From: rarachel@photon.poly.edu (Arsen Ray Arachelian)
Date: Wed, 29 Jun 94 18:59:18 PDT
To: cypherpunks@toad.com
Subject: Feb 17 Transcript Part 3
Message-ID: <9406300200.AA14325@photon.poly.edu>
MIME-Version: 1.0
Content-Type: text



          
          But unfortunately, the Four Horsemen of the Apocalypse are still 
          there and the government is trying to use them as an excuse right
          now.   How many people saw the articles on the front page of the 
          New York Times about Clipper?  Okay.  A bunch of people have.  
          
          How many people saw the front page article in the New York Times 
          about the F.B.I. Digital Telephony Bill?  Ah.  Fewer people.  I'll
          start with the F.B.I.  Digital Telephony Bill, because it's much 
          easier to understand.  
          
          The F.B.I. is not satisfied with the fact that our phone system
          is not like the phone systems in Eastern Europe, and wants it to
          be that way.  [Laughter]  They want the capacity to be able to 
          push a button in Washington at any time they like and tap any 
          telephone in the country at will.  That's basically it in a
          nutshell.
            
          They claim that they need this capability because modern digital 
          telephone systems are becoming increasingly difficult to listen in
          on.  Computer Professionals for Social Responsibility did an 
          F.O.I.A. [Freedom Of Information Act] request on the F.B.I. and
          managed to get documents which said, "By the way, we know this is
          a lie but we're trying to get this bill through.  So please lobby
          for it."  In fact no one has ever found that they have any 
          difficult tapping the existing telephone systems, but never mind 
          that.  They are saying that because of advances in technology 
          they need the capacity to be able to sit in Washington, push a 
          button and listen to any telephone conversation in the country
          at will.  This is of course in order to stop the terrorists, drug
          dealers, pornographers and child molesters.  If they can find some
          one who is all of those at once I am sure it will make their day.
          
          Anyway, at the same time the National Security Agency has been 
          having these nightmares about cryptography so they've gotten the 
          Clinton Administration to front for them on a really, really 
          stupid idea.

MALE:     Ten copies of the Justice Department announcements, the five 
          press releases from a week ago.

PM:       Okay.  Well, basically what's happened -- maybe we'll pass these 
          out in a minute -- is that this has been in the works for some 
          time and people have been fighting it, and so many people have 
          been fighting it that we thought it was dead, but it seems to 
          have come back from the dead.  The government wants you to use 
          their cryptosystems.
            
          What they want is they want to give you a little cryptography box
          called "Clipper" that you can use, so that you don't have to 
          complain that all of your communications are insecure.  But 
          Clipper has a built-in bugging feature in it, so that if the 
          government wants to listen in on your communications they can do 
          so.
          
          Isn't that special of them?  And they expect that everyone in the
          country will want to use this.

MALE:     And each one's got a serial number.

PM:       Yes, yes.  The way this basically works is that they store 
          basically the equivalent of a master key to the cryptography 
          system inside -- I'm trying to keep this from being too technical
          -- essentially every time you use the Clipper chip to communicate
          with something that also contains a Clipper chip, well, what it 
          does is it includes information about the key you are using in 
          the data stream that it sends to the other machine, and it's 
          encrypted with an encryption key that is known to the government
          -- to keep everyone nice and honest.  You know, we don't want to 
          keep those terrorists, child molesters, pornographers, drug 
          dealers from being able to encrypt things.
          
          (Ie: "We're your government.  Trust us, we know what's good
          for you;  but we don't trust you.")
          
          However, they say that this standard is voluntary.  Now if you
          were a card-carrying terrorist would you use the government's 
          cryptography system, especially if it's voluntary to use it?
          
          No.  What you're probably going to do is go out and get yourself
          a decent cryptography system.  Hell, if you're actually being
          armed by the Libyans they probably have nice KGB crypto equipment
          that they can hand to you.  You don't have to worry about going 
          to the store to buy your cryptography equipment.
          
          So in general the notion that they can impose this as a voluntary
          standard for encryption, which you're not compelled to use, is 
          ludicrous, and almost everyone in the community thinks that what 
          they're doing is preparing to try to ban all forms of encryption
          other than the ones that they specifically approve.  So we've got
          these two interesting government movements right now, the one to
          make tapping all of your telephones easier and the one to make it
          easy to decrypt the communications on the telephones that they've
          made it very easy to tap.  
          
