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    EP Examines Policy Options to Improve Legal Certainty for Blockchain

    July 24, 2019

    EP published a report that examines the European data protection framework and applies it to blockchain technologies to document the conflicts and tensions between these two. The report argues that blockchain technology could offer distinct advantages to help achieve some objectives of the General Data Protection Regulation (GDPR) in EU. On the basis of this analysis, the study developed concrete policy options that could be adopted to ensure that distributed technologies develop in in line with the objectives of the legal framework.

    Blockchain, according to some, promises to inaugurate a new era of data storage and code-execution, which could, in turn, stimulate new business models and markets. The precise impact of the technology is, of course, hard to anticipate with certainty, in particular as many remain skeptical of the potential impact of blockchain. In recent times, there has been much discussion in policy circles, academia, and the private sector regarding the tension between blockchain and GDPR. Many of the points of tension between blockchain and the GDPR are due to two overarching factors:

    • First, the GDPR is based on an underlying assumption that in relation to each personal data point there is at least one natural or legal person—the data controller—whom data subjects can address to enforce their rights under EU data protection law. These data controllers must comply with the obligations of GDPR. Blockchains, however, are distributed databases that often seek to achieve decentralization by replacing a unitary actor with many different players. The lack of consensus as to how (joint-) controllership ought to be defined hampers the allocation of responsibility and accountability.
    • Second, the GDPR is based on the assumption that data can be modified or erased where necessary to comply with legal requirements, such as Articles 16 and 17 of GDPR. Blockchains, however, render the unilateral modification of data purposefully onerous to ensure data integrity and to increase trust in the network. Furthermore, blockchains underline the challenges of adhering to the requirements of data minimization and purpose limitation in the current form of the data economy.

    The report presents the following three policy options to address the above-mentioned issues:

    • Regulatory guidance. To increase legal certainty for those wanting to use blockchain technologies, regulatory guidance is needed on how specific concepts ought to be applied where these mechanisms are used. The regulatory guidance could take the form of various regulatory initiatives. Supervisory authorities could coordinate action with the European Data Protection Board to draft specific guidance on the application of the GDPR to blockchain technologies. Regulatory guidance could also offer additional certainty to actors in the blockchain space who have long stressed that the difficulty of designing compliant blockchain use cases relates in part to the lack of legal certainty as to what exactly is required to design a compliant product. 
    • Support codes of conduct and certification mechanisms. Both certification mechanisms and codes of conduct are tools specifically mentioned by the GDPR that are aimed at helping to apply the overarching principles of GDPR to concrete contexts where personal data is processed. Both certification mechanisms and codes of conduct exemplify a co-regulatory spirit whereby regulators and the private sector devise principles designed to ensure that the principles of European data protection law are upheld where personal data is processed. This has, for instance, been achieved in relation to cloud computing, where many of the difficult questions examined above have also arisen.
    • Research funding. The current governance design of blockchain use cases is not designed to enable compliance as it does not enable the coordination of multiple actors, who could be joint-controllers, to comply with specific legal requirements. Solutions could be found by means of interdisciplinary research, devising both technical and governance remedies and experiments with blockchain protocols that could be compliant by design.

     

    Related Link: Report (PDF)

     

    Keywords: Europe, EU, Banking, Insurance, Securities, Blockchain, Distributed Ledger Technology, Regtech, Fintech, FDPR, Policy Options, EP

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