Information Security Compliance and Blockchain

Over the years, various information security standards have been published across a multitude of industries to protect consumers, organizations, and their assets from breaches and cyberattacks. Complying with regulations and frameworks has become the cost of entry. This is becoming increasingly true for cryptocurrency and blockchain-based companies as well.

Risk Management & Compliance

The concept of information security and compliance was commonly viewed as another expense for organizations up until a short time ago. Along with the rapid adoption of technology comes a proliferation of security frameworks and compliance laws.

Effectively managing risk and compliance not only enables organizations to mitigate risk and deliver the necessary assurance, but it also generates revenue by creating more efficient processes and opens the door to markets and clients.

Who Does it Apply to?

With companies going digital, information security and compliance applies to businesses, big or small: industries such as healthcare, telecommunication, banking, insurance companies, third-party vendors, and now blockchain-focused companies

What Does it Aim to Protect?

The aim of information security compliance is to protect sensitive/ critical information such as:

• Financial Information of customers

• Personally Identifiable Information

• Personal Health Information

• Internet Protocol (IP) Addresses

• Critical Information Infrastructure, etc.

Compliance & Blockchain Technology

Blockchain technology has become popular for its real-time analysis, providing single-source credibility in a ledger system spread among multiple parties, giving new meaning to the privacy of its participants while being secure and transparent.

A unique strength of blockchain lies in the immutability of its transactions. Once a transaction is recorded, it cannot be altered or deleted without the agreement of all parties involved. This characteristic greatly reduces the risk of error and fraud, assuring everyone of the accuracy and completeness of the data. For organizations concerned with audit, risk, and compliance, this means not only enhanced trust but also greater efficiency—auditors can access a comprehensive and reliable record of all activity, making real-time auditing possible and dramatically cutting down on manual reconciliations.

As blockchain technology and cryptocurrency become more commonly accepted, organizations have started to recognize the potential for growth linked to information security compliance.

Evolving Compliance in the Blockchain Era

Blockchain technology isn’t just changing how data is stored and shared—it’s also transforming the landscape for audit, risk, and compliance professionals. Immutable transactions, smart contracts, and NFTs introduce both significant benefits and unique challenges. On the plus side, blockchain’s inherent transparency and tamper-resistant records can enhance the accuracy and completeness of financial data, reduce the risks of fraud and error, and make audit processes more efficient and effective. However, these same features mean organizations must reevaluate existing controls and adapt compliance frameworks to account for blockchain’s distinct attributes.

The Impact of Smart Contracts on Internal Controls and Manual Processes

The emergence of smart contracts on blockchain platforms has begun to reshape how organizations think about internal controls and manual processes. By design, smart contracts are programmed to automatically carry out transactions or enforce terms once specific conditions are met—effectively removing the need for intermediaries or extensive manual oversight.

Automating Transactions

Financial processes that once required human intervention can now be executed seamlessly. For example, a real estate purchase can be completed instantly on a blockchain platform when predetermined conditions—such as payment verification—are fulfilled. Notably, the use of smart contracts in property transactions has gained traction worldwide, with examples like high-profile NFT-based real estate sales in places like Kiev, Ukraine.

Shifting the Role of Internal Controls

While automation reduces opportunities for manual error and fraud in certain workflows, it also introduces new considerations for compliance teams. Traditional internal controls—such as manual checkpoints and approval chains—need to be reevaluated. Instead, organizations must focus on ensuring the reliability and security of the underlying smart contract code, the validity of the conditions that trigger automated actions, and ongoing monitoring through blockchain analytics tools.

Benefits and Challenges

The benefits of smart contracts include:

• Reduced processing time due to automation

• Lower operational costs by removing middlemen

• Increased transparency and immutability of transactions through blockchain records

However, the shift to automated processes also means controls are embedded in code rather than in policies or manuals. This requires new skill sets, such as smart contract auditing and code review, to identify potential vulnerabilities or logic errors that could be exploited.

