Should blockchain companies be worried about Europe’s GDPR rules?

Malta has declared it wants to become "blockchain island", promoting its low tax rate and lax regulation to entice companies there; Lithuania, Lichtenstein and even Switzerland are also vying to become the new hub for blockchain innovation.

Not only have individual states pre-positioned themselves but in April the European Union also established a 22-member pan-European blockchain partnership. Mariya Gabriel, European Commissioner for the Digital Economy and Society said of the partnership:

“in the future, all public services will use blockchain technology. Blockchain is a great opportunity for Europe and member states to rethink their information systems, to promote user trust and the protection of personal data… The Partnership launched today enables member states to work together with the European Commission to turn the enormous potential of blockchain technology into better services for citizens.”

Europe protecting its citizens

To all appearances, the EU has been more proactive in dealing with the new technology than its US counterpart and it is also making a bigger effort to tackle "big tech" on data malpractice. On May 25, the EU will implement the General Data Protection Regulation (GDPR), which aims to give EU citizens more control over their private data and addresses the export of their data outside of the EU and European Economic Area. A company found in breach of the act can be fined between 2-4 percent of their worldwide revenue, to a maximum of €20 million.

The GDPR coincides this week with Facebook CEO Mark Zuckerberg’s interrogation by the European Parliament on the Cambridge Analytica fall out. Zuckerberg had long avoided requests to come before members of parliament (MEP), and, unlike his appearance before the dithering US Congress in April which failed to even grasp the fundamentals of social media or get a straight answer from Zuckerberg, the MEPs went the rounds with him and backed him into a corner with tough questions to which he had no reply, causing frustrated members to shout questions at him.

How will the GDPR affect blockchain?

While the GDPR is clearly a swipe at the data behemoths of the world it also has the potential to stifle innovation. Last week, an Ethereum-based project the Parity ICO Passport Service (PICOPS) announced that it would discontinue due to the constraints the GDPR would inflict. Launched by Parity Technologies last October, the startup was a KYC service for ICOs that validated the Ethereum wallets of potential investors who passed the ID background checks. Ethereum’s Vitalik Buterin lamented the end of a promising project.

However, this could prove to be an act of needless martyrdom. The critical point for blockchain companies is how a data protection officer (DPO) views the retention of encrypted data or metadata on the network – could this even be considered personal data?

Checking a blockchain project’s scorecard against the principles of Article 5 of the GDPR should give a good idea of how compliant it is. These principles determine that data is:

• “Processed lawfully, fairly and in a transparent matter”
• “Collected for specified, explicit and legitimate purpose”
• “Adequate, relevant and limited to what is necessary”
• “Accurate and where necessary kept up to date”
• “Processed in a manner that ensures its security”

Why the European Union wants blockchain to succeed

One could argue the union is already a decentralized system/structure and that could lend itself to streamlining bureaucracy and administration through blockchain. The European Commission alone employs 32,000 people, the European Parliament employs 7,500 and there are 3,500 people in the employ of the Council; EU institutions employ around 4,300 translators and 800 interpreters as permanent staff. The EU spends around 6 percent of its annual budget on staff and administrative costs. Although that seems like a small portion, it’s roughly €10 billion a year.

The EU spends a whopping 41 percent of its budget on securing safe food supply chains, innovative farming and sustainable use of land and forests. The supply chain and innovation in agriculture are two areas where blockchain is making big inroads, so it is no wonder that this technology is being embraced by the EU. And it has now also got skin in the game.

The European Parliament’s exuberance for blockchain technology harkens back to the wide-eyed optimism of early adopters, believing it could help:

• Monitor the origin of goods eg. diamonds are ethically sourced, clothes are not made from sweatshops and the provenance of food
• Democratize the energy market, by enabling households that produce energy to exchange and consume it without the need to pay an intermediary agency
• Create records such as land registries, birth certificates and business licences with less dependence upon lawyers

This year, the European Commission launched an EU Blockchain Observatory Forum and has already spent €83 million on projects using blockchain in technical and societal cases — and it plans to commit a further €340 million by 2020. In May, the Industry Research and Energy committee voted to recommend that small business look into blockchain payment systems and Member of European Parliament (MEP) Eva Kaili describing the agreement as: “the Industry Committee voted univocally in favor of a forward-looking technology that we expect to change the quality of our life, empower SMEs and improve business models in most industrial sectors.”

The disparity between US and EU approach to tech

It seems like the European bloc is far more unanimous in its understanding and approach to new technology than its US counterpart, epitomized by the contrast in approach to Facebook. Unlike the technophobic US congressmen who scratched at the walls of Zuckerberg’s personal fiefdom, the EU has made an effort to educate its staff and citizens on the latest technology so it can at least hold its own with any start-up upstarts.

At Consensus this year, MEP Kaili was dovish on the future of blockchain innovation in Europe, saying "in the next few years we’ll have harmonization, sandboxes and regulation," but conceded to the reality that "it’s really difficult to educate every politician on blockchain technology…  plus we don’t have too many scientists within the European Parliament."

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From headlines and press releases, it would seem like many smaller European Union states have been bending over backwards to accommodate blockchain companies and turn themselves into a hub for the new technology. At the same time, the EU is taking a firm stance on protecting the data of its citizens from the exploitative data harvesting of multinational corporations. After May 25 the EU will enforce more stringent regulation around the use of private data — but how will this affect blockchain innovation in the bloc?