          I thought that the Berlin Wall had fallen and the Stazi was out 
          of business, but apparently they've all just moved to Washington.
          [Laughter] It's kind of annoying.  But on the other hand, ignoring
          all of this, they're -- by the way, I'll mention that every 
          industry group, groups like the Electronic Frontier Foundation
          and Computer Professionals for Social Responsibility, all the 
          trade magazines, everyone on earth has come out saying this is a 
          stupid idea.

DM:       The 700 Club did a ...

PM:       The 700 Club actually did a story about how evil the government's
          cryptography plan is.  It's amazing. Everyone and their mother
          has come out against this, but it doesn't seem to matter.  
          According to an article that's going to be published in next
          month's "Wired" several administration officials have admitted
          that this might be their Bay of Pigs, something really stupid that
          they inherited from the previous administration, which they did, 
          which they're going to push forward anyway full steam ahead.

MALE:     So whose head's going to explode like a flying -- you know, in 
          Dallas -- as a result of this thing?

PM:       I don't know.  Well, anyway, so -- now ignoring what the 
          government is trying to do to stop cryptography, I'll point out 
          that all is not rosy with cryptography.  You can encrypt your 
          communications, you can try to be really careful about all of the
          dealings you do, and if you try to live, say, purely in an 
          underground economy one day you sit in a caf
 with the wrong guy 
          and he pulls out his I.R.S. credentials and says, "Can we do an 
          audit, please?"  
     
          Now it might be difficult for them to be able to spend the 
          resources necessary to try to track lots of people down for
          abusing this sort of thing.  In fact, I would argue that there's
          no way that they have all the resources necessary to do that.  
          
          But nonetheless, let's point out you can't do everything in 
          cyberspace.  You can't live in cyberspace.  You have to live in
          a home somewhere.  You have to go to the corner store to eat. 
          You have a physical body.  They can still get you.  They 
          can still pass laws to try to restrict your freedoms. 
          Cryptography, however, does make them much weaker in many ways.
          
          One of the things that's been pointed out repeatedly is that 
          government feeds on money.  The lifeblood of government is money.
          If they don't have money -- what traditionally happens in a Third-
          World country that's experiencing hyperinflation?  At some point 
          the soldiers discover that their pay no long will buy them food, 
          and they start revolting.  Government workers are like everyone 
          else -- well, sort of like everyone else, but [LAUGHTER] --
          government workers do have families, they do have mouths to feed.
          
          They need to be paid.  And when the government tries to print
          money to pay them the money becomes less worthwhile.  So they 
          depend on taxes in order to be able to control people.
            
          In an environment where it becomes increasingly difficult to tax 
          activities, it becomes increasingly difficult for the government 
          to exert control over the population.  In fact, the more people
          move into some sort of cryptographic black market, the more
          difficult it becomes for the government to try to stop it because
          the fewer resources the government has.  It's sort of a vicious 
          cycle for them.  They need to have money in order to try to get
          money, and the less resources they have to -- actually, Duncan,
          you know this off the top of your head.  How many millions of
          Americans are thought to evade taxes right now?
          
DUNCAN:   The Feds say officially there are ten million nonfilers who should
          be filing, and at least another ten million filers who file 
          incorrectly on purpose.  That's out of 114 million personal tax 
          returns filed last year, down from 117 million predicted.  They 
          undershot by 4 mil.

FEMALE:   They had like 900 convictions out of ...

PM:       How many convictions were there for tax fraud last year?

DUNCAN:   It's only about three or four hundred a year.

PM:       In spite of this -- it's very, very difficult for them to expend 
          the resources to try to get a tax fraud conviction.

DUNCAN:   It costs $50,000 bucks, or -- and then you got to imprison 'em. I
          mean it costs half a mil or a mil.

MALE:     Usually there's one other factor, and that is that there's only 
          one Treasury agent per 900 filers.  So the enforcement bureaucracy
          is actually very small.  This came up in the debate over the gun 
          issue, where there's a mention of 240,000 gun dealers and about 
          one enforcement bureaucrat for every 240.  That's a highly 
          regulated field by comparison with general tax filers.

