Privacy Audit W3PN

Introduction

This concept is designed to provide a privacy audit process for both traditional and blockchain-based systems. It combines standard privacy principles with blockchain-specific considerations. We're building this system with the peers of Web3PrivacyNow, providing an open-source checklis. Alongside providing the service to members and future partners to verify their privacy measures.

It's one to publicly stand for privacy, it's another to proof it. This is where the audit comes in.

How to read this concept

We're following a step by step approach, each individual requirement creating the required base for the next one. As the checklist itself (under point 6), itself does not tell much without the required context, nor is it it valuable without the future analysis of the results of this checklist.

1. Context Establishment

We kick things of by defining under which context the audit will find place. It's important to be mindful of not only the local regulations on which their HQ is based. But just as much the regulations and indsutry practices of the regions and countries they are based.

• Identify applicable laws and regulations (e.g., GDPR, CCPA, blockchain-specific regulations)
• Determine the scope: data sharing, smart contract interactions, on-chain vs. off-chain data, cookies, web bugs, trackers, KYC document storage, etc.
• Define self-reporting behaviors and policies (e.g., Data Protection Officer, breach notification procedures)

2. Audit Scope

Once we have established the required context, we get more practical with the audit scope setup. We go from theorizing to obtaining data from the relevant stakeholders and public documents.

• Gather relevant documentation:
  • Technical documentation
  • Privacy policies
  • Smart contract code
  • Node operation guidelines
  • Third-party vendor lists
  • Application code
  • Server setup
  • …
• Setup communicationlines with key stakeholders:
  • Data Protection Officer(s)
  • Blockchain developers
  • Node operators
  • Compliance team
  • KYC data handlers

3. Information Collection

Once we have gathered all the relevant data, we dive deep into their documents, using our privacy checklist as the guiding principle to obtain answers, or note lack of answers.

• Analyze data flows, including on-chain data and off-chain supporting infrastructure
• Research tools and third parties involved in data processing and the blockchain ecosystem
• Gather information on data storage practices (traditional databases, on-chain, off-chain, and hybrid approaches)
• Assess data retention policies and practices
• Apply analytics to track data movement
• Gather information on data storages

4. Analysis

Now we analyse this information, to create a report on which we can publish those findings with the audit requester.

• Verify that data usage aligns with stated privacy policies
• Analyze network traffic for both traditional systems and blockchain nodes
• Assess smart contract interactions and data access patterns
• Evaluate the use of privacy-enhancing technologies
• Utilize tools for real-time verification ex;
  • For Android apps: https://github.com/exodus-privacy/exodus
  • For general internet traffic: https://www.wireshark.org/

5. Risk Identification

• Identify potential compliance gaps
• Assess risks related to:
  • Data collection, processing, and storage practices
  • On-chain data permanence
  • Transaction linkability and deanonymization
  • Smart contract vulnerabilities
  • Cryptographic weaknesses
  • Governance and upgrade mechanisms
  • Third-party data sharing
  • Employee access and training

6. Recommendations and Action Plan

• Develop specific recommendations based on identified risks and gaps from both general and blockchain-specific checklists
• Create a prioritized action plan addressing both traditional privacy concerns and blockchain-specific issues
• Suggest implementation of privacy-enhancing technologies where appropriate, considering both general and blockchain contexts
• Examples of recommendations:
  • Implement data minimization techniques for on-chain data
  • Enhance user control over personal data with improved consent mechanisms
  • Upgrade smart contracts to include privacy-preserving features
  • Improve employee training on both general and blockchain-specific privacy issues

7. Reporting

• Compile findings into a comprehensive report covering both general privacy and blockchain-specific issues
• Include technical details for developers and simplified explanations for non-technical stakeholders
• Provide ongoing monitoring and update recommendations for both general and blockchain-specific privacy concerns
• Consider including:
  • Executive summary
  • Detailed findings and risk assessment
  • Compliance status with relevant regulations
  • Actionable recommendations with prioritization
  • Technical appendices for in-depth explanations

8. Continuous Improvement

• Establish a process for regular privacy audits (e.g., annually or bi-annually)
• Set up mechanisms for continuous monitoring of privacy practices
• Stay informed about evolving privacy regulations and blockchain technologies
• Regularly update the audit framework to reflect new privacy challenges and best practices

Checklist

1.1 Data Collection and Processing

• What types of personal data are collected (both off-chain and on-chain)?
• Is the collection of each data point necessary and justified?
• How is data collected? (e.g., forms, cookies, logs, third-party sources, blockchain transactions)
• Is there a clear and accessible privacy policy?
• Are data subjects informed about the collection and its purposes?
• Is consent obtained where necessary, and is it specific and informed for both off-chain and on-chain data processing?
• Are there mechanisms in place to minimize on-chain data storage?
• How is data collected through smart contract interactions handled and processed?

