Legal aspects of data protection when using blockchain technologies

Blockchain technology emerged in 2008 with the advent of Bitcoin and has evolved significantly since then. Today, it is used to automate and improve the efficiency of business processes by creating decentralized applications and smart contracts. For example, banks actively use these technologies to conduct transactions and increase transparency: JPMorgan Chase has implemented its Quorum platform for secure data exchange between banks, while IBM and Maersk use them to track goods in the supply chain.

However, with these benefits come legal challenges, especially in the area of ​​data protection. International law firm Antwort Law offers to consider the key legal aspects of data protection when using blockchain technology, and also provides recommendations for their effective management.

Blockchain technologies are based on two main principles of data protection:

1. Decentralization, namely the absence of a single controlling body, which complicates the task of ensuring data privacy, since information is distributed among many participants. It is necessary to consider how the data is processed and who is responsible for its protection.
2. The immutability and deletion of data recorded in the blockchain creates legal challenges in the context of the right to be forgotten, as provided for in the main European data regulation, the General Data Protection Regulation (GDPR). It is necessary to find compromise solutions that will allow compliance with legal requirements without violating the basic principles of the blockchain.

When using blockchain technologies, it is important to strictly adhere to regulations in this area, as many countries introduce strict regulations regarding cryptocurrencies, which requires companies to carefully comply with these standards to avoid fines and sanctions. For example, in the United States, cryptocurrencies are regulated by the Securities and Exchange Commission (SEC), which initiated two well-known cases in the blockchain technology industry regarding violations by companies:

1) SEC v. Ripple: The SEC alleged that Ripple sold unregistered securities in the form of XRP tokens. This case highlighted the importance of complying with securities laws when issuing tokens;

2) Telegram and TON: The SEC accused Telegram of illegally selling tokens to finance its TON blockchain platform. The court ruled that Telegram tokens were securities, and the project was suspended.

Antwort Law Recommendations

1. Compliance with international standards: the use of blockchain technologies requires strict adherence to international data protection standards such as GDPR in Europe or CCPA in California, so companies must implement mechanisms that allow them to control data processing and ensure user rights, including access to data and its deletion;
2. Anonymization and pseudonymization of data are tools for ensuring privacy in the blockchain, but these methods must also comply with legal requirements. For example, the GDPR requires that anonymization of data be irreversible, and pseudonymization - controlled, and the responsibility for the correct use of these methods lies entirely with the companies using the blockchain;
3. Access and security management: it is necessary to develop and implement a security policy regulating who and under what conditions can access the data. Also, companies must be prepared for audits and proof of compliance with established standards;
4. Legal regulation of smart contracts (self-executing contracts), in which the terms of the agreement are written in code. They offer significant advantages, but also create legal risks. For example, smart contracts must be drafted in such a way as to comply with applicable laws and not violate the rights of participants, so special attention must be paid to legal verification and testing of smart contracts before their implementation.

Therefore, Antwort Law recommends that organizations using blockchain carefully analyze legal requirements, implement reliable data protection mechanisms and consult with legal experts. This will not only ensure compliance with laws, but also protect the interests of users, while ensuring the stable development of innovative technologies.

Lidia Ivanova

International lawyer
Antwort Law