PM:       Anyway -- Dave points out that I'm kind of dragging this on, and 
          we should open it up for questions.

MALE:     ... one other factor that hampers the I.R.S.?

PM:       Yes?

MALE:     They've got infiltrators.

PM:       Oh?

MALE:     There are people in the I.R.S. who are on our side.

PM:       Okay.  Anyway, if we're done with the major, initial part of the 
          talk -- I think we made some of the interesting --I've missed 
          talking about a bunch of things, like the fact that you can put 
          -- there are all sorts of neat things people have discovered 
          about cryptography over the years.  You can play poker with people
          by computer without having to trust the dealer or any of the other
          players, and you can mathematically prove that no one has cheated
          in the course of the game.
            
          There are all sorts of neat tricks that cryptographers have come 
          up with over the last few years, and if people -- anyone with a 
          mathematical background, I strongly encourage you to go out and 
          buy a copy of one of the books on the subject.  Actually the best
          book on the subject right now is Bruce Schneier's Applied 
          Cryptography.  This is a technical text.  If you're not interested
          in cryptography on a technical level, if you stopped with math 
          before algebra or something -- I'm not trying to denigrate anyone.
          Some people are not interested in math.  There's nothing wrong 
          with not being interested in math.  But this is a math book, 
          basically. It's full of math.  If you want to know the details, 
          however -- published by John Wylie & Sons.
            
          There are some very good books -- it'll be up here. If you're 
          interested in the history of cryptography, David Kahn wrote an 
          extremely good book that only covers the world up to about 1970.
          He mentions the N.S.A. These were the days before they admitted 
          that they existed, but he has chapters discussing them.  The book
          is called The Code Breakers, by David Kahn.  It is still an 
          interesting book to read, because it gives you some idea about 
          how hard it is to produce good codes and how important it has 
          been in history.  Most people are completely unaware of the
          historical importance of secret communications and breaking
          secret communications.

MALE:     The British government for about seventy years claimed they 
          weren't breaking any telegrams, and in fact they were taking
          every one into a room and trying to ...
          
MALE:     The N.S.A. lied about it for years, also.

PM:       The so-called Black Chambers.  All through the 19th century 
          virtually every government in Europe had something called a 
          Black Chamber, which was the room into which all diplomatic
          correspondence coming into and out of the country was brought to
          be read.  Most of it was encrypted, but some countries had pretty
          good cryptographers.  This has been going on for centuries.  
          There is nothing new about this.  The only thing new about this is
          that suddenly world-class cryptography is in the hands of 
          everyday people. 
           
          Lastly, there's a great book about the N.S.A. that Lou mentioned
          a moment ago, called The Puzzle Palace by ...

DM:       Bamford.

PM:       The Puzzle Palace is, again, about ... (Inaudible; overlap)

DM:       It's available in cheap paperback.  Very good book.

PM:       Oh, by the way.  If you get a copy of The Codebreakers by David 
          Kahn, do not get the paperback.  Get the hard-cover. The text is 
          different.  The text of The Puzzle Palace in softcover is exactly
          the same.  It's a really good book. It's unfortunately about a 
          decade old, but it covers them in an enormous amount of detail.  
          Most people are completely oblivious to what the largest 
          intelligence agency in the U.S. is.  You should inform yourselves.
          

DM:       So let's open it up ...

PM:       For questions.

                               *   *   *

Q:     I don't understand the details of Chaum's method of electronic 
       banking, but I thought it required that the bank would issue 
       essentially denominations of bills that were public keys.

PM:    Are they publicly keys?  I could go into the details, but I don't 
       know ...

Q:     My point is, how do you get this going without the cooperation of a 
       bank?

PM:    Form your own bank.  That's basically the answer.  You have a digital 
       bank that issues digital money, basically.

MALE:  If you have a couple of hundred people you can form your 
       own credit union.

PM:    In fact there are some people in Texas who are now forming a credit 
       union on the premise that the credit union is going to permit people
       to make electronic cryptographic transactions.

MALE:  The problem with this digital bank and any other under-ground economy
       is that if your digital cash is stolen or if this digital 
       underground economy collapses you will have no recourse in law
       enforcement, in civil suits or FDIC insurance.

