Something rather astonishing happened on the Internet on Tuesday. Let me start with a bit of background: Hollywood has an encryption system called AACS that it uses to scramble the content on high-definiton home video discs. Like all copy protection systems, it only took a few months before hackers found security flaws in the system. In the process they extracted a 16-byte key (basically, a very long number) that allows programmers to unlock the encrypted content.

This key had been floating around various minor websites over the last couple of months. But last month, the organization that controls the AACS system began sending cease and desist letters to various ISPs demanding that the keys be taken down from websites that were displaying them. In response, people all over the web began posting copies of the key, which is just a 16-character string.

One of the sites that had the key on it is Digg. Digg is a news website in which all of the news stories are chosen by the collective wisdom of readers. Anyone can submit a story, and then other users can vote for (called “digging”) or against (called “burying”) individual stories. The stories that get the most votes get promoted to the front page where they’re viewed by hundreds of thousands of people.

Somebody posted a story containing the AACS key, and Digg got a letter demanding that the story be removed. Digg complied. Princeton computer science professor Ed Felten describes what happened next:

Then Digg’s users revolted. As word got around about what Digg was doing, users launched a deluge of submissions to Digg, all mentioning or linking to the key. Digg’s administrators tried to keep up, but submissions showed up faster than the administrators could cancel them. For a while yesterday, the entire front page of Digg — the “hottest” pages according to Digg’s algorithms — consisted of links to the AACS key.

Last night, Digg capitulated to its users. Digg promised to stop removing links to the key, and Digg founder Kevin Rose even posted the key to the site himself.

Fred von Lohmann has a good rundown on the legal liability Digg could face from allowing the key to be posted on their site. But more interesting, I think, is the light the incident sheds on the broader debate over Internet piracy.

In a sense, Digg is a microcosm of the Internet at large. What makes the Internet so powerful is that we’re finding more and more clever ways to turn tasks that once required a human being over to machines. In the case of Digg, Kevin Rose found a way to automate the editing process. Instead of having a single human being read through all the stories and select the best ones, he created a system in which readers—who are on the site reading stories anyway—could quickly and easily choose stories for him. This has made the site extraordinarily successful.

But technology is amoral. A system that transmits news and information can just as easily be used to transmit pirated music, encryption keys, or even child pornography. Moreover, you can’t fine a computer algorithm or throw it in jail. Which means that as we automate more and more of our information-distribution systems, there are fewer and fewer ways for the legal authorities to exert control over what kinds of information is transmitted.

In the early days of the Internet, people created special-purpose tools like Napster whose primary use was to swap illicit materials. Copyright holders got those tools shut down. But increasingly, illicit information sharing is being done using the same tools we use to share legal content. Napster’s primary use was to share copyrighted music. But one of its successors, BitTorrent, is widely used to exchange legitimate content, including open source software, computer game updates, and even legitimate movie downloads. It would be unreasonable to outlaw BitTorrent, given how many legitimate uses it has.

On Tuesday, Kevin Rose had only two options: He could allow the encryption key to appear on his site, or he could shut his site down. Shutting his site down wasn’t really an option (it’s a multi-million dollar business) so his only real choice was to allow the content to be transmitted. As a society, we face precisely the same dilemma with regard to the Internet as a whole. People use the Internet to transmit information most of us think they shouldn’t be transmitting. But our only alternatives are to cripple the Internet or turn the country into a police state. Nobody wants to do either of those things, so we’re going to have to live with the fact that any information a significant number of people want to share is going to be shared. We’re going to have to find ways to adjust our copyright system to a world in which anyone who’s willing to break the law will be able to get most copyrighted content for free. As a supporter of copyright, this doesn’t make me happy. But there doesn’t seem to be anything we can do about it.