Balancing Security and Privacy in Blockchain

Balancing Security and Privacy in Blockchain


Research suggests that blockchain technology is going to grow at a CAGR of 68.4% by 2026 which will make it a USD 67.4 billion industry. The demand for blockchain-based products is clearly surging all over the world. Companies across the verticals are focusing now on building enterprise-grade blockchain solutions for their businesses. As a result, the number of blockchain-based applications is increasing and concerns about data privacy and security also rising. The world is transiting from the web2 to the web3 and during this transition data security and information privacy of individuals, companies, and businesses are of utmost importance.

For protecting blockchain applications, security measures must be taken to avoid unauthorized access, theft, and malicious activities. To maintain the integrity of the network and data tampering various techniques such as cryptographic algorithms, security protocols, and consensus mechanisms are applied alongside vulnerability management, security audits, penetration testing, etc. Data protection is equally important in a decentralized environment, there are concerns regarding the privacy of personal information on the blockchain network. Blockchain technology promotes data security and privacy, and in this article, we will see how blockchain technology can team up with other deep techs and balance the security and privacy of the data.

Decentralization can provide more control over data, reduce data sharing, and restore independence. These factors can maximize blockchain's potential while protecting privacy and security.


The decentralized and transparent nature of blockchain can challenge the protection of sensitive information. Data encryption in the blockchain is done by transforming the original data into an encrypted form using a cryptographic algorithm. The encrypted data is then stored on the blockchain network, and can only be decrypted by someone who has access to the encryption key. There are several encryption algorithms that can be used for data encryption in blockchain, including:

  • Symmetric encryption: In symmetric encryption, the same key is used for both encrypting and decrypting the data.
  • Asymmetric encryption: In asymmetric encryption, a public key is used to encrypt the data and a private key is used to decrypt it.
  • Hash functions: Hash functions are used to encrypt data and verify its integrity on the blockchain.

The specific encryption algorithm used depends on the requirements of the blockchain application, such as the level of security needed and the computational resources available. Regardless of the encryption algorithm used, it is important to follow best practices for key management and regularly update encryption algorithms to ensure the security of encrypted data stored on the blockchain. But again algorithm updates can cause backward compatibility issues so they can not be updated after implementation. Updating an algorithm is a costly exercise and performed only if it is very critical.


By tokenizing sensitive data, organizations can reduce the risk of data breaches and theft while still being able to use the data for various transactions and operations on the blockchain. Tokenization converts sensitive data, such as personal identification numbers, credit card information, or asset ownership records, into a unique digital representation called a token. The original sensitive data is replaced with a unique identifier and the token can be used instead of the original data for various transactions and operations on the blockchain. Tokenization has several benefits for securing data on the blockchain,

  • Data privacy: Tokenization protects the privacy of sensitive data by replacing it with a unique identifier that is not directly linked to the original information.
  • Improved security: Tokens can be encrypted and stored on the blockchain, which makes it difficult for unauthorized individuals to access the original data.
  • Compliance: Tokenization can help organizations comply with data protection regulations, such as GDPR and HIPAA, by reducing the amount of sensitive data that is stored and processed.

AI and ML technologies

To improve the security and privacy of data stored and processed on blockchain networks AI and ML technologies can be utilized. There are several ways these technologies can be amalgamated with blockchain for this purpose,

  • Anomaly detection: AI and ML algorithms could be used to detect unusual behavior or anomalies in blockchain transactions and alert administrators to potential security threats.
  • Fraud detection: AI and ML algorithms could be trained to identify patterns of fraudulent behavior in blockchain transactions and flag them for review.
  • Privacy preservation: AI and ML algorithms can be used to anonymize data stored on the blockchain and protect the privacy of users.
  • Key management: AI and ML algorithms could be used to improve the security of private keys used for accessing and managing blockchain assets.
  • Data encryption: AI and ML algorithms could be used to improve the efficiency and security of data encryption and decryption algorithms used in blockchain applications.

However, the security of AI and ML algorithms themselves can also be a concern and should be thoroughly evaluated before deployment.

Multi-factor authentication

Multi-factor authentication ensures that only authorized individuals have access to the data stored on a blockchain network and reduces the risk of data breaches. It is important to note that the specific multi-function authentication method used depends on the requirements of the blockchain application and the level of security desired. There are multiple ways of verification that can be implemented before granting access to data stored on the blockchain network. Multi-factor authentication works as an additional layer of security and it can be performed in multiple ways,

  • Combination of password and biometric authentication: This involves verifying the user's identity using both a password and biometric factors, such as a fingerprint or facial recognition.
  • Combination of password and device authentication: This involves verifying the user's identity using both a password and a device, such as a smartphone, that has been previously registered and approved.
  • Combination of password and one-time codes: This involves verifying the user's identity using a password and a one-time code sent to the user's email or mobile device.

Identity and access management

Implementing Identity and access management for blockchain applications helps in ensuring data security and privacy. This only allows authorized individuals to access the data stored on the blockchain network. Identity management is required for verifying the identities of individuals or groups of network users that interact on a blockchain network. This could be achieved by a digital signature, public key infrastructure, or any other verification method.

Along with this access management should be well defined for giving access to the data stored on the blockchain network and what actions they can perform. This could be done through the use of permissions, roles, and access control lists.

Constant auditing and on-chain monitoring of blockchain can help in tracking application performance and identifying any potential security threats. This could also help in monitoring compliance requirements, vulnerabilities, gas optimization, and data protection on the blockchain network.

Final thoughts

Data privacy and security are quintessential features of blockchain technology. Implementing best practices for data protection and privacy should be the top priority for any organization planning to implement blockchain technology. Security and privacy of data on a blockchain network ultimately depend on the security of the underlying infrastructure and the implementation of these measures. Blockchains are decentralized networks where data is stored and processed across multiple nodes. Data on the blockchain is immutable in nature so it can not be altered hence accuracy and security of information are very important. Since for network access and performing transactions on the blockchain, sensitive personal identification information is stored, the privacy of this information is critical for any organization. Also for compliance requirements of GDPR and other standard policies in many countries, these best practices should be implemented. Data privacy and security are critical considerations in a blockchain environment and we at BlockChainSentry are experts in providing solutions for the cyber security of blockchain applications and designing secured decentralised applications.