What is data sovereignty, and why does it matter?

Sara Ana Cemazar
November 22, 2022
min read

Today, businesses must protect sensitive customer and business data from cyber threats. Detecting threats has become more challenging since hackers always devise new ways to access sensitive data.

The best way to secure data is to maintain complete control over it. Businesses should implement cybersecurity measures to protect client data, cash flow, and online customers. The best practices to do so usually include establishing a strong and unique password, deleting unnecessary data, encrypting the device, backing up the data.. But, can organizations do more to ensure their data stays protected and secure?

As a concept, data sovereignty refers to being in full control over important customer and business critical data. Data needs to be created, collected, and processed in a way that ensures full ownership for the organization. The physical location of data storage also plays an important role to data sovereignty, especially with the regulations that overrule each other —like the US CLOUD Act and GDPR.

This article explores the concept of data sovereignty and why it matters to companies across all industries.

What is data sovereignty?

Data sovereignty is the concept under which data is created, collected, processed, and stored. The term itself is used to describe both countries' and companies' ownership of data. Here, we'll be discussing the organizations' sovereignty over their own data, which also includes respecting the country's data protection laws and regulations.

Data security, cloud computing, network sovereignty, and technological sovereignty are strongly related to data sovereignty. Maintaining control over encryption and access to your data prevents sensitive information from falling into the hands of foreign entities without the client’s explicit consent.

Data sovereignty includes concepts such as data privacy, data localization, and data residency, which are often used interchangeably. However, they differ in some ways. 

Data privacy

Data privacy refers to an individual's freedom to choose whether, how, and to what extent their personal information is collected or shared. This concept has led to the development of regulations — like GDPR —, customs, and laws that guarantee that any information the customer shares will be used. This includes personal information like names, addresses, phone numbers, and other personal traits.

Data localization

Data localization is the act of storing information where it originated. For example, if a business collects data in the US, it should store it there rather than sending it to another country. The data is only allowed to leave the country’s borders after it has met government protocols and received explicit consent from the customer according to most regulations.

Data residency

Data residency refers to where a company decides to store its data geographically. While the decision is usually based on government policies, storing the data close to where it will be used is the guiding principle. 

Why is it critical to protect sensitive customer data?

Many Americans think that businesses and governments follow and monitor their online behavior.  81% feel that the risks they suffer due to data gathering through businesses outweigh the advantages, and 66% feel the same regarding government data collection.

data sovereignty

Protecting sensitive customer data is vital because if it falls into the wrong hands, it can be used to exploit your business and ultimately the customer. Failing to protect business data can also lead to poor business reputation and loss of business.

However, you also need to take into account the data privacy regulations and make sure you're not breaching them. Maintaining data sovereignty makes it easier to have all the control over how your data is collected, stored, and processed — meaning that it's within your power to stay compliant to GDPR, CCPA, and other data privacy regulations. To give an example, GDPR breaches can incur direct costs to the company due to data privacy violation fines.

data sovereignty

Data sovereignty challenges 

1. GDPR vs. US CLOUD Act

These two data sovereignty regulations are causing headaches to many EU-based organizations.

On one hand, the General Data Protection Regulation (GDPR) establishes a legal framework for businesses to handle customer data in the European Union.

On the other hand, the US CLOUD Act empowers the US government bodies to require the surrender of customer data regardless of where it's located. The Act refers to US-based companies. It directly conflicts with GDPR and has already created a lot of problems for both US-based companies and EU-based businesses.

For example, we've seen schools and government-related businesses in France, Germany, Sweden, and other countries stopping their use of MS Office, a product from Microsfot, US-based company.

The debate is far from being over, but for now, it seems like the only way for EU-based businesses to remain in charge of their data is to work with other EU-based organizations if they need to exchange, store, collect, or process customer data.

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2. Changing legal environment

In 2019, only 10% of the world’s population had its personal information covered under modern privacy regulations. By the end of 2023, Gartner estimates it will be around 65%.

This shows how new the concepts of data sovereignty and data privacy are. We can only expect the regulations to get more refined as organizations and individuals learn to deal with new circumstances. 

Having third-party security measures in place is a good idea. However, they won't protect you from data breaches or leaks. In such cases, it’s better to be in control of your data and not depend on third-party security vendors. 

3. Cost of educating employees

It's estimated that 82% of data breaches happen due to human error. Data mismanagement happens often, and organizations face challenges in this area. Educating employees needs to be continuous and it needs to be upgraded as data sovereignty threats are becoming more complex to spot.

How do you ensure complete data sovereignty?

There are a few ways by which you can ensure you have a good hold on your data. The following strategies can help: 

1. On-premise hosting

On-premise refers to a software deployment method where data is hosted on servers on the individual’s or organization's premises. Along with the on-premises software, the installation process needs hardware and other tools necessary for the application to function on the internal system.

Hosting your solutions on-premise means you don't have to share your data with anyone. You have full control of how the data is used.

It's no wonder that on-prem is becoming the preferred deployment method for businesses that deal with sensitive customer data both in EU and the US.

2. Trusted cloud providers

If on-prem is outside your current operational bandwidth, you can opt for trusted cloud providers to retain data sovereignty.

Most cloud service companies have data centers spread out over the globe. However, you should hire a provider who operates in-country data centers and adhere to the geolocation criteria. Your cloud service provider can offer features like data encryption to help adhere to sovereignty standards.

3. Open source code

Open-source software offers the highest level of transparency, control, and openness, enabling businesses to manage their data securely and efficiently. The software does not include any backdoors that allow information to be sent to third parties.

The transparency ensures that you really know what goes on in the back of your favorite apps and your data isn't being misused.

Data sovereignty meets uninhibited collaboration

As more businesses store data in their own country, data protection has become more crucial in the internet age. Businesses must consider data sovereignty when deciding where to store their data.

Rocket.Chat is very transparent about how and where we collect and store customers' data. It's an open-source solution that can be hosted on-premise. We pay close attention to cybersecurity and provide unmatched security standards in business communication.

Customers reach out to us when they want to meet their collaboration needs with unmatched data sovereignty. Organizations in heavily-regulated industries like healthcare, FinServ, government and defense, and education are our most frequent users.

Get in touch with our team to learn how you can have full control over your data while applying digital collaboration best practices.

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Sara is an SEO Strategist at Rocket.Chat. She is passionate about topics around digital transformation, workplace experience, open source, and data privacy and security.
Sara Ana Cemazar
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