Financial Cryptography

2008 -- The Year of the Raven!

What lies in store for us next year?

• More security gloom. There has to be a turn-around in process to make it stop going down, or fraud has to reach an economic limit or balance. Neither is yet in sight. So, no change: fraud up. Gloom up. Panic up. Only thing down is confidence, faith and the already tattered reputation of the security industry.

• Lies and deception are an issue. It's routine in business it seems, and it is a fascinating game theory question why this has become prevalent.

  "Well, if they want to try to manipulate, I can play that game too. [I] gave every known body signal there is telling of lies ... covered my mouth, scratched my elbow, looked away and so on."

  At the notable DigitalIdForum.com in London, I heard one statistic that stuck out: the correlation between CVs and capabilities is 0.3, in Britain at least. For those who forget their statistics, this puts the Curriculum Vitae closer to rubbish (0.0) than to value (1.0). Look for the correlation to turn negative, and we'll all have to play the game of guessing which employee skills are precisely the reverse...

  Seriously though, the CV is the core tool in the search for jobs; what does that tell you about the employment industry? And what does that tell you about the employees that you already have?

  My prediction for the year to come: more attention to just why deception and lies are so much a part of our business relationships. I therefore dub this the Year of the Raven, although the real reasons for this are too deceptive to be revealed.

• Last year, we saw the realisation that the security profession was in the problem space, not the solution space. I predict there will be some soul-searching in the academic world as well. How many papers have you read this year that fail to come close to the problem space, let alone the solution space? Some of them are just plain case studies in what's wrong with academia.
• Bad news for the academic credibility of security conferences, but good news for their attendance. Good news for related fields, and indeed there will be a rush to introduce other things.

  There will be more attention on psychology (I saw an excellent presentation on the psychology of deception at DigitalIdForum. Did you know that adults deceive around twice per day? Tricked again, dammit!). Also, economics is in full fashion, alongside user interface and usability studies. In around 2 years, I predict that people will start to think of Open Governance, and end up discovering where FC was 10 years ago. Or could have been.

• Mozilla created a new business framework around the Thunderbird email client. This might pay dividends if it creates the incentives to add some usability to the thing they call S/MIME. Or maybe not, we'll see. This could be good, as the potential to turn Thunderbird into a viral security agent for the user is definately there, but it does require some opportunistic thinking. It has all the code in it, just a woefully old and tired security model that should have been trashed the day after Christmas of 1994, like all the other toys from the 1970s.
• Europe is in the early skirmishing phase of a "war on cash." Expect a cassus belli sometime in 2008. Like all wars these days, it is totally bogus. In this case, it can been seen as simply another request for another subsidy from the banks, or more complexly, an exchange of the SEPA political favour for the monopoly payments franchise.

  So far, the competition people in the EU haven't worked it out, and the central banks and other "payments authorities" are tripping over themselves to present the "costs of cash" with no thought as to the "cost of bank subsidies." As always, the people will lose this war, but at least it is limited to the European peoples.

• Macs will still be the better alternative for security for another year. The cracks are showing, and some attacks will bite, but in the pure comparison sense, it still makes sense to buy a Mac. Expect a few actual breaches and viruses, etc, and much trumpetting of how Macs are insecure. Don't be fooled, it takes more than a year to get from 0% of windows insecurity to 100%.
• As predicted last year, Vista failed to make the difference. This means that Microsoft has given it their best shot, and failed. So they now have to think out of the box and make major structural changes to the model. Which means: rewrite the OS. Look for signs of operating systems research, on both how to do it, and what's available to snaffle. Normally Microsoft would not pick up other people's work in such a sensitive area, but this time it's different, *iff* there is anything that will help. Anyone got a caps OS handy?
• OLPC could not have picked a better time. Their new OS (with caps and all that good stuff in it) will inspire many of the research / geek sector, and therefore we predict it will become a credible alternative to the OS menu (at least as credible as Minix and the experimental linuxii, etc, and more credible than Next, etc). We might not know for 5 years whether it will storm the barricades, but this year will see its steady rise.
• Which means we are seeing the slow but steady regularisation of the OS market. Once it was just MS Windows. Slowly, Unix is clawing back, with Mac and with Linux. Unlike with the CPU market which saw the dramatic turnaround from monster to duopoly over the only 4 years, this will be slow. Watch for signs of increasing annoyance from PC sellers and switching to non-MS-installed sales.
• News in pure FC is likely to be pretty much limited. Again, complexity slows it down, so it is the same old story: great opportunities are missed because the people who are doing them have ignored all the academic advice (good) and thus lose the big picture (bad).
• Don't expect much change in the Certificate Authority world. EV succeeded so Verisign++ is further entrenched. CAcert continues to prove the pros & cons of an open source organisation: it is easier for the open source world to create a broad techie organisation than a deeply governed organisation. Because of audit impositions, the old bazaar trick that worked for Linux, Mozilla, Apache, the BSDs, etc, just doesn't work for CAs.

  However, the fundamentals are still good for an open CA, so we'll plough on. Prediction: by the end of 2008 we'll know whether CAcert can make it or not as a serious CA, and whether there is any hope for the browser/email security models to start delivering crypto to the users. (Audit-wise, that is, being the only language that matters to the big vendors.)

• Online banking still lurches along, caught in the trap of user-confidence and an inability to deploy another channel. The result of course is user deception, self-deception and more losses. As there are no competitive forces in sight to inspire some change, we are looking at a slow race developing between attackers and the banks, where both will be counting the losses on both sides of their balance sheets. The only comprehensive loser is again, the user.
• e-gold will likely have to be restructured over the next year. So many blows, so much loss of confidence; still, my record of predictions with e-gold is not good so I'll refrain from further speculation. WebMoney and Goldmoney should have a good year, and as they are in different application spaces, they'll not bump head to head.
• the blog will remain quiet, partly because a lot of the interesting stuff has already been written, and partly because at least one blog (Dave's digital money) now covers a lot more of the classical fc news & views.

  The formula for a popular blog has also affronted: lots of lightweight posts, many divergent authors, stick to something everyone can happily disagree with, make it part of a spectrum of marketing, not a lone voice. Has the blog craze run its course? I think so, but the replacement isn't clear (podcasts have been tried, but they don't appeal. Video is ok for mass market, but it is more costly to make the grade in the serious market).

