2. Encryption is the conversion of data into a form called ciphertext, which cannot be easily understood by unauthorized people.

Answer: 2.

Explanation:
The problem with “so-called” is that it has two meanings and one them subverts the other.

“So-called” can indicate that you’re introducing a word that may not be familiar to the reader. In this case, you’re saying data is converted into something called ciphertext.

However, the other meaning of “so-called” is “falsely or incorrectly called,” often used in sarcastic phrases like “so-called experts,” and some readers may understand “so-called ciphertext” to mean “something incorrectly called ciphertext.”  They might be confused then, wondering things like “who calls it ciphertext?” and “why is it incorrect to call it ciphertext?”

So unless you want to confuse the reader, you’re probably better off reserving “so-called” for unambiguous sarcasm and using phrases like “a form called ciphertext” where you just want to introduce a word that the reader may not know.

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