Blockchain Could Make You—Not Equifax—the Owner of Your Data

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Blockchain Could Make You—Not Equifax—the Owner of Your Data

Scammers, charlatans, and comedians have dragged blockchain technology through the mud in recent months. A prank cryptocurrency attracted large sums of actual money, a kleptocratic state planned an ICO, and an ice tea firm shifted its focus to bitcoin mining. (This will take around a minute.) Plunging bitcoin prices haven’t helped things in the aftermath of all this hoopla. It’s important to remind ourselves that, although not a panacea, blockchain technology is particularly effective at one thing: eliminating middlemen.

Consider bitcoin, the first token on the first blockchain, which provided consumers with an unprecedented third choice for transmitting money. Prior to the advent of bitcoin, you could either give over money in person or trust an intermediary, such as a bank, to do it on your behalf. With bitcoin, you can send money without using an intermediary. This is an unprecedented event in human history.

Aside from banks, the economy is full with intermediaries, but initiatives built on bitcoin’s primary invention, the blockchain, have the potential to challenge them as well. Consider data brokers. These are primarily esoteric, with names like Acxiom, DataLogix, Experian, Ameridex, and the now-famous Equifax. These companies either scrape or acquire customer data from public sources, such as bank transactions, social media activity, browser history, e-commerce purchases, and location data. (For example, here’s where PayPal customers’ info ends up.)

Brokers use this information to identify anything from interests to financial worthiness to addictions to sexual orientation. They sell it to advertising, credit card companies, potential employers, and anybody else who may be interested. As a result, each individual customer earns a great stream of rent for an industry that provides them with nothing in return. Equifax Inc. (EFX) profited $488.8 million in 2016, $3.36 for each of the 145.5 million victims of the September data hack.

Accounting for the number of industry players and the rapid growth in the amount of data users generate, Datawallet—more on them later—estimates that in 2022, roughly $7,600 worth of personal information will be bought and sold per person, a figure the firm’s founder and CEO SerafinLion Engel compares to a universal basic income.

It can only fulfill that goal if the money goes to the people who provide the value rather than to intermediaries. That is no longer the case. User data, dubbed the “new oil,” resembles the new guano more closely. For the majority of the nineteenth century, nitrogen-rich seabird feces were the most sought-after fertilizer on the planet. Guano, like data, was obtained by extraction rather than transaction. And, as with data, the seabirds that created it were never rewarded.

Users of digital services are considered more as clueless gulls who happen to expel an enormously productive resource than as proprietors of an asset they generate. Blockchain technology and associated cryptographic methods have the potential to alter this by giving us ownership over our personal data and allowing us to sell it to whoever we choose.

“You have the monopoly”

Datawallet is one of the firms attempting to effect this transformation. The program has largely attracted notice in the media as a means to make $5 or $10 per month by selling Facebook likes, Amazon purchases, Uber rides, and Airbnb excursions. Engel anticipates that early users will be college students “in it for the beer money.”

The capacity to manage what Engel calls a “self-sovereign wallet,” which makes the user the only owner of their data and the only one with the authority to allow access to it, is a more basic attraction of Datawallet. “You have the monopoly on that data about you,” Engel argues.

Datawallet is just one of several blockchain-based applications that attempt to eliminate data intermediaries wherever they may be found.

Medicalchain is handling medical records, providing consumers complete ownership over some of their most sensitive information while also avoiding the healthcare system’s antiquated infrastructure (like fax machines). Loomia is pursuing smart textiles, a market in which competitors are keen to collect and stockpile heart rates, geographical movements, and even more personal measurements (think smart mattresses).

Most of these efforts are in their early phases, but if they are successful, something new and somewhat bizarre may emerge: empty platforms, locations that promote data commerce but where no one party does the enabling. “We establish a central location that is decentralized,” says Henri Pihkala, creator and CEO of Streamr, a blockchain-based platform for live data streaming.

The tech: Keys, hashes, smart contracts

How exactly does it work? Although the specifics differ, Datawallet’s solution is broadly reflective of the technology that supports these decentralized networks.

Keys

Assume you wish to use Datawallet to sell some of your personal data, such as your Facebook activity or Amazon purchases. You and the buyer both have a public and private key. Public keys are used to encrypt a message, scrambling it so that it appears to everyone except the holder of the corresponding private key, who can then decode (unscramble) the message.

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To securely share private data, encrypt it using the purchaser’s public key and give the encrypted data to them. They decode the data using their private key. If a third party intercepts the data, all they get is an unintelligible jumble.

Hashes

Because the contents are both too huge and too sensitive to broadcast to the central ledger, Datawallet’s architecture places the data exchange off-chain (for Datawallet and most other projects, this ledger is the ethereum blockchain).Hashes of data are stored on the blockchain. You hash the data you’re selling and post the resulting hash to the chain, and the buyer hashes the data they get and publishes the resulting hash to the chain. If the hashes match, an escrow payment is released. (See also, Bitcoin vs. Ethereum: Different Goals.)

What are hashes and what do they do? They are cryptographic functions that allow for the rapid verification of the identity of two pieces of data.