Enough is enough! Enjoy your year, and even if you find your industry in turmoil, try and create the sense of space needed to reflect on the real things that went wrong. The good news is that we rarely get to live in interesting times, the bad news is that there will be 100 opinions on why, and only a statistically insignificant portion of them will be close. So sayeth the Raven!

2007: year in review...

So what happened in 2007? All doom and gloom, really. Here's a roundup of what I called the year of the platypus, for some mixed up reason to do with security in its own worse nightmare:

• Security went down, overall. Net Fraud went up, overall. Breaches kept on being reported. Software author liability was discussed. In other words, no news.
• One bright spot is that it is now considered wisdom that the security profession and/or industry has failed. I first wrote about the hypothesis of failure in mid-2004, and at that time, phishing, breaching and other industrial-scale crimes were considered ignorable problems. (I don't think I was necessarily the first, but perhaps the most outrageous.)

  For this reason, I dubbed 2007 the year of the platypus. During that year, all of the major security commentators clicked into consensus on this hypothesis. This is good. Before, it was impossible to fix because all efforts at security amounted to the old medical practice of wrapping up battle wounds in bandages and not taking them off until the limb fell off. Now that those in the security field include themselves in the problem space, rather than the solution space, there is some hope to at least understand the spaces.

• My suggestion that every CSO needs an MBA went down like a lead balloon. Possibly because nobody fully groks the signal-economics of the CISPP, et al, and thus they are hardly capable of accepting a qualification that claims as its plus points nothing to do with security, an order-of-magnitude cost increase over popular alternatives, and, worse of all, you have to really work for it. No good can come of that! And to be fair, Spencian mathematics predict that this won't work in the Alice-in-wonderland world of signalling, because additional value-added is ignored beyond a minimum point that achieves stability in the market for silver bullets.
• OpenPGP went to RFC4880, after ten years of delay. In one sense this means little as those who don't use OpenPGP are not going to change, and those who do won't worry. In another sense, because it means that OpenPGP is now as solid ("got a standard") as its erstwhile PKI cousin(s), we can more clearly discuss a better model. Which helps, because it is the only infrastructure that is useful, economic and net-scaleable for human signing.
• The UK got a rude awakening, firstly when the government disagreed with the entire security industry's best efforts (Her Majesty's ministers are avid readers of FC?) and then when the self-same government lost its database. British security pundits are fleeing in droves down to their local comedy house, where they'll get more respect as stand-up comedians.
• Stormbot surged across the top of beyond to become the biggest threat to the popular mind since the Blight. I reported (with some level of respect) that this signalled a new phase: the arisal of a serious criminal mastermind, Moriarty-like, or better known as the systems architect in computing lingo.

  Others reported with life-threatening degrees of hyperventilation how Stormbot swarmed into computer researchers minds and initiated fear and panic. Next, we'll be telling crypto-jokes about the fall of RSA. (These images brought to the nyour mind, courtesy of the Blight, from _A Fire Upon the Deep_. Death to Vermin.)

• I predicted that this year, Vista would fail to make a difference to the security game. Which leads to a need to redesign from scratch. Bruce Schneier thought so too:
  

  Redesigning the Microsoft Windows operating system would work, but that's ridiculous to even suggest.

  Or maybe not. Vista failed to make a diffference, so the logical conclusion is also the ridiculous one, to paraphrase Sherlock Holmes. I guess we'll see next year :)

• As predicted, Apple Macs enjoyed a year of protecting their users. So did Firefox.
• Practically zero news from Cardspace/Info???. This is a worry. Regardless of ones depressed feelings of another Microsoft security initiative, there were some good seeds sown in that design.
• All trust of any form was lost in the American government (called there "the administration"). So much so that they started pushing for reform on global warming. Where this leaves us in the FC field is counting the damage done to the governance of the spooks and cops. That might take decades, as a lot of the stuff was secret.
• In payments news, the e-gold guys got indicted, following a run of "brushes with the law". That was the end of an era, and sparked some sadness; it could have been different. In the end, it has made things much harder for the rest of the players as they now have deal with the overbearing and dirty image. Yet another innovation in finance has been sacrificed to ego, and we the people will lose another decade or two in getting competitive payments systems.
• In further and more serious payment news, the telco fascination took deep hold in the subconsciousness of many observers. No longer just the fantastical prediction (the Trotter observation of 1998), telcos are predicted to be the owner of the wave of the future of payments. Not so fast, I say: like banks, telcos are not stellar in the understanding of this field, and there is still plenty of room for the extraordinary losses, film-story bungles and outrageous claims.
• Curiously, gift cards and small issuers and the like slipped out of the observer's consciousness. (Curious here means, I predicted otherwise, and was wrong...) Rumour has it that the EU has decided to kill the digital money directive. Perhaps an act of kindness, as the banks made sure the thing was born crippled and insane from the beginning? And, it's ok because the EU still has SEPA, the mandated response to the failure in competition? Right?
• Small FC challengers such as zopa.com fight on, under the yes-it's-meant-to-kill-you suffocating blanket of regulation. Second Life lurches along, much like Paypal days of old; if it survives as a financial system it will be because of brutal survival skills. WebMoney continues to inhabit the spot of "the one I'd worry about if I was you."



• Open source established itself further as the credible alternate. It is now routine for groups I deal with to use Firefox, Thunderbird and share documents using OpenOffice. No matter how sensible that is... Mac share still grows in the meetings I go to, and I am beginning to be suspicious of claimed market share numbers.
• From the monetary economics department, the collapse of the US dollar was well established. Finally, the imbalance that started around 2000 became accepted as policy not anomaly. News from the underground indicated that Sir Alan initiated the process of dealing with the massive shift in value in 2003, but it took until this year that the mainstream realised that falling dollar prices signalled a long term shift based on the rise of the Euro, over-expenditure of the USG and a few petro-wars thrown in to provide a colourful backdrop.
• The big question that was on everyone's mind was finally answered: what happens when the world currency gets out of balance? meltdown? panic? blood in the streets? the answer was of course more simple and more sinister: the other central banks took half the value on the table. That is, where gold was indicating a 2-3 fold value collapse, Euros, Sterling, Aussies and others inflated their currencies in between the squeeze. Thus, housing booms maintained, currencies appreciated, and economic records maintained intact. But behind the mirrors, another story unfolds...
• The blog went quiet. Partly, it was because there was little or no news. Partly because I got more involved in the great certificates adventure.
• Predictions I got wildly wrong: AES stands strong, but I will say that 128 should be avoided. EV seems to have won out when Mozilla decided to add it, which probably will force the arisal of the two tier market (no bad thing in marketing terms but not a comfortable result, if you know what I mean).

