Both transparency and data privacy must be prioritized by businesses. Is blockchain the solution?

The rise of globalization has facilitated unprecedented rates of interconnectedness, spanning from a digital financial ecosystem to supply chain networks that extend beyond borders.

Such systems, however, are hindered by opaque networks of middlemen and legacy frameworks.

Blockchain has been viewed as a potential solution to these barriers to growth — giving rise to systems where the “rules of the game” are guaranteed by algorithms, rather than institutions, and where data is stored immutably.

For blockchain, transparency is the priority. However, while it uniquely benefits the transparency of operations and transactions, enterprises looking to implement blockchain have found that there is a fine line between being transparent and ensuring data privacy is respected.

What is increasingly clear is that both transparency and data privacy must be prioritized by businesses — and that solutions which cater only to one shall prove themselves unfit for modern enterprise.

Blockchain and beyond

Blockchain undeniably provides an advantageous alternative to contemporary systems when it comes to data storage. By decentralizing data throughout the network, blockchain systems mitigate the risks inherent in centralized systems by removing a single point of failure; it also engenders far greater system transparency. Simultaneously, blockchain’s immutability mitigates against the risk of tampering or fraudulent activity upon the network.

As these benefits are indeed substantive, companies from SMEs to MNCs, are making a transition to blockchain from less efficient legacy systems, creating new types of institutions, distributing databases, and breaking down data silos.

However, the truth is, blockchain is not the most effective assurance of data privacy. The distributed nature of blockchain means that every node in a network has complete access to the transaction data stored on the blockchain.

For public blockchains, at least, this means that the blockchain is publicly available and every transaction can be traced back to the genesis block. This level of transparency is undesirable for certain businesses and institutions that handle streams of sensitive data.

Balancing acts: enterprise solutions for the future

In response to blockchain’s privacy faults, solutions providers have looked to reconsider tried-and-tested cryptographic algorithms, such as zero-knowledge proofs (ZKP), Multi-Party Computation (MPC), and homomorphic encryption.

These technologies fully-encrypt data in such a way so that it can be shared and computed upon without ever revealing its raw state and without it ever leaving local storage. As such, only selective elements are revealed to parties within a network, as opposed to the full blockchain data log. Experimentation with these technologies is fast giving rise to a hybrid model of transparency, enabling collaborative data sharing between institutions and individuals, without sacrificing personal privacy.

The capacity to encrypt and share data in such a way within an ecosystem will become increasingly important with the rise of 5G and Internet-of-Things (IoT) technologies. We are entering into an era where millions of data points will be created and transmitted every day, with each individual producing a continuous activity log.

In the age of smart cities, autonomous vehicles, smart homes, and even AI-enabled healthcare and financial services, these millions of data points will serve as the lifeblood of a more efficient, convenient world. An absolute freeflow of data is not necessary to fuel this future. Nor would it be viable for business and enterprise.

The transparency tipping point

In developing usable enterprise solutions, it is imperative that we recognize the reality that transparency is a double-edged sword.

While it is true that transparency itself is increasingly valued by consumers, regulators, and indeed institutions that benefit from the free flow of data — there is a tipping point; if transparency is something which can help facilitate more seamless international business and services, there is surely a limit to just how much transparency is needed to unlock these benefits before user privacy is over-compromised.

With much to gain from increased transparency and data sharing, at present, financial institutions, such as banks, credit institutions, and insurance agencies maintain their own independent, and often extremely fragmented financial data profiles of their customers. Should there need to be a holistic check on a customer’s financial history and profile, requesting information from other institutions can be laborious and time-consuming.

However, the solution to this operational inefficiency within the financial sector cannot be resolved by imbuing the system with absolute transparency — say, by uploading all customer data to a public blockchain. The threats posed to the individual by having their entire financial history and profile immutably available to the public are exceedingly obvious.

A blockchain-based platform equipped with privacy-preserving mechanisms, however, could encrypt raw data before sending it between financial service providers for cross-checking and computation –– meaning that only the outcome of the computation (the “answer” to the “questions asked”) would be shared and seen on the network, allowing banks to freely exchange relevant customer data for their own use.

As first-wave organizations evolve from innovation to implementation, it’s clear that decentralized technology is not one size fits all. Recognizing the unique requirements when it comes to privacy, transparency, and efficiency will be essential when designing enterprise tools for the future economy.