From a blog by VALID advisor Christian Sillaber, Senior Researcher on IT-Security

The European Union’s General Data Protection Regulation (GDPR) came into effect on May 25, 2018. It is already clear that the new law, which is in many respects ground-breaking, is struggling to keep up with the pace of technological change. If this issue is not addressed, the GDPR will undermine citizens’ ability to use blockchain.

The core of the problem is that, in addition to the explicit declaration of the rights of the data subject (access to data, data portability, right to erasure, right to correction etc.), the GDPR also mandates that data controllers and processors abide by the principle of “data protection by design and default”. This means designing services and software with privacy as a foundational consideration rather than as an afterthought or add-on. The implied design requirements and goals seem to be at odds with the fundamental ideas behind blockchain and other emerging distributed ledger technologies — in particular transparency, immutability and egalitarian access to the data.

The GDPR applies to the processing of personal data (Art. 2 para. 1 GDPR), that is, any information relating to an identified or — by the use of additional information — identifiable person (Art. 4 para. 1 GDPR). Although the cryptographic identities used by most participants of public permissionless distributed ledger systems are not directly linked to identified natural persons, it is — under certain circumstances — possible to identify participants through additional information (e.g. correlation of the person’s activities with third party data). Therefore, data stored and processed in most public, permissionless blockchain systems should be considered personal data. Little doubt also remains that territorial applicability can also be established for most distributed ledger systems, as they are either (partially) operated from within the EU or are actively used to process data from data subjects located in the EU.

Public, permissionless distributed ledger systems enable their participants to maintain a public database without the need for a trusted central authority or mutual trust. Any participant may enter or leave the system at any time and, therefore, access the data of the ledger at any time.