hybrid cloud solutions.

The government is trying to understand what cloud technology means from a regulator's perspective. Their main concern is to properly protect data while ensuring that data is properly kept confidential.

Moreover, risks are rising.

Given the growing number of cloud solutions, providers are coming under increasing scrutiny and penalties from regulators, even if they are merely customers or subcontractors of companies using data storage.

Considering the different use cases favoring blockchain and non-blockchain solutions, it is easy to see that distributed ledger solutions and smart contracts have many benefits such as transparency and security.

Set expectations

Given that initial use cases are still focused on Bitcoin and the financial industry, many DPAs will leave it to financial regulators to manage the blockchain regulatory environment.

Therefore, it is unlikely that there will be other major developments that will see data protection authorities regulate and guide blockchain-related businesses in the near future.

But regulators around the world, including the Federal Trade Commission (FTC), Europe's Article 29 Working Party and Canada's Office of the Privacy Commissioner, have weighed in on how new technologies fit into existing regulations, as well as their concerns about consumer protection.

As blockchain technology continues to develop, I hope they will eventually use these scattered discussions as a reference for formulating formal regulations.

When DPAs require information, participation and comment from industry members is important.

In the meantime, there are things that can be done now. Developers and programmers in this space should learn about the OECD principles and regulations surrounding the products they create.

In addition, regulators agree that verification schemes can reduce their burden. For example, the upcoming European General Data Protection Regulation, which will replace the EU's 1995 law, encourages verification schemes as a method of compliance with the regulation.

In the world of data protection, creating such a program is a great start for blockchain regulation.