The New World Of Blockchain & Its Data Protection Flaws

With the ever-increasing reliance and use of the internet more people are now becoming aware of currency formed on blockchain. This awareness has been increased as a result of the increasing number of service providers now accepting crypto assets as a method of payment.

It has also been a big attraction for those against the Governmental system, as blockchain currencies are not generally controlled or maintained by Governments or banks but instead, their users. This begs the question of whether this “new world” currency is a replacement for the currency we are used to and more importantly, is your money protected in blockchain wallets.

What is Bitcoin?

For those unfamiliar, the biggest and most popular blockchain currency is Bitcoin. Bitcoin is now readily accepted and can be used to make many purchases online. It forms a digital asset and similar to real money, is often stored in a wallet. This is not however your ordinary wallet but instead a virtual wallet. At first glance, this sounds promising; a virtual wallet, which cannot be lost and may allow you to spend your money in most places across the world without the need for exchanging currency. When you look deeper into the use of blockchain wallets, it becomes apparent that these are not as safe as ordinary wallets, as they can still be lost and are open to being compromised.

Similar to banks, many providers are supplying these virtual wallets. These wallets can be maintained over the internet or, on hardware such as a memory stick or hard drive. Unlike banks, the requirements to open a wallet are far simpler and in most instances will not require ID verification. This creates a fundamental flaw in verifying access to a wallet over the internet and in some cases, a major flaw for those holding their wallet on hardware without any security.

What are the potential risks of a digital wallet?

The security of these wallets is therefore dependent on the provider’s security and the privacy rules in place to access a wallet. This exposes users, should the provider’s security fail or if that user’s data becomes compromised. It is not uncommon to hear of data protection breaches but in reality, most instances tend to cause limited damage. The rise of blockchain and virtual wallets, however, could not only lead to personal information being leaked in the instance of a data protection breach but also the loss of a person’s blockchain assets.

The other flaw is the limited amount of personal information often needed to open your virtual wallet. Without the need for personal verification, if a person’s wallet is lost (for example the holder forgets their password), there could be difficulty in retrieving that wallet. Providers may be unable to identify the person a wallet should belong to and there have been many instances where individuals have been unable to recover their wallets resulting in significant losses.

Comment

It soon becomes apparent that the world of blockchain poses a risk to individuals in the event of a data protection breach. But is this risk any riskier when compared to today’s standard, holding real cash in a real wallet?