Well, that's enough for me, and probably more than enough for any sane person! Enjoy Xmas, and maybe we can conjure up something better for the new year.

Pennies - RSA reveals attack kits? and Why Gift Cards,

From Epayment news:

Jan 11 2007 : RSA Security says it has discovered a phishing toolkit which is being sold on Internet fraudster forums. The so-called "universal man-in-the-middle phishing kit" enables sophisticated "next-generation" attacks against banks and e-commerce sites, the U.S. Internet security firm says.

Funny, that's more or less what we reported nearly a year ago.

Someone reveals one of the insider secrets about Gift Cards:

According to the research from TowerGroup, consumers purchased $80 billion worth of gift cards in 2006. Of that, $8 billion will never be redeemed.

Yup. Hard numbers though, and I suspect the figure is higher.

Also, a couple of hollywood-file-sharer love-in notes:

Leslie Moonves, president of CBS Corp., and Robert Iger, chef executive of The Walt Disney Co. both gave keynote addresses this year that emphasized cooperation between studios and device makers.

"If you asked me two years ago, did I want Disney in the keynote? No," said Gary Shapiro, chief executive of the Consumer Electronics Association, annual sponsor of the CES show. "Disney was the poster child in Washington for the most anti-technology company there was."

Security Soap Opera - (Central) banks don't (want to) know, MS prefers Brand X, airlines selling your identity, first transaction trojan

Journalist Roger Grimes did some research on trojans and came up with this:

Even more disturbing is that most banks and regulatory officials don’t understand the new threat, and when presented with it, hesitate to offer anything but the same old advice.

Every bank and regulatory official contacted for this article said they have already recommended banks implement a two-factor or multifactor log-on authentication screen. In general, they expressed frustration at the amount of effort it has taken to get banks to follow that advice. And all complained about the trouble these schemes are causing legitimate customers.

When told how SSL-evading Trojans can bypass any authentication mechanism, most offered up additional ineffective authentication as a solution. When convinced by additional discussion that the problem could be solved only by fixing transactional authorization, most shrugged their shoulders and said they would remain under pressure to continue implementing authentication-only solutions.

They were also hesitant to broach the subject with senior management. It had taken so long to get banks to agree to two-factor authentication, they said, it would be almost impossible to change recommendations midstream. That puts the banking industry on a collision course with escalating attacks.

On the nail. (Sorry, Dave!)

Microsoft has apparently expressed a preference of smart cards over two-factor tokens:

More interesting is Microsoft's long-term view of two-factor authentication. In contrast to companies such as E*Trade, AOL, and VeriSign which have either announced support for or are already supporting one-time password + security token combinations for their customers, Microsoft sees things moving in a different direction, according to a spokesperson.

Most customers told Microsoft they do not view one-time passwords as strategic and are looking long term to smart cards as their preferred strong authentication mechanism.

In any soap opera, there appear advert breaks where the housewife is offered the choice of bland brand A versus bland brand B. "Most housewifes we surveyed chose Brand X soap powder." Maybe Microsoft's heart is in the right place, though:

Last week, Microsoft pledged to bring about 100 legal actions against phishers in Europe, the Middle East and Africa (EMEA) over the next few months.

That's smart. Given their risk exposure, they'd better have something good to bring to the negotiating table, especially given their extensive experience in prosecuting evil software copiers and less extensive success in stopping spam. To take a leaf out of Chandler's book, with fraud you are either fighting them or your are supporting them. (hmmm, spoke too soon.)

Adam finds an article on how Adam Laurie and Steve Boggan "hacked" the airline ticket tracking systems to extract the full identity of a flyer. Skipping the details on the hack itself (did buying the ticket establish their credentials?) the piece is more relevant for its revelations of just how much data is being put together for erstwhile tracking purposes.

We logged on to the BA website, bought a ticket in Broer's name and then, using the frequent flyer number on his boarding pass stub, without typing in a password, were given full access to all his personal details - including his passport number, the date it expired, his nationality (he is Dutch, living in the UK) and his date of birth. The system even allowed us to change the information.

Using this information and surfing publicly available databases, we were able - within 15 minutes - to find out where Broer lived, who lived there with him, where he worked, which universities he had attended and even how much his house was worth when he bought it two years ago.

The article talks about how the Europeans handed over the data to the Americans in apparent breach of their own privacy rules. Things like what means you ordered, what sort of hotel room. Today you're a terrorist for ordering the ethnic meal, and tomorrow you run the same risk if you swap hotels and your hotel chain doesn't approve. Think that's extreme? Look how the information creep has started:

"They want to extend the advance passenger information system [APIS] to include data on where passengers are going and where they are staying because of concerns over plagues," he says. "For example, if bird flu breaks out, they want to know where all the foreign travellers are.

That's nothing more than an excuse by the system operators to extract more information. Of course, your hotel will be then required to provide up to date information as to where you moved next.

A data point - perhaps the first transaction trojan. FTR:

Transaction-based SSL-evading Trojans are the most dangerous and sophisticated. They wait until the user has successfully authenticated at the bank’s Web site, eliminating the need to bypass or capture authentication information. The Trojan then manipulates the underlying transaction, so that what the user thinks is happening is different from what’s actually transpiring on the site’s servers.

The Win32.Grams E-gold Trojan, spawned in November 2004, is a prime example of transaction-based type. When the user successfully authenticates, the Trojan opens a hidden browser window, reads the user’s account balance, and creates another hidden window that initiates a secret transfer. The user’s account balance, minus a small amount (to bypass any automatic warnings), is then sent to a predefined payee.