They do this by condensing data into manageable chunks. SHA256, the hash method employed by bitcoin, returns 64 characters regardless of how short or lengthy the text is. For example, consider the opening scene of Hamlet:

91BBAB0B8C574E4071B6AB0458CB891BD01392D58CB7A6D43918DA95E30DC04D

If you have Hamlet’s text, you can rapidly confirm that it hasn’t been altered with – no need to pour over every jot and tittle. Simply hash your text and compare it to the hash of the purportedly similar text sent by the sender. (This also applies to online browser data and Amazon purchase history.)

Because hash functions are so fussy, the procedure is instant. Remove the exclamation mark from the first line of the scenario, and the hash becomes unrecognizable:

80DA6F89DDB7BD67BE5D30AE5EA6D74949C55719354D38D97C64DE5FE914029C

Because of this vulnerability to manipulation, hashing is crucial to bitcoin, ethereum, and its peers. Thousands of identical copies of a blockchain may be effectively maintained because hashes are used to compare them rather than laborious scans of each block. (Also see How Bitcoin Works.)

Because data cannot be unhashed, hashes are also valuable. No known technology can take 91BBAB0… and extract Shakespeare from it. Like a result, broadcasting a hash of sensitive information to the blockchain, as Datawallet does, is reasonably secure.

Blockchain and smart contracts

Although data exchange does not take place on-chain, the ledger is critical to decentralized data transmission. Blockchains are immutable public records that eliminate any uncertainty about what was exchanged, at what price, and when. Because the hashes broadcast to the blockchain either match or do not match, purchasers cannot claim they did not get data when they did. Nobody has to worry whether a hacker or spy interfered with the data in transit.

Brokers lose their raison d’être when there is no need for someone to mediate the trade. They are replaced by a huge number of (ideally) scattered, competitive, and mutually suspicious “miners” who record transactions on the ledger. (For more information, see How Does Bitcoin Mining Work?)

Miners also eliminate the necessity for a bank: the primary use of blockchain technology has always been as a distributed money transfer platform. Finally, ethereum allows for the enforcement of sophisticated contracts using the same distributed network of miners. You may have halted when you read the phrase “money held in escrow” above. Who is keeping the money when it moves between buyer and seller?

It turns out that no one. Ethereum took bitcoin’s decentralized money and turned it into programmable money through smart contracts, which are self-executing pieces of code that exist on the blockchain. If all of the hashes match and all of the other pre-agreed-upon requirements are satisfied, the money is transferred automatically from the buyer’s account to the seller’s. There is no requirement for a dependable intermediary.

Blockchain has problems aplenty

As promising as this technology seems to be, not all of the wrinkles have been ironed out. Some will never be. Begin with scalability.

Expensive and slow

Blockchains are hulking, lumbering behemoths. When compared to the present centralized networks, distributed consensus is sluggish and expensive, so how can blockchain technology compete in a user data market that, for all its shadiness, at least works at scale?

Datawallet avoids the issue by sending data off-chain. On-chain transfers of data troves including films and other huge files, according to Engel, “would quickly break the ethereum network.” In any event, no one would want such information published to a public ledger.

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Medicalchain leaves patients’ health records on regulatory-compliant servers in their local country. It merely offers a platform for people to authorize physicians to access their medical information. (See also, Blockchain Technology Has the Potential to Revolutionize Health Care.)

Some initiatives are attempting to scale through modifying the structure of dispersed networks. To distribute tasks, Streamr uses a “reputation mechanism” called karma with its blockchain-based currency, DATAcoin. “We need to give asymmetric roles to various nodes,” Pihkala explains, “or else we wind up with a scenario that is characteristic of current-day blockchains, which is that all of the data gets to all of the nodes, resulting in no scalability.” The nodes place a DATAcoin stake, which they forfeit if they violate the regulations. Meanwhile, Karma gives more responsibility to the most dependable nodes, enhancing efficiency without surrendering too much decentralization.

Kochava is using similar concepts to an in-house blockchain it is developing to eliminate opacity and fraud in digital advertising. To manage the massive amount of transactions required for digital ad distribution, the platform, known as XCHNG, employs a reputation system and a severe kind of pruning in which most nodes only save a day’s worth of ledger history. Charles Manning, the creator and CEO of Kochava, thinks the platform could handle millions of transactions per second. Ethereum can handle around 15, but bitcoin can only handle a handful. (Also see, What Is the Bitcoin Scalability Debate?)

Where do you store it?

Every blockchain application confronts storage issues. Although monetary transactions and smart contracts are completely decentralized, the data itself is either stored on centralized servers, like in Medicalchain (for regulatory reasons, to be fair), or on users’ own storage-constrained devices, as in Datawallet.

IPFS, BigchainDB, and Storj are among the initiatives attempting to provide decentralized storage. Engel, Pihkala, and Loomia CEO Janett Liriano all discuss intentions to link their systems with one or both of these firms.

You still give up your data

The pursuit of personal data ownership comes to an end at some time. It is possible to encrypt it. You may send it directly, bypassing middlemen and keeping it encrypted in transit. You may guarantee that the buyer will pay the agreed-upon price upon delivery.

