Whenever the transactions are processed in cryptocurrency, there will be transactions and details about time, amount, and balance. Those details about transactions also known as ledgers are encrypted in blockchains and provided to both parties. Furthermore, blockchains are securely linked sequentially. For the alterations of one blockchain, it is also required to alter the linking blockchains. That will produce a huge problem for hackers as quite a certain amount of work and time are necessary.

Without any medium or mid-Man, transactions are quite faster, cheaper, and more efficient for users. Moreover, blockchains have to ensure that all data and information in blocks are secure and protected in many ways for the best user experience. Let’s explore in detail how blockchain support data privacy in the new internet era.

5 Ways Blockchain Supports Data Privacy

1) Storing data in Distributed Ledger Technology

Blockchain store data in distributed ledger technology

Distributed Ledger Technology (DLT) serves one of the most important roles in blockchain technology. Distributed Ledger Technology is the technological system and protocols that let simultaneous access, validation, and record updating in the networked database. Additionally, it can permit the users to view the formations and alterations of data and provide data access only to necessary users.

DLT lets information be stored securely and accurately with the application of cryptography. The data is accessible using keys and cryptographic signatures. As soon as the information is stored, it will develop into an immutable and absolute database; the regulation of the network is inscribed into the coding of the database programming and govern the ledger. Due to the ledgers being decentralized, private, and encrypted, they are invulnerable to cybercrime or hacking. In order to commit a cybercrime to the ledgers, all the copies and data located throughout the network will be required to get attacked simultaneously for a successful attempt. Moreover, the peer-to-peer sharing and updating of records data make the entire procedure much faster, more effective, and cheaper.

All the devices on a distributed ledger network have a copy of the ledger. These devices are known as nodes - a network can possess any number of nodes. All the nodes have a record whenever there are changes to the ledger, such as relocating data from one block to another. Due to the fact that every node possesses a copy of the ledger, each one publishes its version with the newest transactions. When the network reaches a consensus about the legitimacy of the latest ledger, finalizations and encryptions are done to the transactions and applied as a basis data for further transactions. This is the procedure of how the development of the blockchain network really is and each block has encrypted information about the proceeding block, which will create certain impossibilities in alteration.

2) Protection by Encryption and Cryptography

Blockchain protects data privacy by encryption and cryptography

Various cryptography concepts develop and assist the blockchain network in many ways. In the blockchain, cryptography is applied for the protection of user data privacy, transaction information, and ensuring data consistency. Cryptography is a procedure that will ensure information from any third party throughout the communication process. It consists of two Greek terms, Kryptos means “hidden” and Graphein means “to write”.

One of the important applications of cryptography is cryptographic hashing. Hashing allows immutability in the blockchain. Encryption does not include the application of keys in cryptographic hashing. When the transaction is confirmed, the hashing algorithm puts the hash to the block, and a new unique hash is added to the block from the original transaction. Hashing remains to combine or make new hashes; however, the original information is still traceable and accessible. The single combined hash is described as the root hash. Hash Function supports linking the block and preserving the integrity of the data inside the block, and any alterations in the data of the blockchain can break the blockchain.

There are several terminologies relating to cryptography:

Encryption: Changing general text to a random sequence of bits.

Key: A certain amount of information is required to attain the information of the cryptographic algorithm.

Decryption: The opposite procedure of encryption, converting a random sequence of bits into general text.

Cipher: A mathematical function, i.e., a cryptographic algorithm that changes general text into ciphertext (a random sequence of bits).

There are two parts of cryptography: Symmetric-key cryptography and Asymmetric-key cryptography.

Symmetric Key encryption

Emphasizes an identical key for encryption and decryption. The symmetric key encryption method is also appropriate for secure website connections or data encryption. Also stated to be secret key cryptography. Both the sender and receiver can exchange and keep the key securely in symmetric key encryption. Moreover, it can be applied for bulk encryption, needing less processing power and faster transfer.

Asymmetric Key encryption

Applies different keys for encryption and decryption. This method applies public key and private key procedures. These public key procedures assist totally unfamiliar parties share information such as email ID. Private key assists to decrypt the messages and supports in verifying the digital signature. The mathematical interaction among the keys is that the private key cannot be obtained from the public key, but the public key can be obtained from the private key. Additionally, asymmetric key encryption needs a long period of procedure to execute.

3) Application of Smart Contracts

Blockchain has various applications on smart contracts to help protect data privacy

Smart Contracts are general programs placed on a blockchain that will operate automatically when predetermined conditions are met. They are applied for the automatic execution of an agreement. Therefore, all the participants can be certain of the outcome immediately without any third-party or mid-man involvement and time loss. They can also automate a workflow, triggering the next action when conditions are met.