Many SSL-evading Trojans are “one-offs,” meaning that they are encrypted or packaged so that each Trojan is unique -- defeating signature-style detection by anti-virus software.

Ultimately, SSL-evading Trojans can be defeated only when users stop running untrusted code -- or better still, when banks deploy back-end defensive mechanisms that move beyond mere authentication protection.

Sorry about the "blame the user" trick at the end. When will they ever learn?

News and Views - Mozo, Elliptics, eBay + fraud, naïve use of TLS and/or tokens...

Firefox, the free open-source Web browser from Mozilla Corp., quietly gained enough users in March to finally grab 10% of the Web browser market, according to a report released yesterday by Web audience-measurement firm NetApplications.com.

Funny, I thought that happened long ago.... On the even better news front, Frank Hecker is now posting weekly diaries of action at the Mozilla Foundation. This is an excellent idea, as they are stuck between a rock and a hard place - a non-profit with lots of money and no obvious way to govern it. Here's a snippet of some relevance to FC but the real news is that Mozilla do seem to be taking the search for governance seriously. A snippet:

PKI R&D Workshop. I attended the PKI R&D Workshop at NIST in Gaithersburg MD, and participated on a panel discussion on browser security. Note also that Bob Relyea of Red Hat spoke about work by Red Hat and Sun to support elliptic curve cryptography in the NSS crypto library and hence in Firefox and other Mozilla-based products, as well as in server products from Red Hat and Sun. For more information see Bob's presentation; the rest of the workshop presentations and papers are also available online.

Presumably Red Hat and Sun are interested in supporting the NIST Suite B because of potential USG sales. It will be interesting to watch how this falls out - will the endorsement of NIST (and in the background, the NSA) push elliptic curve cryptography forward to adoption? Or will the patent free (and therefore cheap) alternatives we already have maintain their open dominance?

A great post by Cubicle on fraud over at eBay. He talks about how the company has drifted and postured to the point where they are now providing infrastructural support for scammers - because it is the scammers that pay their fees.

The mere existence of “Second Chance” is interesting because it indicates to me that ebay has significant enough outtrade and settlement risk issues that they’re losing a significant number of sellers, so they’ve created Second Chance as a mechanism to help sellers better mitigate settlement risk. Unfortunately, they’ve tilted the balance in favor of unscrupulous sellers in the process.

Look at the risks of Shill Bidding from the seller’s perspective. If they get too greedy, they will exceed the limit of their bidders and wind up “winning” their own auction. This costs them whatever the listing fee on the item was and they still have to re-list (and re-pay the fee), doubling their transaction cost and hope that they don’t overbid the auction again.

Now, thanks to Second Chance, ebay has effectively provided a safeguard which mitigates the risk to a greedy seller of exceeding the buyer’s maximum price. The dishonest seller can now safely discover the real winning bidder’s limit without having to double their transaction fee to obtain the information.

Cubicle has it right. Either you take on fraud by the horns, or it takes you on in very nasty ways. eBay and PayPal chose the latter course, and will always provide a high-cost, low reliability experience for the users. Luckily they got there in an environment when the competition wouldn't stay the course, but things have changed in the payments business lately. Signs are that they recognise the party's over, and Paypal are madly diversifying their base into credit cards and cell/mobile payments.

Viega and Messier talk in ACMQueue about how using SSL to get security is likely to be a bit of a fantasy:

Security Is Harder Than You Think, by John Viega and Matt Messier

Many developers see buffer overflows as the biggest security threat to software and believe that there is a simple two-step process to secure software: switch from C or C++ to Java, then start using SSL (Secure Sockets Layer) to protect data communications. It turns out that this naïve tactic isn't sufficient. In this article, we explore why software security is harder than people expect, focusing on the example of SSL.

I'd agree - saying that you use TLS for your security model has generally correlated with a lightweight approach. Likewise, Bruce Schneier writes in Interactions of the ACM that two factor tokens are "too little, too late."

Man-in-the-Middle Attack. [phishing ... snipped]

Trojan Attack. An attacker gets the Trojan installed on a user's computer. When the user logs into his bank's Web site, the attacker piggybacks on that session via the Trojan to make any fraudulent transaction he wants.

See how two-factor authentication doesn't solve anything? In the first case, the attacker can pass the ever-changing part of the password to the bank along with the never-changing part. And in the second case, the attacker is relying on the user to log in.

Although people are now happy to point out that the SSL, certificate infrastructure, and the browser security model out there is like swiss cheese, there still seems to be a sense that if the developers and the implementers just read the right books and just did the job fully, then we would have security ... I think the major point here is that ACMQueue and Interactions are happy to print articles pointing out the flaws which is probably a necessary step if we are to move forward.

Random Pennies

A curious remark from a German bank called Postbank about their desire to use digital signatures:

The electronic signature, which the bank attaches to its e-mail, is issued by TC Trust, the German subsidiary of GeoTrust.

Only Postbank customers using e-mail applications with both S/MIME authentication and TC Trust certification will receive a certification symbol, confirming that the text message is from the bank, according to Ebert.

Currently, only Outlook supports the Postbank service, he said.

Confused. I think he means that TC Trust's root isn't in other mail clients. More curioser is this:

Plans are underway to switch the certification service from TC Trust to VeriSign, which already provides certification services for Postbank's Web pages, according to Ebert. "We started with TC Trust but we think it's better to have everything with Verisign, which is more widely used," he said.

While on the subject of phishing (Internet fraud maybe being the #1 topic in netnews over time) here's a list of myths in phishing:

Secure, encrypted web page indicates a valid website - Contrary to a popular advise, never rely solely on "https://" prefix or padlock icon that indicate a "secure" page. It is possible for a phishing website to have a valid SSL certificate.

Yeah, heard that one before :) There are 10 more. Meanwhile, the US DoJ conducts a large survey and finds:

About 3 percent of all households in the U.S., totaling an estimated 3.6 million families, were hit by some sort of ID theft during the first six months of 2004, according to DOJ data set to be released Sunday. ... According to the DOJ's numbers, credit card misuse is the most common consequence of identity theft. It accounted for about half of the cases of identity theft that the survey tracked, Baum said.

