Blockchain Comes Under Data Privacy Scrutiny
Blockchain is an immutable and decentralized digital ledger, which records transactions taking place in a peer-to-peer network. In simple form, blockchain is a database that contains data within blocks, which are all connected. Nothing within this database can be deleted or modified after it has been validated and added, but more data can be added to the database.
Blockchain enables and facilitates the process of recording transactions and tracking assets in a given blockchain network. A common misconception of blockchain is that all transactions are anonymous, when in fact, they are typically pseudonymous. Although blockchains and the transactions can be anonymous, most blockchains typically operate as public ledgers, which enable the ability to track transactions or assets to a given transaction or source.
While there are numerous blockchain platforms, perhaps the most recognized blockchain platforms are the Bitcoin blockchain and Ethereum, the blockchain for Ether. The Bitcoin blockchain is credited with sparking the adoption of blockchain as it sheds light on the potential of decentralized finance. However, Ethereum is the blockchain platform that has emerged as the catalyst for innovation because of its ability to enable the building of “smart contracts” and “distributed applications” (DApps).
A smart contract is a self-executing agreement stored on a blockchain with the terms being written in computer code. Each smart contract is programmed to execute certain actions upon the completion of the identified terms. If the terms of the smart contract are not completed, the smart contract will not execute. Smart contracts are vital components of many blockchains today because they process data and help manage the interaction of individuals within a given blockchain network. DApps are software applications, which have a similar interface to any app or website currently used today. However, the distinction of a DApp is that it is built on a decentralized network like Ethereum using smart contracts. This is akin to how apps and websites are built using code.
How Cryptocurrency Fits Into Blockchain
Cryptocurrency or digital currency is a medium of exchange secured by cryptography. Bitcoin and Ether, being the most well-known cryptocurrencies, typically come to mind when thinking about cryptocurrency, but there are thousands of cryptocurrencies in existence. All cryptocurrencies are created and stored electronically on a given blockchain. Blockchain, or distributed ledger technology, is the underlying technology on which cryptocurrencies are built.
The Impact On Business
Business relies on information and the ability to process such information in an accurate and expedient manner. Blockchain provides businesses with the ability to enhance the manner in which it delivers and receives information because of its immutable, decentralized, and accurate nature.
The decentralized nature of blockchain eliminates the need for an intermediary serving as a central clearing authority and decreases risks associated with traditional centralized systems and their functionality. By removing the intermediary between a given server and the data being collected, distributed, and analyzed, blockchain enables an increase in the speed and efficiency of data processing. Additionally, blockchain reduces the risk of human error, which typically leads to a reduction in costs and expenses.
Traceability is one of the major benefits of blockchain that businesses in various industries are exploiting. Tracing transactions on blockchain is simplified because all data is stored on one immutable digital distributed ledger, which makes it easy to review the history of transactions. The traceability element of blockchain has been especially useful for businesses distributing products on a complicated supply chain because blockchain facilitates tracking within a supply chain.
The Legal Scrutiny
Blockchain will increasingly change how businesses operate in various industries and sectors, but this disruptive technology will undoubtedly continue to face legal and regulatory challenges as it becomes more widely accepted. As of today, several federal agencies have exercised jurisdiction over different aspects of blockchain-based businesses, but that is just the beginning. Smart contracts and DApps, in particular, will face an increase in legal scrutiny as the Federal and state government begin to establish legal standards. Blockchain, as a whole, will likely experience an added level of scrutiny as states around the US establish their own state data privacy laws like California (CCPA) and Virginia.
2021 is off to a strong start in privacy legislation with Virginia passing the second state comprehensive consumer privacy law in the US.