East and West: Blockchain and Compliance Strategies October 15, 2019 - - PowerPoint PPT Presentation

October 15, 2019

Privacy + Security Forum

East and West: Blockchain and Compliance Strategies

2

What is the Internet?

Part 1: Demographics of Economic Growth – the Millennials

4

Dad – What is this?

5

Generational Gap – Views of Bitcoin Jamie Dimon, CEO of JPMorgan

Bitcoin is a “fraud” which is “worse than tulip bulbs, it won't end well” and that any JPMorgan “trader trading bitcoin” will be “fired for being stupid.”

“ “

My daughter bought bitcoin, it went up and she thinks she’s a genius.

“ “

Source: CNBC (Sep 2017), “JP Morgan CEO Jamie Dimon says bitcoin is a ‘fraud’ that will eventually blow up,” https://www.cnbc.com/2017/09/12/jpmorgan-ceo-jamie-dimon-raises-flag-on-trading-revenue-sees-20-percent-fall-for- the-third-quarter.html

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Millennials – 43% of World Adults

Source: Fundstrat, United Nations. Bloomberg

• Born between 1981-2000 and larger than Baby Boomer generation
• With a 10X increase in bitcoin wallets, 20% could own crypto assets
• Will have largest economic impact in our global economy through investment of digital assets

Total World Population divided by age groups

20% Own Crypto Assets 2.5 billion Global Millennials



Gold Equities Hedge Funds Digital Assets

7

Facebook Study – Millennials View of Financial Institutions

• Only 8% of Millennials Trust Financial Institutions
• Shaped by 2008 Financial Crisis

In 2016, Facebook IQ, a team of researchers, scientists and analysts funded and supported by Facebook Inc., published a white paper entitled “Millennials + Money: The Unfiltered Journey” to evaluate the beliefs and thoughts of today’s youth on traditional banking and financial systems.

Source: Facebook (Jan 2016), Millennials and Money: The Unfiltered Journey, https://www.facebook.com/business/ news/insights/millennials-money-the-unfiltered-journey#Infographic:-Millennials-and-money

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Digital Generation – Today’s Innovation

Innovations seen when each generation was in their 20s

General sources. Wired Magazine.

• Each generation is also characterized by innovations that differentiate that generation from prior

generations

• As shown below, what differentiates the millennial experience (in their 20s) is the growth of social media

and digital businesses. Notably, blockchain is the newest innovation.

Each generation sees innovations… its mostly digital today

Source: Fundstrat. Wired (Feb 2015), “How Millennials are Changing Product Development for Good,” https://www.wired.com/insights/2015/02/millennials-changing-product-development/.

Millennials in their 20s

2000s~now

GenX in their 20s

1990s~2000s

Baby Boomers in their 20s

1970s~1980s

Disruptive and misunderstood by prior generation

Part 2: Does Blockchain Matter?

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What is the Blockchain?

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McKinsey Study – Most Disruptive Tech Since Internet

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U.S. Federal Reserve St. Louis – Important Asset Class

13

Blockchain and Cryptocurrency – Why this Matters Blockchain

Major technological shift Disruptors today will become the “new normal”

1

+ Cryptocurrency

B

Intermediary services (e.g., financial) less expensive

2

Potential applications of blockchain – limitless

3

14

Bitcoin Transaction Facts

Bitcoin Onchain: US$1.3 trillion year

More than 2X Paypal 7X of Discover May surpass Visa/Master Card

• BitMex: US$1.2 billion of net income (3rd most profitable exchange in the world)

Nasdaq: US$700 million of net income CBOE: US$500 million of net income BitMex is making more than those 2 combined

Source: Fundstrat. Live Coin Watch (Aug 2018), “Bitcoin Network Processes $1.3T Annually, Surpasses Paypal’s Transaction Value,” https://news.livecoinwatch.com/bitcoin-network-paypal-transactional-value/.

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New Market Opportunities

• Average person 3.5 weeks a year the privilege of using the financial

system (credit card processing, insurance, loans – knows your credit scores

and financial records generally)

 Makes US$860-1,000 per year for each user

• Facebook (knows more about you than any company in the world)

 Makes US$7 per year for each user

• Technology companies are targeting the banking industry

 5 banks control half assets of the US market  3 banks typically control 70% of the market  This is the market opportunity

Source: Fundstrat

16

What’s in the Future – Let’s Look at the Past

1876 1903 1921 1946 1992 2019

Telephone Bitcoin/ Blockchain Radio Television Smart Phone Car

B

“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.”

• William Orton, President of Western Union.

“The horse is here to stay but the automobile is only a novelty — a fad.”

• President of the Michigan Savings Bank advising Henry Ford’s lawyer, Horace Rackham,

not to invest in the Ford Motor Company.

“The wireless music box has no imaginable commercial value. Who would pay for a message sent to no one in particular?”

• Associates of David Sarnoff (pioneer of radio) responding to the latter’s call for investment

in the radio.

“Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

• Darryl Zanuck, film producer, co-founder of 20th Century Fox.

“The idea of a personal communicator in every pocket is a “pipe dream driven by greed.”

• Andy Grove, then CEO of Intel.

WHAT WILL WE SAY?