PM:    Well, first of all -- I don't want to claim that the FDIC is a 
       wonderful thing here, but even assuming that it was I honestly trust
       AAA-rated Swiss banks far more than I trust any bank in the United 
       States -- or the full faith and credit of the United States 
       government.

MALE:  Here, here.

PM:    Which is going down every day as the deficit increases.

Q:     But who issues digital cash?

PM:    No, the point is that you cannot steal digital cash.  It doesn't 
       work that way.  You can -- now the bank can defraud you.  You 
       admittedly have to trust your bank.  However, you cannot really 
       steal digital cash.  It doesn't work that way.

MALE:  It's protected using encryption.  It's very complicated.

Q:     Are you claiming that Virtual Virtue has been invented?

PM:    No.  I'm claiming cryptography has been invented.  It does not -- 
       the bank can defraud you.  Someone cannot steal your digital cash.

Q:     Why wouldn't this be an attractive notion to most Americans, and 
       subsequently why would this seem to be a scary notion to the 
       government?

PM:    I will explain it to you right now.  In this city, most people think
       that most people comply with the tax regulations and with Federal 
       regulation.  New York City is one of the most fascistly-run places
       in the United States, so it would not be surprising that we have the
       most thriving underground economy.  Go downtown to Chinatown and you
       will find building after building after building of off-books 
       businesses:  clothing manufacturers, import-export businesses,
       everything you can imagine, being run in a completely underground 
       manner.
        
       The garment industry would not exist in New York City if it was not
       for the underground economy in New York City. Okay, forget what 
       middle-American people will do.   The underground economy already
       exists, and this sort of thing is going to move forward and there's
       probably going to be demand from people who are already in it.
         
       As for the question of "virtue", as I said I would go into the 
       cryptographic protocols in detail, but -- you cannot be robbed of 
       your digital cash from your wallet the way that you can be robbed of
       real cash.

MALE:  They can't rob you any more than a regular bank can.

PM:    It's not actual cash.  It's really an anonymous transfer.

Q:     Doesn't digital cash (?) to the maximum capitalists and fascists, 
       too, or are we just catching up with things?

MALE:  This is a problem.

PM:    Whether you like it or not, it's there.  The computers are out there.
       The technology has been invented.  It cannot be uninvented.  It can't
       be put back in the bottle.  There are tens of thousands of people in
       this country who understand how to build these things.  At this point
       it's impossible to stop it.  So whether you like capitalism or don't
       like capitalism, whether you like technology or dislike technology, 
       this is a reality. I would advise personally that you try to use it 
       to your benefit.  Perhaps other people have different opinions. 
       That's what I would think.

Q:     A two-point question.  First of all, have you seen the article in the
       Humanist(?) about digital cash?

PM:    I'm afraid I have not.

Q:     Have you?

DM:    Can't say I have.  No.

Q:     Okay.  Secondly -- now the promo for this talk says it'll make the 
       State a thing of the past.

PM:    I think that's something of an exaggeration.

DM:    Basically what we're talking about, and it remains to be seen how far
       it's going to go, is the withering of the State in the sense that 
       governments can no longer say -- now they can say we won't let this 
       book cross our borders, you can't do certain kinds of financial 
       trans-actions, you're not allowed to read this stuff, you're not 
       allowed to make bootleg copies of this record.  All this stuff is 
       going to be going on more and more, and it's unstoppable by the 
       government.  So in other words, a lot of these laws are just
       unenforceable, superfluous, as this stuff starts travelling over the
       Net in encrypted forms.

MALE:  That's victory to some extent.

DM:    Right.

PM:    Oh, yes.  It is very much -- it's sort of the exponentiation of (?).
       As soon as you allow in -- the Chinese discovered this at Tiennamen 
       Square.  Fascists and totalitarian governments and Communist 
       governments have known this for a long time.  You want to keep the 
       copy machines in your country as difficult to get to as possible.  
       You want to keep the telephones difficult to get to, and make them 
       bad and tap them all the time.
       
       You want to restrict the flow of information.  One of the things that
       happened after Tiennamen Square were these informal fax networks came
       into existence all over China, and within hours people all over the 
       country knew the truth about what was going on. 
       
       Information from satellite broadcasts and from foreign radio stations
       got in and swept over the country.  This just compounds that problem.
       If you're going to take part in the modern world, if you're not going
       to be like Albania, you're going to have to allow in the Internet.
        