Of the other identity theft victims, about 25 percent had banking and other types of accounts used without permission, 15 percent had their personal information misused, and about 12 percent faced a combination of several types of ID theft.

The average loss from these crimes amounted to US$1,290, with two-thirds of respondents saying that the theft cost them money. Based on these numbers, the nationwide estimated loss during the six months of the study amounted to $3.2 billion, for an annualized total of $6.4 billion.

Risks points at a costly burger mistake:

Four burgers at his neighborhood Burger King cost George Beane a whopping $4,334.33.

Beane ordered two Whopper Jr.s and two Rodeo cheeseburgers when he pulled up to the drive-through window last Tuesday. The cashier, however, forgot that she'd entered the $4.33 charge on his debit card and punched in the numbers again without erasing the original ones - thus creating a four-figure bill.
...
Terri Woody, the restaurant manager, said Burger King officials tried to get the charge refunded. But the bank said the funds were on a three-day hold and could not be released, Pat Beane said.

The hold is designed to prevent customers from spending money that no longer is available in their accounts and to let the bank confirm a transaction is legitimate before transferring funds, said Bank of America supervisor Joel Solorio.

Could have been worse ... could have happened on a stock exchange.

iVirus, Mr & Mrs Smythe, Shaking the Incumbents, Ping on convenience, Gmail on inconvenience

Curious that Apple's Safari wasn't mentioned in recent discussions about High Assurance certs. Which brings us to a rash of sightings of Mac Viruses. Well, three at least. Unfortunately the media can be relied upon to over-play the appearance of Mac Viruses, and downplay the Microsoft ones. That's because one is rare and the other is common. Although that will change over time, I predicted Macs won't be overly troubled by it this year, so they'd better do the right thing!

More signs of aggressive play by media corporates seen. This time, "Mr & Mrs Smith" have been accused of playing on your PC with more than the normal funny going's on. It's not clear what it means when they say "like a root-kit" but maybe you should play that movie at your mother-in-law's place first.

Dave discusses the effect of Skype on the telecoms industry. Curiously, although these forces have been building up for a decade (does anyone remember the first IP phone?) and we've been discussing it for even longer, it takes a big success like Skype to actually shake the incumbents. Exactly the same thing is happening in the DRM world as the incumbents are waking up to the success of iPod. Business plans and ideas are flashing around just like the good old dotcom days.

Ping launches an essay on how to solve phishing. He starts out from a principle that bears thought:

I have an idea about how to solve the phishing problem. Although proposals to solve phishing are not yet as common as proposals to solve spam, there certainly have been quite a few of them, so you would be right to wonder what makes this proposal any different or any more likely to work.

So, right up front, here is the key property of this proposal: using it is more convenient than not using it.

This principle has been bubbling around for some time, awaiting a pithy encapsulation. Think about it - you use Skype because it is more convenient than not. You use SSH for the same reason. You probably benefit from SSL when you benefit only because you had to do nothing to make it happen. And Philipp points at how easy it is to turn off security:

Without any guarantees, here are two tips that will make sure you will receive these new features as soon as they are available (and if you're lucky, they will start working right away):

If you are using an https connection to access GMail, remove the 's' (i.e. the address should read "http://mail.google.com"). Eventually, all the new services will support https, but they typically don't initially...

The comments are worth a read - for any security guy that needs to be reminded about how users really respond. Including this one which has more FC significance:

Embedding Google Talk inside Google Mail is going to create a real problem for some people.

I work for a bank where all external IM is forbidden. We can only go through auditable internal IM applications. This is enforced by a proxy server that blocks access to all known IM servers including MSN Messenger, Yahoo, ICQ, AOL, Google Talk, Jabber, etc.

If the Compliance nazis hear that we can access Google Talk from Google Mail, they will block Google Mail too.

I don't suppose there's much hope in asking, but is there any way we can have a special version of Google Mail _without_ access to Google Talk?
Posted by: Anonymous Banker at February 10, 2006 03:17 AM

Birch on Blogs, decimal points matter with houses, too, and Bill Gates predicted...

News snippets for today: Dave Birch steps into the blogging world with Digital Money. Welcome! Dave is one of the grandfathers of FC, having led Consult Hyperion, spiritually at least, through a thousand and one conferences, work outs, contracts and so forth, all in their narrow field of technomoney and other things valuable.

Several people sent me references to this house that was erroneously valued at $400million. Now, such a blunder is just a typing mistake .. until the value gets fed into the budget, and the money gets spent before it is collected:

Most local officials did not learn about the mistake until Tuesday, when 18 government taxing units were asked to return a total of $3.1 million of tax money. The city of Valparaiso and the Valparaiso Community School Corp. were asked to return $2.7 million. As a result, the school system has a $200,000 budget shortfall, and the city loses $900,000.

Many people will look for many excuses in many strange corners ... but the answer is clear - don't spend money that doesn't exist. Corollary - use a real hard money system, not one based on promises. It won't happen again, I promise.

Dave points at bit-tech that checks the predictions of Bill Gates. Here's one:

What do you carry on your person now? Probably at least keys, identification, money, and a watch. Quite possibly you also carry credit cards, a checkbook, traveller’s checks, an address book, an appointment book, a notepad, reading material, a camera, a pocket tape recorder, a cellular phone, a pager, concert tickets, a map, a compass, a calculator, an electronic entry card, photographs, and perhaps a loud whistle to summon help.

You’ll be able to keep all these and more in another information appliance we call the Wallet PC. It will be about the same size as a wallet, which means you’ll be able to carry it in your pocket or purse. It will display messages and schedules and also let you read or send electronics mail and faxes, monitor weather and stock reports, and play both simple and sophisticated games. At a meeting you might take notes, check your appointments, browse information if you’re bored, or choose from amongst thousands of easy-to-call-up photos of your kids.

Rather than holding paper currency, the new wallet will store unforgeable digital money...

Whether it happened like that or not, we'll leave others to judge. Or you can what Dave wrote.

The last (US) telegram, another FV copycat, another signature snafu

Western Union sent its last telegram last week. That's a communications method that then survived 150 years - a salutory reminder as to how long some networks take to die. Perhaps in 100 years or so we'll read about the last IPv4 packet...

