Blockchain, Bitcoin and Some Serious Struggles Ahead with GDPR

It’s 2018, so we can’t go ten minutes without hearing the words “blockchain,” “Bitcoin,” or “Tide pods.” I only want to talk about the first two because, honestly, enough with the Tide pods, people. (Please end this meme, Internet).

If you’ve asked what Bitcoin is, someone has likely explained it to you by saying something along the lines of: “Bitcoin is a cryptocurrency based on blockchain transactions recorded in a distributed ledger and is, therefore, virtually unhackable.” That explanation brings on two follow up questions:

  1. Why was that explanation so horrible?
  2. Who cares about this?

The first answer is easy: very few people understand how blockchain transactions work, and so it’s hard to find good explanations. To put things more simply, Bitcoin is a currency, just like the Dollar or the Euro. It has value based on what people are willing to accept for it, in the same way that we all just agree that a piece of paper that says “Five Dollars” is worth a 12-inch sub (no comment on whether the sub is worth five dollars).

That’s the easy part. The confusing piece is how blockchain fits in. Blockchain is a simple idea with substantial implications for commerce, banking, trade, and law. It is a way of recording verified transactions across many servers and hard drives so that the transactions cannot be altered in any way. When you pay for something by writing a check, it’s recorded in a ledger by your bank and the recipient’s bank when they deposit it. When you pay for something in Bitcoin, the transaction is recored on thousands of ledgers. And because it is recorded in so many places (“distributed ledger”), it is very hard to conceive of a transaction that would be altered, deleted, or faked.

That last piece is the answer to your “who cares” question. The promise of blockchain (and, to a lesser extent, of cryptocurrency) is that it is close to tamper-proof, and it provides a way to have transparency and predictability in transactions. The implications range from the impressive (automated real estate transactions, equitable contract drafting) to the idiotic. But if your business engages in any transactions (which, of course, it does), then the possibility of a secure, permanent, unalterable record of transactions must have obvious appeal.

Is it perfect? No. Anyone who tells you that technology is foolproof either doesn’t understand the technology or is hoping you don’t. Blockchain presents serious questions regarding GDPR compliance, error-correction, and amenability to wider commercial use. And, of course, if your own device and your own private key are compromised, the security of the blockchain transaction will be cold comfort in the wake of a theft.

Unlike other trends that have already been forgotten (Remember covfefe? That was less than a year ago), blockchain is not a meme or a temporary fad. The likelihood is that it will become a more common aspect of financial and commercial transactions. Understanding its risks and benefits its essential to deciding if, when, and how to use it.

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