In short, smart contracts transform internal controls from manual activities to technology-driven safeguards. Organizations looking to leverage these benefits must invest in technical validation, security assessment, and continual process updates to keep up with this evolving landscape.

Blockchain and Compliance Standards

Compliance for blockchain businesses will not only demonstrate their dedication towards the security and privacy of their data but will also give them global recognition and the opportunity to attract new clientele. As of now, mandatory compliance is applicable where cryptocurrency is regulated and the company in question is authorized for transmission of fiat money, generally falling under state an d federal laws.

Multiple standards have incorporated information security best practices for blockchain companies and marketplaces, but the Cryptocurrency Security Standard (CCSS) is the most popular. Other frameworks include PCI DSS, SOC 2, ISO 27001, 27701, and NIST.

The Cryptocurrency Security Standard (CCSS)

CCSS provides a set of best practices for all information systems that are tied to cryptocurrency such as exchanges, web applications, storage solutions, etc. It is not a standalone standard that caters to the overall security requirements of an organization, so it should always be accompanied by additional security processes. CCSS also works well in conjunction with other information security standards i.e., ISO 27001, or SOC 2.

The CCSS consists of 10 security aspects each one reflective of a single piece of the information system. The value of these security aspects corresponds to the information systems' overall score. This score then maps to 3 levels of security, with level 1 being the lowest while still offering strong security measures, whereas level III is made up of more comprehensive security controls.

The cryptocurrency security standard is applicable to all the information systems involved with cryptocurrency; these systems are not limited to but can consist of the following:

• Storage Solutions

• Cryptocurrency Marketplace

• Payment Processors

• Exchanges, etc.

The Compliance Process for CCSS

The compliance process for CCSS is much like that of the existing security standards. It involves completing a gap assessment, defining the CCSS compliance level, performing a risk assessment, vulnerability assessment, application security analysis (dynamic/ static), etc. Once the applicable controls are implemented and tested, it is only a matter of verification of these controls by the standard authority. It does require compliance managers and professionals to ensure a smooth compliance journey. There may be many automated compliance management solutions on the market, but it is completely up to the compliance manager to opt for either a manual or automated management solution. Both automated and manual compliance management schemes come with a set of pros and cons.

It may seem that only CCSS is applicable to crypto companies but applying a security standard limited to crypto and related technologies may not be enough to protect the whole organization. To ensure a strong information security posture, blockchain companies should be compliant with the related security standards on top of the CCSS.

As blockchain continues to reshape the landscape of audit, risk, and compliance, professionals must remain vigilant. While the technology brings greater transparency and efficiency, it also requires organizations to adapt to new risks, reconsider manual controls, and embrace both established and emerging compliance frameworks. By taking a holistic approach to security and compliance—combining CCSS with broader standards like ISO 27001, SOC 2, and NIST—blockchain-based organizations can deliver on the promise of secure, trustworthy, and innovative digital ecosystems.

PCI DSS

The PCI Security Standard Council developed the Payment Card Industry Data Security Standard (PCI DSS) to protect and safeguard all the transactions that involve Credit/ Debit Cards. It applies to the whole transaction flow, from the technology used to gather the data, to the technology used for its transmission through the system, and all the processing points.

Compliance with PCI DSS is a cherry on top for blockchain companies; the standard provides guidelines and best security practices for the entire transaction flow, granting additional credibility.

ISO 27001

ISO 27001 is the longest-standing and most comprehensive security standard that provides a wide variety of best practices for Information Security Management Systems (ISMS). ISO 27001 is a risk-based standard that applies to every integral part of an information system across the whole organization. ISO 27701 was introduced to address the privacy aspect and serves as an expansion to ISO 27001.

SOC 2

SOC 2 has been around for quite some time now, it is an integral part of the financial industry. It is based on five trust service principles availability, security, integrity, processing, confidentiality, and privacy. It ensures that vendors/service providers securely manage your organization's data and protects the interests of your business.