Source: Medium blog post (Jan 2017), “The absolute worst technology predictions of the past 150 years,” https://medium.freecodecamp.org/worst-tech-predictions-of-the-past-100-years-c18654211375

Part 3: Privacy and Blockchain

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Global Privacy Law Map

HEAVY ROBUST LIMITED MODERATE REGULATION & ENFORCEMENT Source: DLA Piper website

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Key Definitions: Personal Data

Korea

Personal data

• Information pertaining to a living individual (e.g., name, address

and images) that can be used to identify that individual either

• n its own or when easily combined with other information

Is part of a cell phone number personal information?

(Daejeon District Court Nonsan Branch Decision No. 2013Godan17 rendered on August 9, 2013) “… There are cases where the last 4 digits of a cell phone number are sufficient to identify the user… Even if the last 4 digits cannot identify the user, such 4 digits, easily combined with other information (aforementioned date of birth, date of anniversary, home phone number, family phone number, phone call records, etc.) that are related to the last 4 digits, can identify the user… Therefore, the information in the present case, which the defendant provided to XX Yoon… constitutes personal information under Article 2, Item 1 of PIPA”

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Key Definitions: Data Controller/Data Processor Processor

Korea

Data controller (Personal information controller)

• Public institution, legal person, organization, individual, etc. that

processes personal information directly or indirectly to operate the personal information files for its own business purposes

Data processor

• Person or entity who is delegated to process personal

information on behalf of the personal information controller

Who is the data controller and data processor in Korea?

• Many multinational hotel chains (e.g., Marriott, Hyatt, Hilton, etc.) franchise their brand to Korean entities that
• wn the building
• Multinational hotel chains collect personal data (i.e., guest information) from globally, including Korea, and

centrally process overseas

• Who is the data controller and data processor under Korean law?
• In most cases, the data controller is the Korean entity and the data processor is the multinational hotel

chain  operate the personal information files for its own business purpose (e.g., processing guests)

21

Public Key

Blockchains Basic Definitions

• Comparable to email address
• Every transaction published and

linked to a psuedonoymized hash

• Encrypted and represents a

particular user

• Can be re-used
• Likely qualify as “personal data”
• Comparable to a password
• Known only to user
• Provides access to the bitcoins
• Likely qualify as “personal data”

Private Key

B

Private Key: 18e14a7b6a307f426a94f8114701e7c8e774e7f9a47 e2c2035db29a206321725 Public Key: 0250863ad64a87ae8a2fe83c1af1a8403cb53f53e486 d8511dad8a04887e5b2352

22

B

Blockchain Principles

Transparency: Information transitioning though blockchain is visible to every node

1

Immutability: Information cannot be removed in a blockchain

2

23

Consent?

Blockchain Data Protection Issues

• Erasure is technically impossible due to system design

Right to erasure Rectify personal data Accessibility - Everyone has it B

• Changes or undoing of transactions are impossible unless

counterparty cooperates

• Counterparty identity can be unknown
• Anyone can see the transactions and amount held by each

user’s public key through the internet

• Who do we give it to?
• How do we withdrawal?

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Who is the Data Controller?

• Blockchain transactions are written by the

data subjects themselves

• May involve multiple data controller

around the world

• Operated by all its users in a peer-to-peer

network environment

• Applicable law may have to analyzed on a

transaction basis

B Possible candidates

 Foundation?  Validating nodes or participating nodes?  Network users?

Part 4: Blockchain Compliance

26

Public Key

Blockchains Basic Definitions

• Comparable to email address
• Every transaction published and

linked to a psuedonoymized hash

• Encrypted and represents a

particular user

• Can be re-used
• Likely qualify as “personal data”
• Comparable to a password
• Known only to user
• Provides access to the bitcoins
• Likely qualify as “personal data”

Private Key

B

Private Key: 18e14a7b6a307f426a94f8114701e7c8e774e7f9a47 e2c2035db29a206321725 Public Key: 0250863ad64a87ae8a2fe83c1af1a8403cb53f53e486 d8511dad8a04887e5b2352

27

B

Blockchain Principles

Transparency: Information transitioning though blockchain is visible to every node

1

Immutability: Information cannot be removed in a blockchain

2

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Can There be a Privacy Law Compliant Blockchain?

• Privacy compliance is not about the

technology, but how technology is used

• There is no such thing as a privacy law

compliant blockchain technology, but only compliant use cases and application

B

29

Blockchain and Current Laws

B

 Purpose of blockchain is take out the middle party (i.e., data controller)  Trend to integrate with existing laws (e.g., FATF AML)

Centralized Model

Fitting a square peg in a round hole Current data protection laws

based on a centralized model – whereas blockchain is a decentralized model

Decentralized Model

30

• Public network (public good)

– similar to using internet

• Unlikely a data controller in

the traditional sense – rather a “peer-to-peer” system

• Likely data controller is “you”

Compliance Strategy

 Similar role as banks  Where traditional privacy laws apply

Key risk for businesses are “wallets”

Case study

31

• You are the controller of data

security and not a third party

• Data subjects can be paid for their
• wn data
• Data subject can have full control
• f their data on the blockchain –

smart contracts

Limit access / Time cut off

Future of Blockchain Privacy Case study

Autonomy by Data Subject ▶▶

samuel.yim@kimchang.com +82-2-3703-1543

Samuel Yim

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