Since the introduction of the internet, the privacy of users has been on the decline. We have had very many cases of social media account being hacked, bank accounts being hacked and even cases of extortion have been reported. And to make the matter worse, even the ‘Big People’ are not exempt; we have even had social media accounts of presidents and large companies like Sony being hacked into.

Actually, an internet user will have to agree to very many cookies agreements while browsing the internet. And most, unfortunately, the cookies store very crucial information about users and if it falls on the wrong hands the user could be open to hacking. Normally, organizations use the information gathered through cookies for advertisement purposes but it does so without getting the consent of the user. Most are the times an internet user will just click “Agree” to cookies without even knowing the impact it has on their privacy.

The introduction of blockchain has brought a whole new aspect into the way network users share their information. Normally, a blockchain network user does not require identification. They only have to keep their passphrases to be allowed into the network. Actually, with blockchain technology, there is no central point of storing information; the whole network is normally decentralized and the user controls what goes on.

The decentralized nature of blockchain makes it more secure than the traditional modes like the internet where there is a central server, for storing users’ information, which can easily be breached.

Though blockchain comprises of a public shared database it can only record transactions between two parties. Therefore, only two parties are allowed to exchange information at any given time. There is no chance for the interference of a third party. This increases the privacy of the parties involved.

How does a blockchain network work?

Blockchain is basically a decentralized ledger of transactions. It uses cryptography technology to confirm who owns what at a certain time.

Therefore, if a user transfers any information (including digital currencies) to a fellow user, the transaction is stored into the ledger as a block containing the time of the transaction previous transactions and details of the transaction (what was transacted). However, the transaction will have to be verified by other participants (nodes) on the network. The verification is also done cryptographically and no information about the parties involved is revealed.

The blocks of data are then arranged in chronological order and third parties cannot alter them. This makes data shared through blockchain networks secure from manipulation by third parties.

What is cryptography?

Cryptography is the process of encrypting or converting ordinary plain data into a complex form that is not comprehensible without first decrypting the message. By using cryptography, only those to whom the data is intended can read and understand the message. Even if the information is tapped into by a third party, it will not be of help to them until they are able to decrypt it. The message is normally encrypted in a manner that only the entitled recipient can decrypt it.

This technology has been previously applied in securing back transactions through banking transaction cards, in computer passwords and also in e-commerce transactions.

Tools that enhance privacy in blockchain

To enhance the privacy of users, blockchain technology employs three tactics in addition to the cryptography technology. These tactics include:

  1. Peer-to-peer network
  2. Use of private and public keys
  3. Zero knowledge proof consensus protocol

Peer-to-peer network

Peer-to-peer means that the networks are normally designed in a way that the users communicate and transact directly without the need of a third party between them. Blockchain networks are normally decentralized; users control everything.

Use of private and public keys

For the sake of the asymmetric cryptography used in blockchain networks to secure transactions, every user is required to have a public and private key. These two are sets of cryptographically related strings and numbers that help identify users.

The private key is ‘private’ and should never be shared with anyone. These are only used to access funds and personal information on wallets.

On the other hand, the public key can be shared and it is what users normally share during transactions.

Every transaction must have the public keys/addresses of the sender and receiver to denote the origin and the recipient of the information being shared. Information designated for a specific public key cannot find itself on the hands of another user.

The public addresses/keys do not reveal any private information of the involved parties. The keys act as pseudonymous and help conceal the identity of users on the blockchain network. By so doing the privacy of users is greatly enhanced.

The zero-knowledge proof consensus protocol

This is a way of proving a transaction is valid without revealing the information involved in the transaction. This is achieved using complex cryptographic formulas.

This is a new technology that was introduced to the blockchain that aims at increasing the privacy of blockchain users. Some times past, any blockchain user could access certain information about transactions like the public address of the sender and the receiver. The zero-knowledge proof consensus protocol aims at keeping the addresses completely anonymous. Any other person verifying the transaction can only know if the transaction is valid or not without knowing the addresses of the participants. Actually, the addresses of the participants were putting the users at risk since hackers could trace them later using the addresses.

 Legality issues concerning blockchain privacy

  1. General Data Protection Regulation

The European Union recently adopted the General Data Protection Regulation (GDPR) and there are concerns that blockchains do not comply with the regulations.

The GDPR was enacted to help protect European citizens against data breaches. It applies to those processing data in Europe and those processing data outside of Europe but for Europeans.

There is an issue of whether the public and private keys/addresses can be categorized as personal data according to the GDPR.

Also, GDPR gives citizens the right to have their personal data erased in case they feel the data is no longer needed. But with the nature of blockchains where the data stored is immutable, it could be impossible to have the personal data of EU citizens have their personal data erased.

  1. International Revenue Service (IRS)

There are also concerns from the IRS since most blockchain users do not include revenue made through the blockchain networks for taxation in their income reports.

IRS as actually given a notice that the general tax rules should be applied to cryptocurrencies and failure to disclose revenue obtained from blockchain networks could earn them civil penalties and fines. However, due to the decentralized nature of blockchains, it is difficult to keep track of singular transactions across the networks. Also, the use of Public and private keys makes it very difficult to connect an individual to any transaction since their personal information is concealed and there is no way of knowing who did what.

  1. The blockchain alliance

The ability of blockchains to protect the identity of users has made them an ideal hub for criminals to carry about their business without being noticed. As a result, the Blockchain Alliance was created by the FBI and Justice Department, so as to enforce legal restrictions on blockchains to minimize their use for criminal activities.

Blockchain privacy use cases

The blockchain privacy can be of vital importance if adopted in a number of areas despite the fact that there are concerns about its legality in other fields.

Below are the key areas where blockchain privacy could prove to be of importance:

  • Financial sector

Traditionally, any financial transaction requires a third party to verify it and the third party gets access to all the information about the transaction including the personal data of the participants and that information can easily fall into the hands of the wrong people.

However, the adoption of blockchain technology in handling financial transactions can greatly increase the privacy of the participants and also ensure that tier finances are secure.

  • Health sector

There are also issues about how health records are being stored. Currently, most hospitals tend to have copies of the health records of their clients; a physical record and an electronic record. But in most cases, the information ends up being misplaced or even manipulated as it gets shared.

The adoption of blockchain in storing health records could ensure that the privacy of the clients is maintained and the records would also become free from manipulation.

  • Legal affairs

Notarization of legal documents requires that the individuals are accorded the right privacy. But in some cases, personal information about individuals in cases has ended up leaking thus jeopardizing entire judicial processes in some cases.

The adoption of blockchain could greatly reduce the notarization fees, increase the speed of sharing information and also ensure maximum privacy for the individuals.

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