       As soon as you allow in the Internet, people are going to start 
       exchanging data.  As soon as they start exchanging data some of that
       data might be encrypted, and you have no way of knowing what it is 
       that they're bringing in or putting out.  You can't control it, not
       short of controlling every single computer that exists in your 
       country.

Q:     Has there ever been a case where the government has broken the code 
       and ... (Inaudible; overlap)

PM:    In the thirties all the time.  Bootleggers would use primitive 
       cryptographic systems to communicate with each other and would get 
       hauled into court.  In fact Kahn's book, The Codebreakers, talks a 
       lot about this.  You bring up a very important point.  Not all 
       cryptography is good cryptography.  The program WordPerfect is really
       popular out there.  It has a little function that will let you save 
       an encrypted version of your file.  It's totally useless.  With a 
       couple of milliseconds' worth of work, another program can just 
       break that wide open.
         
       You need strong cryptography.  Just any cryptography won't do.  
       Insist on -- but in the past very often people using secret codes 
       for communication have been hauled into court by the United States 
       government.  It's happened.

Q:     Were they drug dealers?

PM:    In Prohibition they were drug dealers.  Yes.

Q:     Recently.

PM:    Recently, no.  It has not happened recently.  One of the things 
       that's very strange is that more of them are not using cryptography.
       There are companies in the U.S. that will sell you commercially phone
       scramblers that are really, really good.

MALE:  [INAUDIBLE].  I'm not sure who is reading my mail. It takes a lot of
       effort to do something, to cause anarchy to happen, and everyone 
       would have to be involved, and I don't see that there's any payback.
       
PM:    I disagree for the following reason.  First of all, the people who 
       know these programs are reasonably smart, and most of them are 
       actually talking to each other right now.  And there are real 
       attempts made to try to make sure that they all communicate with 
       each other fairly well.  This is intentionally so that people do
       not face the question of having:  "Well, I've got Encryption 
       Program A and you've got Encryption Program B.  Yes, we can talk."  
       
       One of things also by the way in public key is that it makes it easy.
       Just so long as I know that you're -- Duncan can give you two disks.
       If you want you can just throw one at one of your friends.  Hopefully
       he'll catch it and it won't hit the floor.  And you don't actually 
       have to communicate with each other in advance or communicate with 
       any of your other friends in advance in order to exchange information.
       You just have to have compatible software.  And the marketplace is 
       taking care of that, because people want to communicate with each 
       other.

MALE:  But it is not anything the government can't regulate.  I know you 
       say that it can't, but you can regulate it that kind of stuff.

PM:    They can try to stop it.

MALE:  I don't see any way [INAUDIBLE] ... 

MALE:  It also benefits me.  I may consider that I benefitted from breaking
       Midway(?) codes or Atlantic codes or whatever it is.  [INAUDIBLE].
       
PM:    Well, there might be benefits to you, but unfortunately it's -- 
       whether this is fortunate or unfortunate in fact, it's not your 
       choice.  It's not up to me, it's not up to you, it's not up to 
       anyone.  The cat's out of the bag.

MALE:  It's not.

PM:    Oh, yes, it is.  Anyone can buy a copy of this book.

MALE:  I can get anything I want off your computer.  Anything I want.  
       You send any kind of electronic mail, I can get it (?).

PM:    How?

MALE:  There's always a way.

PM:    No. I'm an electronic mail administrator.  There are ...

MALE:  I can use a rubber hose cryptosystem.

PM:    Yes.  Admittedly.  I can come up to you and I can beat you up.  At 
       which point what does it matter?

MALE:  I can change your computer so it doesn't -- I can monitor your 
       keyboard, watching you type.  I mean there's all these ways.  It's 
       not a question of [INAUDIBLE].

PM:    It becomes very rapidly prohibitively expensive ... 
       (Inaudible; overlap)

DM:    There's a question of how much it'll cost the government. There are 
       estimates that if the N.S.A. used every computer they have and they 
       ran it for eighty years nonstop, they'd be able to break -- you know,
       it's like angels on the head of a pin.  I mean ...