Samuel Morse, inventor of the Morse Code, sent the first telegram from Washington to Baltimore on May 26, 1844, to his partner Alfred Vail to usher in the telegram era that displaced the Pony Express.

It read, "What hath God wrought?"

No news on what other countries are doing, typically.

WSJ writes on Paypal's response to Googles "imminent" entry into the payment systems business.

But PayPal must now contend with Google. The Mountain View, Calif., Web-search giant, which has terrified Silicon Valley with its ability to quickly create new consumer products and services, is developing a rival service called GBuy. For the last nine months, Google has recruited online retailers to test GBuy, according to one person briefed on the service. GBuy will feature an icon posted alongside the paid-search ads of merchants, which Google hopes will tempt consumers to click on the ads, says this person. GBuy will also let consumers store their credit-card information on Google.

Google said that it has acknowledged publicly on many occasions that it is working on payment products. The company also said it already processes online payments for ad services, as well as fees from consumers who use features such as Google Store and Google Earth. It declined to comment on any pending products.

Basically, Google is going the conventional copy-Paypal route. Install a credit card with Google, buy your retail products and get Google to aggregate the payments. You'll probably have a balance and be billed monthly. This is the same model that First Virtual pioneered, and muffed. Paypal refined it slightly (removed the two obvious bugs) and won big time. (Peppercoin tried this, not sure how they are doing.)

Why then is it taking so long? One wonders, but I'd speculate that for Google the honeymoon is over, and they have to dot the i's and cross the t's. If they muff it they might not get a second chance. Just speculation, mind.

In non-digital signature news, consider the plight of the Chairman of Qantas caught red-handed with copies of aircraft plans on entering american airspace:

Yet when the TSA rifled through her bag last year at Los Angeles Airport, their discovery of aircraft diagrams got them salivating. "Why have you got all this this?" one asked. "'I'm the chairman of an airline. I'm the chairman of Qantas," replied Margaret. "But you're a woman," replied the TSA goon. ... After a one hour interrogation and with TSA officials unimpressed by Margaret's production of official Quantas letterhead documents, she devised a way out that speaks volumes about the nature of this whole farce.

She simply wrote a note to the TSA official saying that she was CEO of Quantas and signed it.

Notice two interesting issues other than the obvious that the TSA doesn't know what planet it is on. Firstly the checker was trained to pick up on inconsistencies and picked up that a woman was calling herself Chairman. In California, that's inconsistent and politically incorrect. In Australia, that's more like a statement of pride. Oops. So there is an obvious limitation in teaching sophisticated checking of cultural cues to someone who has never left California.

Secondly, a signed statement carries enough weight to have over-ridden the entire process. What does that say about signatures? What does that say about bureaucracies and social engineering? Can you imagine the Chairman whipping out her smart card, inserting it into the TSA's reader and digitally signing a statement?

(Which brings to mind the infamous digital signing story from the 90s when the US President and the Irish PM used smart cards to sign an ecommerce agreement... After signing the treaty, they swapped the smart cards as if they were football jerseys...)

Startups, Free Banking, Gift cards

Pelle points at Guy who writes on The Art of Bootstrapping. For those who've done lots of startups the pain will be quite familiar. And for those who appreciated GP, Guy's #3 might resonate:

3. Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn't perfect? Blah blah blah. ”Perfect“ is the enemy of ”good enough.“ When your product or service is ”good enough,“ get it out because cash flows when you start shipping. Besides perfection doesn't necessarily come with time--more unwanted features do. By shipping, you'll also learn what your customers truly want you to fix. It's definitely a tradeoff: your reputation versus cash flow, so you can't ship pure crap. But you can't wait for perfection either. (Nota bene: life science companies, please ignore this recommendation.)

Nick points to Lawrence White - of Scottish free banking fame - who notes that the free banking influence is being kept in the Federal Reserve Board by the nomination of Randy Kroszner, a noted austrian scholar.

Brief reminder: Retiring Chairman Greenspan, also known as Sir Alan in the anglo world, is the greatest friend that free banking and gold ever had. It was under his influence that the Federal Reserve declined to regulate gold as money, and thus left the scene open for the development of the DGCs. That holiday is now over.

On the question of new / old money forms other than gold, there is an increasing use of gift exchange in the US. A survey by Accenture found that:

More than four out of five survey respondents (82 percent) said they gave or received gift cards this holiday season, and two-thirds (66 percent) said they both gave and received them. The vast majority (81 percent) of respondents said they have already used their gift cards, almost half (43 percent) said they planned to spend their gift cards within one month of receiving them, and nearly two-thirds (63 percent) said they planned to spend the entire value of their gift cards in a single store visit. ... The growing popularity of gift cards has introduced a secondary market in which consumers can buy and sell the cards at a discount. Just 13 percent of survey respondents, however, were aware of the opportunity to purchase pre-owned, discounted gift cards. Even fewer respondents (9 percent) were aware of the opportunity to sell gift cards for cash.

82% ! Yowsa! That's almost as popular as vegemite. No news yet on what discount the sold-on cards move for. Nor on use of phone cards as money.

Rights in the New Year

Pennies for the New Year: An effort to document the ontology of the Rights layer:

Anonymity, Unlinkability, Unobservability,Pseudonymity, and Identity Management - A Consolidated Proposal for Terminology (Version v0.24 Nov. 21, 2005)

Also, IFCA have published their list of accepted papers for FC06 in Anguilla this February. Unfortunately, there are no abstracts posted that I saw, so titles only for the browsing.

From the real estate / property market, someone has taken on the brave step of offering individual issuance capabilities to house owners.

Todd points at an interesting paper on accounting for p2p systems with the goal of distributed accounting:

PeerMint: Decentralized and Secure Accounting for Peer-to-Peer Applications

Abstract. P2P-based applications like file-sharing or distributed storage benefit from the scalability and performance of completely decentralized P2P infrastructures. However, existing P2P infrastructures like Chord or Pastry are vulnerable against selfish and malicious behavior and provide currently little support for commercial applications. There is a need for reliable mechanisms that enable the commercial use of P2P technology, while maintaining favorable scalability properties. PeerMint is a completely decentralized and secure accounting scheme which facilitates market-based management of P2P applications. The scheme applies a structured P2P overlay network to keep accounting information in an efficient and reliable way. Session mediation peers are used to minimize the impact of collusion among peers. A prototype has been implemented as part of a modular Accounting and Charging system to show PeerMint’s practical applicability. Experiments were performed to provide evidence of the scheme’s scalability and reliability.