1.2 Data Storage and Security

• Where and how is personal data stored (including on-chain, off-chain, and hybrid approaches)?
• What security measures are in place to protect the data in all storage locations?
• Is data encrypted at rest and in transit?
• Are there access controls and authentication mechanisms in place for both traditional systems and blockchain nodes?
• Is there a data retention policy is it enforced?
• Are there procedures for secure data destruction or obfuscation, considering the immutability of blockchain data?
• How is off-chain data secured and linked to on-chain identifiers?
• What measures are in place to protect private keys and other cryptographic materials?

1.2 Data Sharing and Third Parties

• Is personal data shared with third parties? If so, with whom and for what purposes?
• Are there data processing agreements in place with third parties, including smart contract interactions?
• How is data protected during transfer to third parties?
• Is there a process for vetting and auditing third-party data handlers?
• How is privacy maintained in cross-chain transactions or data sharing?

1.3 User Rights and Control

• Can users access their personal data easily?
• Is there a process for users to request data correction or deletion?
• Can users opt-out of certain data processing activities?
• How are data subject requests handled and tracked across all systems?
• Are there options for users to participate in the network without revealing personal information?

1.4 Data Breach Response

• Is there a data breach response plan in place?
• Are there procedures for detecting and reporting breaches, including smart contract vulnerabilities?
• Is there a process for notifying affected individuals and authorities in case of a breach?
• Are post-breach reviews conducted to prevent future incidents?

1.5 Employee Training and Awareness

• Are employees trained on privacy policies and procedures, including blockchain-specific privacy considerations?
• Is there regular privacy awareness training that covers both traditional and blockchain-related privacy issues?
• Are there consequences for privacy policy violations by employees?
• Do developers receive specialized training on privacy-preserving development practices?

1.6 Special Categories of Data

• Is any sensitive data (e.g., KYC, health, biometric, financial) collected or processed?
• Are there additional safeguards in place for sensitive data across all systems?
• Is the processing of sensitive data compliant with relevant regulations, considering both traditional and blockchain contexts?
• Are there specific measures to protect sensitive data in smart contract interactions?

1.7 International Data Transfers

• Are there any cross-border data transfers?
• What mechanisms are in place to ensure compliance with international data transfer regulations for both traditional and blockchain-based transfers?
• Are data subjects informed about international transfers, including those inherent in blockchain operations?
• How is compliance ensured when node operators are located in different jurisdictions?

1.8 Privacy by Design and Default

• Is privacy considered in the early stages of product/service development, including blockchain implementations?
• Are data minimization principles applied across all systems?
• Are privacy-enhancing technologies utilized where appropriate, including blockchain-specific solutions (e.g., zero-knowledge proofs, ring signatures)?
• How is privacy incorporated into the design of smart contracts and decentralized applications (dApps)?

1.9 Ongoing Compliance and Monitoring

• Is there a process for staying updated on privacy laws and regulations?
• Are regular privacy impact assessments conducted?
• Is there a system for monitoring and auditing privacy practices across all platforms?

Blockchain-Specific Privacy Considerations

2.1 Smart Contracts

• Do smart contracts handle personal ?
• Are there privacy-preserving computation methods implemented (e.g., ZKPs, MPC)?
• How are smart contract upgrades managed to address privacy concerns?
• Is there a process for auditing smart contracts for privacy vulnerabilities?
• How is data access controlled within smart contracts?

2.2 Node Operations

• What data is collected and stored by nodes?
• How is node communication secured?
• Are there privacy-preserving networking protocols in use (e.g., Tor, I2P)?
• How are node operators vetted and monitored for compliance with privacy standards?
• What measures are in place to prevent deanonymization through network analysis?

2.3 Blockchain-Specific User Identity and Authentication

• How are user identities managed on the blockchain?
• What KYC/AML processes are in place, and how is this data handled in the blockchain context?
• Are there decentralized identity solutions implemented?
• How is the principle of pseudonymity balanced with regulatory requirements?
• What measures are in place to prevent the linking of multiple addresses to a single identity?

2.4 Cross-chain Interactions

• How is privacy maintained in cross-chain transactions or data sharing?
• Are there privacy risks in bridge protocols or layer-2 solutions?
• What measures are in place to ensure consistent privacy standards across different chains?
• How are privacy policies communicated and enforced in cross-chain operations?

2.5 Blockchain Governance and Transparency

• How are privacy-related decisions made in the blockchain ecosystem?
• Is there transparency in the handling of privacy issues and upgrades specific to the blockchain implementation?
• How are conflicts between transparency and privacy resolved in the governance process?
• What role do token holders or other stakeholders play in privacy-related decision making?
• How are privacy considerations incorporated into the consensus mechanism?

2.6 Scalability and Privacy

• How do scalability solutions (e.g., sharding, sidechains) impact privacy?
• Are there trade-offs between transaction throughput and privacy preservation?
• How is data privacy maintained in layer-2 scaling solutions?

2.7 Interoperability and Privacy

• How is privacy preserved when interacting with traditional financial systems or other blockchains?
• What standards or protocols are used to ensure privacy in interoperable systems?
• How are privacy policies aligned across different interoperable platforms?