II. Verify Ownership

Can you prove ownership without deferring to authority?

Written Records

A specific process can be followed to determine the true owner of an asset. Ownership means to possess an asset.

  • Identify the Owner:
    Prove that the owner is who they claim to be by cross-referencing identity documents. Historically, identification documents — like driver’s licenses — are issued by central authorities.
  • Identify the Asset:
    Clearly define the asset in question with a detailed description or through an identification system such as unique serial numbers.
  • Connect the Owner to the Asset:
    Rely on independent witnesses or written records to verify that the identified owner truly owns the identified asset.

Each of these steps require trustworthy records. Records can be created through different approaches. A historic approach is to rely on a central authority to record who has what. We require a decentralized approach to avoid centralized weakness, and therefore require records that prove themselves instead of assuming trust.

Imagine being accused of stealing an item from a shop. How could you prove that you had purchased the item from another store? How could you prove your ownership?

A reliable record would demonstrate ownership. Producing a receipt of purchase would delegate the responsibility of proving ownership to a third party — the other store — and would serve as an impartial witness. When the ownership of an asset is in dispute records serve as objective witnesses.

Written records are impartial and detailed witnesses. A record cannot be bribed or persuaded to change its statement. Records can also hold more detail than a person can reliably remember. We can record exactly when an asset was made, its manufacturing cost, its third owner, and how the fifth owner of an asset paid for it.

If a community of stakeholders agree that what is written on a record is the truth then the record becomes authoritative. In disputes, an authoritative record would be consulted for objective accuracy and personal opinions would be discarded.

Authoritative records contain vital information and must be protected. Communities created central authorities to provide secure storage for important records and establish strict guidelines for their modification. Central authorities maintained the trust placed in authoritative records by restricting their access and edits to trustworthy individuals.

How would we go about creating our own records? Imagine a scenario.

It’s a sunny day. Our group of 10 friends decides to play a game where everyone receives a bag containing five pebbles, and whoever has the most pebbles by the end of the day wins the prize: an apartment with reasonable rent in San Francisco.

The competition is fierce and focused, but people end up trading pebbles here and there. Someone remembered to bring lunch and receives three pebbles for half of their sandwich. Someone takes a nap — they were not into this game to begin with — and they wake to find their bag of pebbles has been swiped. A crafty friend designs PebblePets and sells one custom-painted pebble for two normal pebbles. (PebblePets were definitely worth the price, you would have to see one to believe it.)

How can we determine the winner?

Inventory Data

One method is to designate a person as the official pebble-counter. Every person will dump out their pebble bag in front of the Pebble Counter for tallying. The person with largest tally will win the competition.

This approach, called “deriving Inventory Data,” only provides each players ending account balance. In certain situations this maybe enough, but we are competing for a livable apartment in San Francisco! The stakes are high. Our players have an incentive to cheat the system. Can we really trust our Pebble Counter — who’s also playing the game — to keep an objective tally? Can we really trust that no one added a counterfeit pebble — or two, or three — into their bag?

Trusting Inventory Data requires dangerous assumptions that become obvious at scale. Imagine we have 15,000 players now instead of 10. Now, most of the players do not know each other. We cannot assume that:

  1. The Pebble Counter is honest.
  2. The Pebble Counter can keep a tally organized for 15,000 players
  3. The Pebble Counter can protect their authoritative copy of the tally.
  4. None of the 15,000 players will perform unethical behavior to acquire pebbles.

Even if we find the best Pebble Counter ever, the Pebble Counter has no way to ensure that the pebbles they tally per player were acquired honestly. The Inventory Data is only a static record, an ending snapshot, of an entire day of 1000’s of pebble transactions. Relying on Inventory Data puts the Pebble Counter under stress to maintain a correct tally and call out the exact winner.

Additionally, no one can prove that their were acquired pebbles legitimately. If enough people suspect the winner cheated they will lose faith in the game. Players will leave until no one is around to play, not even the Pebble Counter.

Inventory Data records asset ownership at specific times but it does not prove ownership. This method is weak because it relies on central authority. Inventory Data requires that a central authority can simultaneously keep accurate records, perform at set times, check for counterfeits, and make judgment calls with serious ramifications under pressure.

Transaction Data

Compiling Transaction Data is a superior way to record ownership. Recording Transaction Data means that every transaction between the beginning and end of our game is recorded in detail. We have all players agree that for a transaction to be valid the sender, the receiver, how much was sent, and when the transaction occurred must be recorded.

Transaction Data is versatile and verifiable. We determine everyone’s game-end Inventory Data by aggregating all of their transactions. All receiving activity is weighed against spending activity to find a final balance.

Transaction Data also allows us to prove ownership without needing a central authority. If there is a dispute, or if it looks like someone cheated, we can cross-reference their Transaction Data with the Transaction Data of anyone they transacted with. Each transaction, every gain or loss, is accounted for and verifiable.

Transaction Data relies on chronological order for accuracy. Rearranging the order of transactions will change the current state of ownership aggregated in Inventory Data. Preserving Transaction Data’s chronological order and cross-referencing huge volumes of Transaction Data would be tedious if done manually. Computation allows us to perform these tasks at scale.

Computers are designed to perform calculations on data efficiently. We can trust that a computer could perform calculations on large sets of transaction records. Everyone playing our game could use a computer to record and manage their transactions in a consistent format. This way, computers can perform aggregation and cross-referencing of transaction records at scale, without human error or dependence.

III. Transfer Ownership