But, as Guy Zyskind (co-founder and CEO of Enigma) puts it, no technical trickery can overcome the reality that once the buyer gets your data, “You’re finished. They may take your data, duplicate it, go off-chain, and that’s the end of it.” Rogue personnel, inept anti-hacking protections, resale – the unpleasant possibilities abound.

However, Zyskind claims that you may make your data accessible for use without really disclosing it. His business is developing a platform that allows data to be not only stored in an encrypted, distributed form, but also calculated over while remaining in that encrypted, distributed form, using a technology known as secure multiparty computing.

It is feasible to keep your data private while also decentralizing it across several devices using IPFS, Storj, or BigchainDB. However, in order to do anything with that data, like as put it through an algorithm or alter it, it must be decrypted and re-centralized. A credit rating agency, for example, need complete access and visibility in order to determine your creditworthiness.

These computations may be conducted using Enigma without any Equifaxes ever seeing your encrypted financial data. They would not even have access to the whole collection of encrypted data since it would be distributed across several network nodes.

Enigma is developing “secret contracts,” smart contracts that conceal their terms and participants, based on this ability. Enigma intends to start with ethereum, but Zyskind adds that in the end, “we want to be able to complement essentially any blockchain with the anonymity our technology delivers.” (Also see Understanding Smart Contracts.)

Beating the brokers

Despite their promise, none of these programs can prevent a data broker from stealing your personal information. They can only compete by presenting a superior product in the eyes of the data’s final purchasers. Do they have a chance?

Engel is convinced that customers who have complete control over their data would drive data brokers out of the market since, despite their “creepiness,” these companies aren’t very successful at data collection. “The data points that are really set to publicly accessible, which may subsequently be scraped by a broker, only account for around 10% of the data a user provides,” he explains. “Rich information, such as likes, postings, check-ins, or whatever it is, is not permitted.”

It is also difficult to appropriately allocate data from various sources to particular persons. According to Engel, cookie matching based on device IDs has a 2.9% success rate, thus “even if you have data on your consumers in the form of cookies, you will still be squandering 97.1% of your ad expenditure on individuals who are not truly interested in your product.” Only “very probabilistic and extremely experimental” strategies are available in the business to extract true information about a consumer’s preferences from data that has a very little possibility of being theirs.

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When a consumer can simply sell their data, there is no question as to which bytes belong to whom, and the resulting picture can be incredibly rich: not just a website visit tentatively paired with a Facebook like, but an actual, “completely deterministic” web of purchases, browsing patterns, and social media activity.

If you’re an advertiser, which do you choose?

What about the platforms?

We’re still ignoring the five elephants in the room. Facebook Inc. (FB), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG, GOOGL), Apple Inc. (AAPL), and Netflix Inc. (NFLX) are all interested in your user data. They also have influence over the platforms on which you create it. All of this rhetoric about owning your Facebook likes, Amazon purchases, and Google searches glosses over the reality that the businesses already possess that data. (See also: Why FANG Stocks Will Dominate in the Long Run.)

Pihkala underlines the threat that a global, decentralized data marketplace – a “eBay for data streams” – may pose to this approach. To put it another way, to defeat the platforms at their own game. “Right now, data is often housed in silos or by large organizations,” he explains. “It is underused.”

Perhaps, but the danger that blockchain and other cryptographic approaches pose to data brokers is much more obvious and urgent than the harm they represent to platforms.

However, Liriano exposes an unexpected reality regarding the smart textile sector. Loomia is developing an app that will enable users to send data from sensors in the company’s smart textile product, Tile, to clothing businesses. When she told apparel companies like LLBean that they “weren’t going to own all the data,” she anticipated significant opposition. However, “they absolutely understood,” as it turned out.

The corporations reasoned that owning all of the user data would be too costly. It would be a security concern and would annoy customers. What’s more intriguing is that they informed Liriano, “In any case, I’m interested in my competitor’s information. How beneficial is it to me if you simply create it for me if I have no idea what this competition is doing? The advantage of this is that soon everyone will be on it, right?”

(In addition, Liriano makes the unusual comment that consumers may not wish to sell their data.) Loomia’s technology would enable Tile data to stay unreachable. Don’t expect that to catch on.)

The Facebooks and Googles of the world plainly do not share the garment industry’s aversion to owning user data. However, the platforms may be enticed by the possibility of gaining insights from each other’s data. None of them have direct competition, but Amazon could surely benefit from Google’s, Facebook’s, Netflix’s, and so on. Perhaps, in a future of data markets and unmediated data interchange, platforms will be convinced that allowing users to own their own data is in everyone’s best interests. Perhaps the state will assist in convincing.

It’s difficult to say. In the short run, intermediaries and data brokers seem vulnerable. In October, former Equifax CEO Richard Smith went before the House of Representatives, and Rep. Doris Matsui (D-Calif.) questioned him, “Do I own my data?” Smith had no good answer. The solution may become evident in the near future, thanks to blockchain and other cryptographic technologies: continual, creepy data scraping and the rare catastrophic breach may become a distant memory.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author does not have any cryptocurrencies as of the day this post was published. He does have stock in Netflix Inc. and Apple Inc.

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