The EU Blockchain Observatory and Forum has released a report warning that the General Data Protection Regulation (GDPR) laws instated by the European Union (EU) earlier this year may prevent effective blockchain innovation taking place.
The Blockchain Innovation in Europe report cites a lack of clarity in the legal framework regarding personal data and blockchain technology as a major issue for entrepreneurs and developers working in the EU. The report states that it “can put a brake on innovation”.
Friction between GDPR and blockchain
One of the crucial issues discussed is the incompatibility with a decentralized blockchain network to erase person data, with GDPR giving citizens the right to have their information erased upon their request. To enforce these right, GDPR requires a central authority to be held accountable, something lacking in the structural nature of a decentralized blockchain network.
Permissionless blockchains can also not be guaranteed to comply with GDPR restrictions that require data to only be transferred to third parties outside of the EU who offer equal data protection regulations.
Thus, applications built on a blockchain are being threatened by unclear laws regulating them.
A need to update GDPR?
The report claims that these conflicts are not addressed because during the time GDPR policies were being constructed, blockchain was not as popular with developers, nor nearly as well known and utilized as it is now. This means that the laws were written with an implicit assumption any database would operate with a centralized authority for processing data.
However, the investigatory review does claim that blockchain could in the future evolve to become key in promoting data sovereignty and the further goals of GDPR. With more research and development, blockchain could theoretically have compliance supported in the code of platforms and applications.
For now though, with hope, the report will influence EU lawmakers to clarify what is required from blockchain developers to prevent the industry from moving out of the union.
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