Ethereum’s evolving ecosystem is taking significant steps to address increasing concerns over data privacy, proposing a novel approach that could reconcile public blockchain principles with stringent European Union data protection regulations.

 Ethereum community member Eugenio Reggianini unveiled a new privacy proposal that suggests using a modular design architecture combined with privacy-enhancing technologies (PETs) to ensure compliance with the EU’s General Data Protection Regulation (GDPR). The proposal seeks to balance the demands of decentralization with the legal necessity of protecting user data on a permissionless blockchain.

The Privacy Challenge on Public Blockchains

Public blockchains like Ethereum are transparent and immutable by design, allowing all network participants to see and validate transactions. While this transparency promotes trust and security, it raises concerns about user privacy, especially under regulations like GDPR, which mandates strict rules on personal data usage, processing, and deletion.

Under GDPR, users have rights such as data erasure and control over their personal information—features that are difficult to enforce on an immutable ledger where data, once recorded, cannot be deleted.

To tackle these challenges, the proposal promotes a modular strategy that distributes roles and data management responsibilities across distinct parts of the Ethereum network.

Modular Architecture for GDPR Compliance

Reggianini’s proposal recommends pushing personal data handling “to the edges” of the network—specifically to user wallets and decentralized applications (DApps). This means sensitive data would primarily reside off-chain, rather than on the public ledger itself.

Using off-chain storage combined with metadata erasure techniques, the proposal envisions limiting GDPR controller duties to a small subset of entities, such as application layer operators. Meanwhile, the broader Ethereum network could act mostly as data processors or fall entirely outside the scope of GDPR.

This modular design breaks the Ethereum network into three conceptual layers:

• Execution Layer: Functions as data processors that relay only encrypted or blinded data, reducing exposure of personal information.

• Consensus Layer: Responsible for validating commitments and zero-knowledge proofs, avoiding direct handling of sensitive data.

• Data Availability Layer: Stores anonymous data shards temporarily, adhering to GDPR’s data minimization and retention principles.

By segmenting roles and responsibilities in this way, Ethereum could better align with GDPR while maintaining its core decentralized nature.

Privacy-Enhancing Technologies in Action

The proposal highlights several privacy technologies already in development or planned for Ethereum’s roadmap that can support GDPR compliance:

• Proto-Danksharding (EIP-4844): Introduces transaction blobs with limited lifespan (around 18 days), minimizing long-term data storage on-chain.

• zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge): Allow validators to confirm transactions using cryptographic proofs without revealing underlying data, drastically reducing data visibility.

• Fully Homomorphic Encryption: Enables computation on encrypted data without needing to decrypt it.

• Trusted Execution Environments (TEEs): Securely execute code and protect data within isolated environments.

• Multiparty Computation (MPC): Allows multiple parties to jointly compute a function without exposing their inputs.

• Proposer-Builder Separation (PBS): Separates transaction proposal and block building, enhancing privacy and security.

• Peer Data Availability Sampling (PeerDAS): Distributes data availability responsibilities with anonymous shard storage and limited retention.

These technologies combined create a privacy-first environment capable of addressing regulatory requirements while preserving Ethereum’s permissionless and decentralized ethos.

Potential Impact and Challenges

If adopted, this roadmap could position Ethereum as a blockchain that respects user privacy and data protection laws without sacrificing functionality or decentralization. It could serve as a blueprint for other public blockchains grappling with GDPR compliance.

However, success depends on several factors:

• Community Adoption: Ethereum’s decentralized nature means any major protocol change requires consensus and buy-in from developers, miners, validators, and users.

• Developer Support: Building modular and privacy-enhancing features requires sustained effort and innovation by the Ethereum development community.

• Regulatory Dialogue: Alignment with EU regulators is crucial to ensure the proposed framework meets legal standards and reduces compliance risks.

• Usability Considerations: Balancing privacy and usability is vital so users and developers can seamlessly benefit from new privacy features without added complexity.

Conclusion

Ethereum’s privacy roadmap represents a promising step toward harmonizing blockchain technology with evolving data privacy laws such as the GDPR. By leveraging modular design and integrating advanced privacy-enhancing technologies, Ethereum aims to protect personal data while preserving its decentralized, permissionless nature.

This proposal highlights the blockchain community’s growing recognition of privacy as a fundamental concern and their willingness to innovate to meet legal, ethical, and user expectations.

As Ethereum continues its journey toward scalability and sustainability, embedding privacy and regulatory compliance into its foundation may well determine its long-term viability and acceptance in regulated markets.