The operation of smart contracts is carried out by following simple “if/when, then” regulations that are put into code on a blockchain. A network of computers performs the actions when predetermined conditions have been verified. These kinds of actions can be releasing funds to suitable parties, making registrations of vehicles, delivering notifications, and issuing a ticket. Updating is done to the blockchain as soon as the transaction is finished. Once completed the actions, the transactions are trackable and irreversible which helps enhance data privacy. However, alterations cannot be done in the transaction and only parties who have access can check the results.

4) Pseudonymization or Privacy Layer Method

Privacy Layer Method improves data privacy for the internet

Pseudonymity is a procedure of applying a fictional persona to carry out any activities without revealing the true identity. Pseudonymity means that a person’s identity is unknown but it is probable to provide actions to the same person. This is the opposite of anonymity where the identity of a person is unknown and its actions are not trackable.

Blockchain networks offer pseudonymity by enabling users to carry out transactions with the application of alphanumeric addresses instead of personal information. This feature gives a layer of protection or privacy, also privacy layers like zero-knowledge proofs and off-chain transactions can improve user anonymity and data privacy. Furthermore, developments and enhancements in blockchain technology are endlessly addressing the challenges and problems of privacy, making sure that networks can manage huge amounts of transactions while maintaining the best data privacy and security.

5) Tokenization and Cyber Security System

Tokenization is a new way to improve cyber security

Tokenization is the process of changing the ownerships and rights of a specific asset into a digital form. By tokenization, indivisible assets can be altered into token forms which increases data protection. Tokenization in blockchain creates a lot of new possibilities for businesses and individuals. One global market intelligence firm puts the tokenized asset market around $500 billion on the blockchain which is a kind of mind-blowing investment. Moreover, tokenization has been used for several decades even before blockchain technology. Since that time, financial institutions and banks have applied tokenization to secure credit card and transaction information. Even hospitals have used to make sure that patient information is safe within the authorities. The most important usage is that the government applies tokenization theory to keep track of voter registration.

Generally, tokens save the information and data as alphanumeric tokens and then go through cryptographic functions. This procedure ensures that each token is unique and unlike the other. Furthermore, there are many types of tokens which are assisting blockchain technology. They are Security tokens, Platform tokens, Utility tokens, Fungible Tokens, and Non-fungible tokens.

Platform Tokens: tokens that are applied in blockchain to assist in delivering the decentralized applications.

Utility Tokens: the most basic and simple token on a blockchain network. They are applied to access the services, power the consensus program, paying transaction charges and even votes for new blockchain enhancements.

Fungible Tokens: tokens that can be replicated or replaced. The most common kind of fungible token is gold. Converting the fungible assets into tokens is easy as they can be divided into fraction units.

Non-Fungible Tokens: opposite of fungible tokens. They are unique and the history of ownership can be tracked. If a non-fungible asset is changed into a token, an immutable digital signature is provided. This disables the replication of the token.

Data Privacy Concern in Blockchain

Main Data Privacy Concern in Blockchain

Apart from the role to support data privacy, Blockchain also has some problems with data privacy. Gemini reportedly leaked 5.7 million emails were leaked. There are also many cases that Blockchain applications were hacked from the vulnerability of the smart contracts. Regulatory Compliance is also one of the main concerns for data privacy. The decentralized nature of the blockchain currently does not fit with the regulation in many areas. For these points, blockchain technology could not only serve as a powerful solution for data privacy but also raise major concerns about the vulnerability of smart contracts and their alignment with regulation.

Final Words

Many years ago, digital currency (Cryptocurrency) was introduced and it is one of the great enhancements in the history of technology. As far as we know, every financial transaction throughout the globe additionally requires medium or Mid-man such as cloud storage and digital database system. Those are mainly intended for obtaining trust, providing medium services, and protecting of privacy from users. On the other hand, several disadvantages might be interfered such as the possibility of technical issues, the likelihood of being hacked, and a certain amount of service charges.

Cryptocurrency can help solve all the above-mentioned difficulties. Crypto cannot be counterfeited for false uses, doesn’t require a central authority, and is protected by strong, complex algorithms. This is quite interesting. How are the users going to trust the new currency and transactions without any Mid-Man or protected by big institutions? The answer is quite simple enough. It is blockchain technology.

Blockchain technology is widely applied not only in Cryptocurrency but also in other industries. Due to the systematic procedure of blockchain technology, many businesses and individuals prefer to apply for tracking the information about the assets’ history. There is also no reason to be doubted providing data privacy as the above-mentioned factors will assist in one way or another. Moreover, due to enhancing and modernizing the world we live in, there are many more factors and there will be more that support blockchain technology to preserve the highest secure data privacy to the users.