Ethereum Manual for Digital Primitives – Chapter II – Property and Value of Information

What does it mean to own digital information? Does a photo I post on Instagram belong to me? Bureaucratically, probably yes. But, in reality, the photo lives on Meta’s servers, and if for any reason Meta decided to delete it, the bureaucratic owner of the photo could not oppose it in any way. In other words, the owner of the physical place where the bytes of the photo reside also has total control over the photo. There has never been an alternative, so for everyone, this is a normal procedure. As long as we’re talking about photos, there’s not a huge problem, but the same cannot be said for more important properties, like a bank account. This total trust in the centralized digital system has led to economic catastrophes for individuals, consider, for example, the 2008 crisis, where banks used the properties of the masses to create a speculative bubble, leaving, after its burst, hundreds of millions of people in serious economic difficulty. This is not to say that the same thing couldn’t have happened in a non-centralized system, but this example is brought up to remind the reader that “normality” is not always rosy and bright; in fact, the normality of most humans is rather dramatic, without any particular financial crises at hand.

In a hypothetical world where the properties of every individual belong to them, the only way an individual can lose property is through their own mistakes. Error in the digital world is common, especially for digital primitives like the readers, which is why information monopolies have had an easy life: it’s simpler to save a photo on the cloud (a server) than to configure a data recovery system at home.

If saving a photo on one’s computer is something that some can afford to do, saving their financial information is impossible in the centralized digital world. Consider, for example, a Homo sapiens possessing information on their computer proving ownership of a hundred chickens, how many readers know at least one human who wouldn’t think twice before changing the number of chickens by adding a zero? Obviously, it’s not possible to found a society where everyone is free to tamper with data on their computer. Data ownership, in itself, does not solve all problems if the owned data lose value. Information monopolies solve this problem because they act as guarantors of the value of information.

However, in some cases, the value of information can be maintained even if the individual owns the data. The case of the photo is a trivial example; a photo is important to its owner. A more complex example that this manual will now try to make the reader understand requires an introduction to the concept of cryptography first. Consider Gulliver, the village blacksmith. When Gulliver builds a safe, he creates both a lock and a key. Ideally, the safe could be left in the village square; without Gulliver’s key, no one could ever open it. Cryptography is nothing more than a series of ingenious mechanisms that Gulliver is able to build similar to safes (including the safe itself). In the course of this text, we will encounter others, and their operation will be explained when necessary.

Obviously, there is no space in computers to host Gulliver or a safe, but a computer can be programmed to simulate the operation of a safe, and not only that, this digital safe will have two properties that its material counterpart could never possess: indestructibility and the impossibility of deriving the shape of the key from the lock. The reader may wonder how it is possible to build such a magical artifact in a computer, but in this case, the dear reader should not bother to understand its functioning; simply be content to know that this digital safe has been built with mathematics and code instead of screwdrivers and iron plates. Through this tool called symmetric cryptography, it is possible to create, starting from any information, an object illegible to anyone who does not possess the key. For example, give the message “Hello” to the digital Gulliver and ask him to create a safe to secure the information. The digital Gulliver will create a safe, put the message “Hello” inside it, lock it with the key, and deliver both the safe and the key to you. The safe will look like this: “d82dc822”, while the key will appear as: “SecretKey@1”. This is a simplification; in reality, both the safe and the key will be incredibly longer texts. The longer the text, the greater the security, just as the more iron plates there are in a safe, the more secure it is.

An example with which the reader can familiarize themselves with the concept of cryptography is WhatsApp. When opening a new chat, a yellow text appears informing the user of the presence of end-to-end encryption. That kind of encryption is more complex and will be explored later in this manual, but one can start to get an idea of its functioning with the concepts already learned. Rosa and Loredana together create a safe and forge a duplicate of the key. Rosa will put her message in the safe and send it to Loredana, who will use the copy of the key to open the safe, read the message, then insert another one, and so on. If only Rosa and Loredana possess the key, not even WhatsApp can read the contents of the messages.

Finally, laden with new knowledge, we return to the concept of the value of information. A more complex example, beyond the personal value of photography, could be the proof of authenticity of a good. In the example that follows this brief introduction, the reader will understand how digital safes can be used as vouchers.

Panotti, the baker, decides to organize a distribution of vouchers for his biggest spending customers. For every €10 spent, Panotti creates a digital voucher worth €2 and hands it to the customer. Not everyone in the town knows that the baker is a revolutionary hacker, but they will soon find out. Valentino, the best customer, enters the shop very hungry and decides to buy €30 of focaccia. Panotti shows him the vouchers and explains how they work exactly like paper vouchers – “Hey Vale, watch out, if you lose them there’s nothing that can be done, save them on your phone after I send them to you on WhatsApp!” – in fact, Panotti uses his private key to put the message “€2 voucher” inside a digital safe and delivers the safe directly to Valentino’s phone, without using online voucher services.

The safes that Valentino has with him are proof of the possession of €6 worth of spending at the baker’s. Remember, the gluttonous Valentino cannot change the text of the message, putting for example €5 instead of €2, because the information is locked in the digital safe and only Panotti has the key.

Cryptography, in general, has the power to maintain the value of digital information because it prevents the cunning Homo sapiens from taking advantage of tampering with information that resides on their computer. If the safe is tampered with, whoever has the key can no longer open it and therefore will notice. As mentioned earlier, there are many more complex artifacts than simple symmetric cryptography. The decentralized systems that we will explore in the course of this text are based on mathematics and code, giving value to the information that resides in the private computers of each individual.