By: Karla Valdés Posada – Miranda Compliance
In this week’s Compliance blog, we will talk about an issue of serious concern to society: data privacy. To demonstrate this, I will use the case of the Facebook cryptocurrency that was originally named Libra and is now called Diem. This topic has covers many issues and angles of information security, economics, finance, and even politics, for now we will focus on the data privacy that Diem will offer to its users.
What is Diem?
Diem is a stablecoin, which is a new class of cryptocurrency that attempts to offer price stability and is backed by a reserve asset. Diem will operate through an international payment system (blockchain), using a financial infrastructure that aims to empower billions of people around the world to conduct business transactions.
What guarantees the privacy of my data?
According to Diem’s website, one of their main priorities is information security. They will have a system to ensure compliance with relevant laws and regulations. Due to integrated protection measures, individuals and businesses can trust the security and integrity of Diem’s payment system.
We know that data privacy regulations are different in each country, therefore the system that they use to guarantee information security will be presented with a big challenge to meet the compliance regulations of all the countries where Diem operates.
The impact that a cryptocurrency, which is controled by a social media network that has a history of questionable practices (see Cambridge Analytica scandal), can have when it comes to privacy is concerning even to the United States House Committee on Financial Services, who called on Facebook to delay the launch of Diem until risk assessments can be carried out and all security concerns can be addressed. Similarly, regulators in countries such as Switzerland and Singapore have also requested the social network to be clearer about its privacy policy.
In contrast, there are internal and external factors, where people within the association that supports Diem could misuse, share, or sell information, or the Diem system could be compromised by hackers. Another aspect that raises concern, is how Facebook plans to protect private keys to keep the blockchain secure. If hackers got access to those keys, they could gain undetected access to users’ identities.
These are risks that Diem and those who run it must constantly mitigate and evaluate, because if something similar to Cambridge Analytica happens, it would be extremely harmful to their reputation.
What kind of information will Diem have?
Diem will safeguard very valuable information, for example: the type of payments executed, to whom they are sent, how often, consumer habits, social profiles, economic activity, behaviors, etc. This is just some of the data in this blockchain, and by connecting the data points together it is possible to misuse information for political and commercial purposes.
If Diem manages to become a viable currency for e-commerce, the amount of data stored with each transaction would create “big data”, which financial companies, retailers, and others could be potential interested in for tailored marketing.
In my opinion, Mark Zuckerberg’s original intention was praiseworthy. He communicated to the United States Congress that the objective of Diem was to create a solution to the fact that one billion people worldwide do not have access to a bank account. It must be taken into account that this cryptocurrency needs to be subject to data privacy regulations, “know you customer” guidelines, and financial crime compliance rules, because the identity of the final recipient could be hidden, which would completely weaken the main objective and mission of Diem.
I believe that Diem has the ability to give even more privacy to users than many of the current payment systems (because it is a blockchain), this is one of its main technological advantages and has the potential to become the currency of the future.
References:
Cambridge Analytica. https://www.bbc.com/mundo/noticias-43472797Enlaces a un sitio externo.
Privacy Concerns de https://www.identitymanagementinstitute.org/facebook-libra-cryptocurrency-raises-privacy-concerns/ (Enlaces a un sitio externo.)