NIST

NIST offers a range of cybersecurity standards for various domains and industries. The cybersecurity framework published by NIST gives detailed guidelines for identifying, protecting, responding, and recovering from a cyber security incident. Compliance with this standard will increase the confidence and trust in crypto and blockchain-based companies.

Legal and Regulatory Considerations for Blockchain-Based KYC

While blockchain opens the door for enhanced efficiency and transparency in Know Your Customer (KYC) processes, it doesn't come without its regulatory hurdles. One prominent concern centers on data privacy laws, such as the General Data Protection Regulation (GDPR) in the EU or the California Consumer Privacy Act (CCPA) in the US. These frameworks require careful management of how personal information is collected, stored, and—crucially—shared across multiple parties on a distributed ledger.

Another significant issue involves jurisdictional compliance. Since blockchain is inherently decentralized and borderless, it can be challenging to determine which country’s laws apply, particularly when personal data moves between international entities. This can complicate adherence to local regulatory requirements around data sovereignty and consumer rights.

Additionally, regulatory bodies often have strict mandates concerning data immutability and the "right to be forgotten." Since blockchain records are permanent by design, organizations need to develop creative solutions to reconcile these opposing demands without running afoul of the law.

Finally, synchronization with legacy compliance systems and ensuring that blockchain-based KYC aligns with established anti-money laundering (AML) protocols demands rigorous due diligence and often, regulatory guidance. As with any emerging technology, ongoing consultation with legal and compliance experts is essential to address these complexities and ensure full oversight.

Adapting Controls for Blockchain Implementation

When incorporating blockchain technology into audit and compliance processes, it's essential to reassess and adapt existing internal controls. Blockchain introduces new features—such as decentralized ledgers and automated smart contracts—that can streamline operations, reduce manual intervention, and strengthen transparency. However, these same features mean that traditional controls designed for centralized or manual systems might not provide adequate coverage or could become redundant altogether.

For example, smart contracts can automate transaction approvals or enforce compliance rules automatically, but their unique code-driven execution may introduce risks not previously accounted for—like coding errors or vulnerabilities. Without updating controls to reflect these changes, organizations risk overlooking emerging threats or failing to capitalize on blockchain's inherent strengths.

Reevaluating and modernizing controls ensures you’re addressing the full risk landscape and maximizing the technology’s benefits while maintaining the confidence of stakeholders and regulators.

Challenges of Integrating Blockchain-Based KYC Solutions

While blockchain-based KYC solutions offer a promising path toward enhanced security and transparency, their integration into existing systems comes with its own set of hurdles.

• Technical Integration: Existing IT infrastructures are often built on legacy technologies that don’t always play nicely with decentralized blockchain protocols. Ensuring seamless communication between conventional databases and distributed ledgers can require significant reengineering and specialized expertise.

• Regulatory Uncertainty: Since KYC involves handling and sharing sensitive customer data, introducing blockchain raises fresh regulatory questions. Organizations must navigate potential pitfalls around data privacy, cross-border data sharing, and compliance with evolving legal frameworks such as GDPR and other local privacy laws.

• Data Sharing Complexity: Because blockchain solutions distribute data among multiple parties, there’s an increased need to carefully control who can access or update customer information. Defining governance rules and access rights across a decentralized network can add layers of complexity that don’t exist in centralized setups.

• Change Management: Transitioning teams and workflows to leverage blockchain-driven KYC processes demands targeted training and adaptation. Organizations must consider how new solutions fit into established compliance and risk-management procedures, eliminating silos while maintaining strong oversight.

Despite these challenges, thoughtful planning and phased implementation can help organizations reap the advantages of blockchain-based KYC without running afoul of technical and compliance obstacles.

Navigating NFT Challenges: Valuation, Ownership, and Fraud

While blockchain standards like CCSS, PCI DSS, and ISO 27001 keep the cryptocurrency space resilient, the rise of NFTs (non-fungible tokens) introduces a fresh set of hurdles for audit, risk, and compliance professionals.

