The ever-accelerating pace of digitization has led to vast improvements in our quality of life, our knowledge, and given the individual a truly global reach. However, we live in a world where the rate of technological development often outstrips our ability to preserve fundamental economic and human rights and personal freedoms.
What is needed is a new approach to the digital world. An approach designed from the ground-up, that natively imparts ownership on a truly digital level, within the data -- within the file itself. Imagine a society where you can pay your rent with a fractionalized version of a song that you wrote, or buy groceries with a piece of digital art that you own. Imagine trillions of connected, programmable files, with rights and privacy assigned at the file level. For content creators, for businesses dealing in digital products, or indeed any individual, company, institution, or government, the potential of such a system is vast, and as yet untapped.
Introducing Smart Data. A decentralized file format, with programmable metadata that is secured through encryption, encoding, and an immutable blockchain ledger.
A Smart Data file consists of three parts:
1) A cold-stored file (CSF)
An encrypted, encoded file that is under the possession of the owner of the Smart Data.
The CSF contains the content (the image, or the video, or the music, etc.). The CSF lives either on the owner's machine or in their cloud storage. This file cannot be decoded without the DRS (part 2), and cannot be decrypted without the encryption key pair (part 3).
2) A data rights signature (DRS)
The instruction manual, or rosetta stone, that instructs the machine that holds the cold-stored file (CSF) on how to read it.
The DRS is a unique encoding scheme that is recorded on the blockchain, which ensures its immutability. Essentially, the DRS is the unique fingerprint, or DNA, of the Smart Data file, which is visible on the blockchain but unaccessible without the encryption key pair (part 3). It is used to decode the CSF that is in the owner's possession. The DRS is machine-readable and zero knowledge, which means that its usage alone does not allow for any party to gain any knowledge about the contents of the file.
3) An asymmetric encryption key pair and symmetric key
A pair of asymmetric encryption keys that sign the DRS on the ledger and a symmetric key that protects the Smart Data content from anyone but the owner.
The symmetric key is held in the owner's wallet, whether this is a wallet on their computer or a hardware version. Once the CSF has been decoded using the DRS, it must still be decrypted by the symmetric key in order to gain useful access to the content. The DRS, which imparts the uniqueness, cannot be moved or spent or in any way transferred without having the asymmetric encryption keys.
The cold-stored file (CSF) described above is an entirely new approach to cold storage. Instead of being cold-stored by location, e.g., a secure air-gapped server, the file is cold-stored by state. This means that is can be held anywhere, or allowed to float freely on the internet, while still being secure and exclusively the possession of the owner. Anyone who gains possession of the CSF while it is still encrypted and encoded will find it useless, and the only way to (i) decrypt the DRS and (ii) decode the file is to (i) be in possession of the keys and (ii) be the owner of the DRS.
The Crypto space undergoes an incredible amount of innovation and experimentation, with new projects and coins being launched almost every day. Accordingly, there are some concepts that have emerged that have similarities with Smart Data. The most relevant of these is NFTs, or Non-Fungible Tokens, which has been gaining popularity and activity since approx. 2018. NFTs are an example of the power of scarcity in a digital asset. By using the Ethereum ERC-721 non-fungible token standard, crypto assets can have property rights assigned to them and become commodities to be bought and sold in areas such as virtual worlds, games, and digital art galleries. NFT standards have also recently been introduced to other blockchains, such as NEO, EOS, and Tron, as well as more recent projects such as Flow and Phantasma.
Where Smart Data stands apart from these token standards is the re-invention of the file itself. Rather than having a token with the property of non-fungibility assigned to a particular data file, it is the file itself that contains this non-fungible, scarce property, through the decentralized file format and the interplay of encryption, encoding, and a blockchain-based signature. These properties allow for full control of the file as well as ownership. A good analogy would be that of taking ownership of a new car. Non-fungible token standards essentially give you the 'pink-slip' of ownership, while Smart Data gives you both the pink-slip as well as the keys to the car.
We can see the difference in more specific detail by looking at the relevant properties of NFTs vs. Smart Data. We start with the obvious property that they both share, namely non-fungibility/scarcity.
Non-fungible/scarce: The uniqueness of an item is what gives it economic value in the market, allowing it to function as a asset. It is important also that this uniqueness persists over time, and so imparting a rival character (where consumption of the good by one consumer prevents simultaneous consumption to other consumers) to data is a huge step forward in moving towards a data economy.
Smart data extends this property beyond that of NFTs by imparting both a rival and an excludable character (where consumers who have not paid for the good are prevented from having access to it) to data. This is an incredibly important property for a data democracy. The owner of the data can decide not only how their data is sold, but also how it is used while it is under their ownership. Integration of existing software with the Smart Data format will allow for the rights embedded within data to be respected without the need for complicated, drawn-out legal procedures on the human level.
The other relevant properties that we need to consider for both NFTs and Smart Data are as follows, starting with the list of properties for NFTs as outlined in a recent Coindesk article:
Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item.
Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don't actually own what they’re buying, they just purchase the license to listen to the music.
Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification.
(Ollie Leech, Coindesk article, Feb 2021)
For Smart Data this list reads as:
Non-interoperable: In the same way as with NFTs, Smart Data is genre-specific; with the caveat that its function can be altered through its property of being programmable (see below).
Divisable: On this property, Smart Data departs from NFTs in an important way. Smart Data can be fractionalised and sold for tokens, which opens up an incredible amount of liquidity in the space and lowers the barrier to entry for investors in Smart Data assets. However, the transaction is atomic, meaning that both sides of the sale or trade of the asset (or the fraction of the asset) must complete in order for it to process. This protects buyers and sellers.
Indestructible: Smart Data is stored on the blockchain via Smart Data contracts, which means that it cannot be destroyed, removed, or replicated. However, through the compliance property (see below) the 'right to be forgotten' applies, enabling owners to 'burn' the DRS to prevent any further use of this data.
Verifiable: Here the same benefit applies as with NFTs. The signature chain that is built up through a series of "lockboxes" encypted with each owner's private key ensures that the original DRS remains unchanged, and so the original creator retains their authorship of the Smart Data. Authentication is through the blockchain and does not require a third-party.
To this list we add:
Authentic: Smart Data contains unique data DNA, rather than just an attached signature. This ensures that ownership is authentic and based on identity, and this ownership extends to the file (the asset) itself, rather than just a token that represents the asset.
Persistent: Smart Data is not dependant on third party hosting or on the whims of any prior owner to alter content or previously codified ownership axioms. A seller cannot perform a 'rug-pull' or scam the buyer in any similar way, and since the content of the file is under the control of the owner, rather than a third-party, Smart Data cannot be delisted.
Programmable: Smart Data can be instructed to behave differently under different conditions, through Smart Data contracts. A good example of this would be if an owner wants to restrict the sale of their Smart Data to countries or juristictions with a good track record of LGBTQ+ rights, or to prevent the data from being used in a marketing campaign by a company with shady business practices.
Compliant: For any real economy, compliance with national and international law not only cannot be avoided, but is desirable. Blockchains are currently a 'wild west' where anything goes, and while a libertarian philosophy is an important part of the new, decentralized financial system, in order to integrate with and advance society, rights and laws protecting the individual must be upheld. Smart Data enables such compliance through its programmable metadata property at the machine level, vastly expediting legal processes while ultimately remaining under human control.
These additional properties broaden the notion of value for a Smart Data asset over an NFT from merely economic to (i) social value and (ii) legal value. With Smart Data as the first rival & excludable digital good, possessing economic, social, and legal value, it represents a true paradigm shift in the digital asset space, and constitutes the first ever Non-Fungible Asset (NFA).