Merry Xmas all

Ah, have a nice Xmas!

Check in with F-secure for the original, and with EC for the significance.

Phishing for News..

George reports that his story originally published here in FC has made it to USAToday:

He watched, horrified, as the intruder in quick succession dumped $60,000 worth of shares in Disney, American Express, Starbucks and 11 other blue-chip stocks, then directed a deposit into the online account of a stranger in Austin. "My entire portfolio was being sold out right before my eyes," recalls Rodriguez, 41, a commercial real estate broker who alerted Ameritrade in time to stop the trades.

Also BusinessWeek but I was not able to find a URL. George's story is a great one if you are unsure how far phishing reaches! (Addendum: SEC releases advisory to traders.)

Some interesting sniping from the banks on two-factor tokens. The current generation of two-factor tokens (like RSA Security's SecureId) are the stocking fillers of the security field. Cute, cheap in small numbers and broken by January. This is a well written piece rounding up the issues:

But tokens create their own headaches. They're relatively costly to deploy and can prompt lots of calls to customer service if they're lost or temporarily out of reach. Banks also fear a "necklace" scenario in which customers end up collecting an annoying strand of tokens from all the companies they do business with online.

Even one token might be seen as a hassle.

After ETrade Financial Corp. began offering tokens from RSA Security Inc. to its 2.8 million U.S. customers, only 20,000 signed up. Almost all those people could get the gadgets for free because they were frequent traders or had more than $50,000 in their accounts; everyone else had to pay $25.

That about matches the 1% takeup rate that I heard of in the gold sector, when someone tried to sell these things.

One-time passwords can be given out in less expensive ways. They can be beamed to a cell phone or handheld computer, or mailed to customers on scratch-off cards.

But security experts warn that one-time passwords can be stolen in a "man-in-the-middle" attack, in which a con artist harvests a victim's code on a phony Web site and instantly relays it to the real bank, then conducts transactions in her name. Such frauds are rare -- if they happen at all -- but that's partly because there are so many easier targets, for now.

Token vendors point out that their devices can be set to foil men in the middle by generating additional codes for each individual transaction. Still, there are enough knocks against hardware-based solutions that most banks will take softer steps to meet the regulators' demands.

Not bad! Someone has done their homework. This is not to say that it can't be done better, and the Wikid token may be just that. I haven't examined it in detail but it essentially duplicates what the software tools to address phishing do - it caches the cert in some way. (Also see blog.)

Roundup on News

In the developing story of the "Cuthbert case" the ripples continue to spread as security experts disect the result. Curiously, it hasn't hit the mainstream much, probably because popular press can't work out what the fuss is about but the blogs seem to have it. Adam points at Samizdata.net Diana Quaver, who has followed and documented the case in much more detail. Also dropsafe has a nice roundup. Here's one article from ZDNet:

"Nobody thought he was doing anything significant or malicious, and there was a strong argument that the police should have given him a slap on the wrists and not prosecuted," said Sommer, senior research fellow at the London School of Economics' Information Systems Integrity Group.

Sort of. More usefully, what we are not confident about is that we can describe in terms that users will understand and that matches the web's ethos just what is "unauthorised" and what is not. We've now got a good theory as to what BT thought was unauthorised - but it isn't a theory that makes any sense to the user or the web, nor is it a theory promulgated much further than the minds of corporate security experts.

In terms of a trespassing analogue, there is no sign, no fence, and BT prosecuted the trespasser on the basis of finding his wallet dropped inside the facility. As the owner admitted to being inside, this was considered good enough for a criminal conviction - but it isn't good enough for trespassing!

This is a complete mess. I'd suggest not going anywhere near the DEC / BT.donate.com site to donate; or indeed anywhere near BT until they explain in terms understandable to users just what the difference between their website and the RFC is.

Read on for more news!

It's official: we now have a duopoly in CPUs as AMD has reached 50% of one particular market. This was a classic story that I picked when I realised that Intel had broken the golden rule that had established its hegemony - and started on the fatal journey to design another chip that wasn't Intel-compatible. AMD saw it too and went the other route of Intel-compatible-and-64 bits and won. By the time Intel had realised their mistake it was too late, and thanks to their mistake we all win with cheaper chips and more aggressive progress. Now if only Steve Ballmer would get distracted on ... dunno, how about DRM?

Interesting post about side-channel attacks on games software, a timing difference gave a player a way to clean up. Also, a curious finding for ISPs - DDOS is the #1 hassle:

Over 90 percent of ISPs surveyed cited simple "brute force" TCP SYN and UDP datagram DDoS floods from zombie PC networks as their biggest day-to-day hassle, a finding which should apply equally to their corporate clients. This puts DDoS ahead of more recent attack types such as fast-spreading worms and DNS poisoning, which were ranked second and third respectively, in terms of prevalence. Even then, worm attacks were often most hazardous in terms of their original effect on traffic. "The primary threat from worms is not the payloads but the network congestion they cause," the report noted.

Surprisingly, given the prevalence of this type of attack in recent years, only 29 percent of ISPs offered services to counter and trace DDoS in an automated way at the ISP level. The majority only discovered such events when a customer contacted them for help. The main means of defending against DDoS remains the use of Access Control Lists (ACLs), but these come with the downside of shutting off network access. The DDoS attack is stopped but only by replicating much the same effect as the original traffic blocking.

The reported motivations for DDoS attacks clusters around issues such as cyber-extortion, electronic protests against companies, and even corporate espionage. Few, if any, of such attacks are reported to result in criminal action against the instigator, which could account for its continued popularity.

Nice the way they characterise it as a "hassle" and ignore the actual damage done to the target, which is presumably under some extortion play.

A very nice piece of Open Governance; eBay shareholders go through the annual report and talk about the stated risks there. Some good stuff on Paypal woes for payment systems people.