Unlike traditional assets with clear benchmarks or transparent markets, NFTs often exist in a league of their own—their value is not just volatile but intensely subjective. Determining what an NFT is truly worth can be challenging when price is often driven by uniqueness, creator reputation, and rapidly shifting trends.

Ownership and authenticity throw their own curveballs. Though blockchain records are theoretically immutable, verifying an NFT’s legitimacy or connection to the intended creator isn’t always straightforward. The decentralized nature of NFT marketplaces can complicate provenance tracking, building opportunities for fraudsters to sell counterfeit tokens or launder money through complex transactions.

These challenges call for a more nuanced compliance approach:

• Valuation protocols tailored for digital assets, incorporating both technology and expert judgment.

• Robust verification mechanisms to confirm an NFT’s authenticity and chain of ownership.

• Strict transfer recordkeeping on and off-chain to create transparent audit trails.

• Collaboration with legal and cybersecurity experts to develop adaptive fraud detection and anti-money laundering controls.

Professionals working in audit, risk, and compliance are now tasked with not only following established frameworks, but also evolving their procedures to address the unique risks that NFTs pose.

The Benefits of Blockchain-Based KYC Solutions

Blockchain is not only reshaping payments and transactions; it's also bringing needed upgrades to longstanding compliance challenges like Know Your Customer (KYC) processes. By leveraging blockchain, financial institutions are beginning to realize several key advantages in how they verify and manage customer identities.

• Enhanced Security & Data Integrity: Thanks to blockchain’s decentralized and tamper-resistant nature, sensitive customer data enjoys a higher degree of protection from breaches or unauthorized changes. Every data entry is recorded immutably, making fraudulent activities significantly more difficult.

• Streamlined Sharing & Collaboration: Gone are the days of siloed information. Blockchain enables secure and efficient sharing of verified KYC information between banks, regulatory bodies, and even law enforcement. This connectivity reduces repetitive requests for the same customer documents and streamlines compliance efforts.

• Cost and Time Savings: With a shared, trustworthy ledger, manual checks and document validation across multiple parties decrease significantly. This brings down both operational costs and time needed to onboard new clients—often transforming what used to take weeks into a matter of hours or days.

• Improved Data Accuracy: Automated blockchain protocols help prevent errors by ensuring data consistency and completeness across every touchpoint involved in KYC, benefiting both organizations and their clients.

In short, blockchain-based KYC solutions reinvent the compliance wheel, making it both more effective and less cumbersome for financial institutions, all while reducing opportunities for financial crime.

Key Takeaways for GRC and Compliance Professionals

• Information security compliance is no longer a check-the-box exercise. It’s an enabler of risk reduction, operational efficiency, and market access, especially for blockchain and cryptocurrency organizations.

• Blockchain technology introduces both opportunities and challenges for GRC functions. Its immutability, transparency, and decentralization strengthen audit trails and reduce fraud but require rethinking traditional controls.

• Smart contracts are reshaping internal controls by automating enforcement mechanisms. GRC teams must shift from monitoring manual processes to validating code, logic conditions, and blockchain-based triggers.

• A layered approach to compliance is essential. Frameworks such as CCSS, ISO 27001, SOC 2, PCI DSS, and NIST provide the foundation for securing blockchain environments and meeting regulatory expectations.

• Blockchain-based KYC solutions offer enhanced identity verification, reduced redundancy, and improved data integrity—but GRC teams must manage integration complexity and evolving global privacy regulations.

• NFTs and digital assets present unique audit and valuation risks, requiring bespoke compliance protocols, fraud detection mechanisms, and cross-jurisdictional awareness.

For compliance professionals in GRC, the rise of blockchain demands a forward-looking mindset. One that balances innovation with control, and agility with accountability. Adapting today means staying resilient tomorrow.