PM:    He points out very correctly that if they're willing to spend enough
       money they can monitor -- they can break you.  On the other hand, 
       it's extremely expensive for them to do that and cryptography is 
       really cheap.  In fact if you have a computer already cryptography 
       is absolutely free.  Now admittedly, computers are not absolutely 
       free.  But anyone who has a computer right now, anyone who has a 
       computer right now can communicate with anyone else who has a
       computer right now securely, securely enough that what they spent a
       couple of hundred dollars setting up the government will have to
       spend tens of thousands of dollars trying to go after.

MALE:  It's actually millions probably.

PM:    Not necessarily.  If they come after you with rubber hoses it might 
       be relatively cheap ... [LAUGHTER]

MALE:  Forty dollars.

PM:    You say things like, "Well, I have to coordinate these things, and I
       have to come up with..."  Yes. Admittedly you have to have standards.
       But remember, most people in the world who do technical stuff very 
       naturally try to follow standards.  You won't go to the average 
       telephone store and buy a telephone that does not plug into your wall,
       and that's not because they particularly like you or they 
       particularly like modular jacks; it's because they want to make sure
       -- because they know that if you buy a phone that doesn't plug into
       your wall -- well, you won't buy a phone that doesn't plug into your
       wall.  Put it that way.

DM:     Perry, you know, keep in mind that a lot of this stuff is the 
        ground floor.  It's square one, whatever, and the idea is to let 
        people know what's going on, let people know what the problems are,
        let people know what the solutions are now, and maybe five years 
        from now -- again, the problem I sort of hinted at before was that
        because it's still early the government's trying to do things like 
        slip in the Clipper chip and stuff to prevent these things before 
        they happen.  It's just important for people to know about this 
        stuff.  As time goes by new systems, new software, will have all 
        this stuff built into it and ...

MALE:   You won't even know you're encrypting.

DM:     Yeah.

Q:      What about the falling price of processing power?

PM:     Well, this has two interesting effects.  There is an extent to which
        this makes it easier to crack codes. However, not as much as you 
        would think.

Q:      What about lengthening the number of digits in the prime that you ...

PM:     We won't get into these details, but basically one of the features 
        of things like public key cryptosystems is that if you have twice as
        much computer power lying around you can encrypt things much more 
        securely using the same amount of time and it takes exponentially 
        longer for the people who are trying to break what you've done.

MALE:   Not only -- as processing power falls -- it is cheaper...

PM:     It becomes faster.

MALE:   As the specific cost of processing falls, of processing power falls,
        it becomes progressively cheaper to use longer and longer keys, 
        which cost more and more time ...

FEMALE: Witfield Diffy says to use three crypto scans ABA.

PM:     Well, that's DES.  Never mind.  We're getting into details that we
        shouldn't, probably.

MALE:   The point is the cheaper ...

PM:     As computers get cheaper, it will become harder for them to break 
        codes using non-rubber hose techniques.  That's true.

MALE:   Decryption becomes more costly.

DM:     Steve, in the back.

STEVE:  First of all, it's been very interesting subject, thanks  but I'm 
        goin to rain on your parade...  A couple of things come to mind.  
        [INAUDIBLE].  One thing of course is the issue of acces.  Most of 
        the population doesn't have access to the equipment, and certainly
        if they have access to the equipment have very limited knowledge,
        and really it winds up ... [INAUDIBLE] ... being a very small group
        of individuals. [INAUDIBLE] ...  If we're talking about this in the
        context of -- this is creating a new, nonauthoritarian society, that
        can't be done by a small group of individuals acting through an 
        Internet or electronic data process.  It requires a [INAUDIBLE]
        social organization.  You know, you mentioned Tiannemen Square.  
        Well, the efforts [INAUDIBLE] ... You get an Army that is willing 
        to repress the rest of the population for the resources of the rest
        of the population.  As long as that happens ... [INAUDIBLE] ...
        
        One other thing I should mention, when we talk also about the issue
        about people pulling out, about the underground economy -- one you
        mentioned, the underground economy of Chinatown.  I'm not sure
        [INAUDIBLE] ... exactly a model we'd want to impose for the rest of
        society.  Suppose you get a lot of people to stop paying taxes 
        [INAUDIBLE] ... without an overt social organization when 
        sanitation services collapse and social services collapse -- unless
        you're [INAUDIBLE] ... It comes back to ultimately what anarchy