And finally a welcome sounding of the alarm: CIOs and vendors are complicit.

Those who've read my draft on silver bullets will know what this is about, but it is good to see someone else looking at the problem. Here's what Ed Lazowska (who holds the Bill & Melinda Gates Chair in Computer Science & Engineering at the University of Washington !!!) says:

Q: Some of the problems, such as software not being designed with security in mind, indicate that CIOs are somehow complicit. In your opinion, are CIOs victims or are they part of the problem?

A: The answer surely is both. CIOs are partially responsible for the insecure state of today's operating systems, because they failed to see the handwriting on the wall and prioritize security. Vendors produce what we are willing to purchase. CIOs are largely responsible for the failure of their organizations to operate at the current state of the art with respect to cybersecurity, and very few organizations operate at the current state of the art.

Now, the problem is that you can't suddenly decide that you want something like security and expect to be able to buy it, because the technology doesn't necessarily exist. Almost no IT company looks ahead more than one or two product cycles. And historically in IT, those ideas comes from research programs that the federal government underwrites. Just think about e-commerce: You need the Internet, Web browsers, encryption for secure credit card transactions and a high-performance database for back-end systems. The ideas that underlie all of these can trace their roots to federally funded R&D programs.

That's how this relates to the R&D agenda. Long-range R&D has always been the role of the national government. And the trend, despite repeated denials from the White House to the Department of Defense, has decreased funding for R&D. And of the R&D that does get funded, more and more of it is on the development side as opposed to longer-range research, which is where the big payoffs are in the long term. That's a more fundamental problem that CIOs aren't responsible for.

I do not agree with the second part of his answer, but left it in for contrast!

Open Source Insurance, Dumb Things, Shuttle Reliability

(Perilocity reports that) LLoyds and OSRM to issue open source insurance, including being attacked by commercial vendors over IP claims.

(Adam -> Bruce -> ) an article of the "Six Dumbest Ideas in Computer Security" by Marcus Ranum. I'm not sure who Marcus is but his name keeps cropping up - and his list is pretty good:

1. Default Permit (open by default)
2. Enumerating Badness (cover all those we know about)
3. Penetrate and Patch
4. Hacking is Cool
5. Educating Users
6. Action is Better Than Inaction

I even agree with them, although I have my qualms about these two "minor dumbs:"

• "Let's go production with it now and we can secure it later" - no, you won't. A better question to ask yourself is "If we don't have time to do it correctly now, will we have time to do it over once it's broken?" Sometimes, building a system that is in constant need of repair means you will spend years investing in turd polish because you were unwilling to spend days getting the job done right in the first place.

The reason this doesn't work is basic economics. You can't generate revenues until the business model is proven and working, and you can't secure things properly until you've got a) the revenues to do so and b) the proven business model to protect! The security field is littered with business models that secured properly and firstly, but very few of them were successful, and often that was sufficient reason for their failure.

Which is not to dispute the basic logic that most production systems defer security until later and later never comes ... but there is an economic incentives situation working here that more or less explains why - only valuable things are secured, and a system that is not in production is not valuable.

• "We can't stop the occasional problem" - yes, you can. Would you travel on commercial airliners if you thought that the aviation industry took this approach with your life? I didn't think so.

There's several errors here, starting with a badly formed premise leading to can/can't arguments. Secondly, we aren't in general risking our life, just our computer (and identity as of late...). Thirdly, it's a risk based thing - there is no Axiomatic Right From On High that you have to have secure computing, nor be able to drive safely to work, nor fly.

Indeed no less than Richard Feynman is quoted (to support #3) which talks about how to deal and misdeal with the occasional problem.

Richard Fenyman's [sic] "Personal Observations on the Reliability of the Space Shuttle" used to be required reading for the software engineers that I hired. It contains some profound thoughts on expectation of reliability and how it is achieved in complex systems. In a nutshell its meaning to programmers is: "Unless your system was supposed to be hackable then it shouldn't be hackable."

Feynman found that the engineering approach to Shuttle problems was (often or sometimes) to rewire the procedures. Instead of fixing them, the engineers would move the problems into the safety zone created conveniently by design tolerances; Insert here the normal management pressures including the temptation to call the reliability as 1 in 100,000 where 1 in 100 is more likely! (And even that seems too low to me.)

Predictibly Feynman suggests not doing that, and finishes with this quote:

"For a successful technology, reality must take precedence over public relations, for nature cannot be fooled."

A true engineer :-)

See earlier writings on failure in complex systems and also compare Feynman's comments on the software and hardware reliability with this article and earlier comments.

WoT in Pictures, p2p lending, mailtapping

Rick points at a nice page showing lots of OpenPGP web of trust metrics.

The web of trust in OpenPGP is an informal idea based on signing each other's keys. As it was never really specified what this means, there are two schools of thought, being the one where "I'll sign anyone's key if they give me the fingerprint" and the other more European inspired one that Rick lists as "it normally involves reviewing a proof of their identity." Obviously these two are totally in conflict. Yet, the web of trust seems not to care too much, perhaps because nobody would really rely on the web of trust only to do anything serious.

So an open question is due - how many out there believe in the model of "proving identity then signing" and how many out there subscribe to the more informal "show me your fingerprint and I'll trust your nym?"

What's this got to do with Financial Cryptography? PKI, the white elephant of the Internet security, is getting a shot in the arm from web of trust. In order to protect web browsing, CACert is issuing certificates for you, based on your subscription and your entry into a web of trust. In one sense they have outsourced (strong) identity checking to subscribers, in another they've said that this is a much better way to get certificates to users, which is where security begins, not ends.

More pennies: I've got my Thunderbird and Firefox back, so now I can see the RSS feeds. I came across this from Risks: How to build software for use in a den of thieves. We'd call that Governance and insider threats in the FC world - some nice tips there though.

PaymentNews reports that PayPal CEO Jeff Jordan presented to Etail 2005:

Nearly 10 percent of all U.S. e-commerce is funneled through PayPal, according to Jordan. One out of seven transactions crosses national boundaries. Consumers in more than 40 countries send PayPal, and those in more than 20 countries receive this currency.

"Our goal," he said, "is to be the global standard for online payments."

(More on Paypal.)