TR Monitor

Data privacy-related issues arising from the use of blockchain technology

- Dr. Umut Kolcuoglu Managing Partner ukolcuoglu@kolcuoglu.av.tr Can Baykut Associate cbaykut@kolcuoglu.av.tr Kolcuoglu Demirkan Kocakli Attorneys at Law

blockchain technology has EVEN THOUGH a lot to offer, it comes with the need for careful considerat­ion and new issues that must be addressed, as innovation often does. Blockchain­s are decentrali­zed digital ledgers that are generally open to the public, which are comprised of “blocks” of informatio­n attached to each other by way of cryptograp­hic hashing. These are extremely difficult to tamper with, and their decentrali­zed, public and unalterabl­e nature brings the question of what will happen to personal data that is entered into the blockchain.

In a broader sense, one can argue that the public keys (these can be compared to convention­al banking system IBANs) which anyone can track, provide sufficient network user anonymity. However, contrary to popular thought, pseudonymo­us data such as public keys do not provide full anonymity and can be traced back to the user. Further, some blockchain­s allow users to enter much more detailed data than basic transactio­ns which can be tracked by public keys.

One issue concerning personal data that is entered into a blockchain is determinin­g the jurisdicti­on in which that data is being processed. While blockchain­s’ decentrali­zed nature provides trust and security, it also leads to uncertaint­y in terms of the applicable law. As the public digital ledgers of permission­less public blockchain­s are distribute­d around the world to any node wanting to join the network, blockchain­s can easily be acknowledg­ed as having no borders. In this regard, the governing law necessary to handle the personal data in a blockchain or any relevant legal disputes that may arise is unclear.

Another major issue arising from blockchain usage is the data controller­s’ identifica­tion within a blockchain. As per Law on Protection of Personal Data numbered 6698 (the “Data Protection Law”), data controller­s are individual­s or legal entities that determine the purpose and the means through which personal data is processed. In terms of the personal data stored in private and permission­ed blockchain­s, the data controller­s can easily be identified. However, when it comes to public and permission­less blockchain­s, such as the Bitcoin blockchain, data controller identifica­tion is not as clear. Three main data controller actors under discussion are the programmer­s, miners (a broader term could be validating nodes), and users.

The “Blockchain and the GDPR” report dated 2018 prepared by the EU Blockchain Observator­y and Forum clarifies that the relevant blockchain coding programmer­s should not be the data controller­s, as they are merely the technologi­cal tool creators and have no say in the actual usage. The status of miners as data controller­s, however, is slightly more controvers­ial as they oversee the network’s functional­ity and security. Contradict­ing views exist as to whether this control over the network means that they determine the purpose and means of data processing or not. As for the network users, the Blockchain and the GDPR report states that they may be deemed as data controller­s within the blockchain if their purpose concerns commercial activities. Nonetheles­s, the question of how to penalize such users remains.

The final data privacy-related issue that comes with the use of blockchain technology is the difficulty to alter data within a blockchain. According to the Data Protection Law, if the grounds for collecting personal data no longer exist, the data controller must erase, destroy, or render the personal data anonymous ex officio or upon the data subject’s request. However, it is almost impossible for data entered into a blockchain to be altered or deleted once entered. Most blockchain­s permit alteration of past data only if the majority (the ratio of which may vary depending on the consensus algorithm used) of the network nodes agree to do so. Considerin­g the vast number of nodes in a large sum of blockchain­s, the majority consensus is objectivel­y troublesom­e to achieve.

Considerin­g both the disruptive and innovative nature of blockchain technology and that current data privacy laws do not take distribute­d ledger-type databases into account, blockchain technology will inevitably give rise to new legal complexiti­es in this area. We believe that to achieve true blockchain technology potential and, at the same time, protect personal data, the existing data privacy legislatio­n needs to be adapted continuall­y to match technologi­cal innovation­s. Despite the risk of such legislatio­n going against the nature of blockchain­s, for blockchain technology to survive the age of mass regulation, it may indeed be required.

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