Atlantic was largely not a complete disaster because of signals intelligence work? A few people know. What is signals intelligence? Why does the government care so much about this? Signals intelligence, put simply, is the busi- ness of reading other peoples' mail. That's it, most baldly. It's the interception of communications, whatever form those communications take. And it's a very, very big thing with the government. The National Security Agency basically has two jobs. One of them is to be this gigantic ear out there that listens to all the communications that it can unearth. Period. Now one of the problems is that lots of foreign governments don't like having all their communications listened to. I don't know why. [LAUGHTER] And lots of private individuals don't like having all their communications intercepted. So they tend to use cryptography. So one of the other big things that the National Security Agency spends billions of dollars a year on is research in code breaking -- how to break cryptographically protected messages. The other half of what the N.S.A. is try to keep foreign governments from doing the same thing to us. They're also in the business of developing codes and trying to protect the United States government and government contractors from having their communications intercepted. Naturally there's a small conflict here, because the people who spend their days trying to break other countries' codes and foreign companies' codes and American citizens' codes, they're not supposed to do that anymore. At the Congressional hearings in the Seventies they promised to stop doing that. Anyway, the people who spend their days monitoring, you know, cellular telephone calls in Moscow would prefer that the technology developed by the people who are developing ways to keep the United States government's communications secure not get into the hands of the people who are trying to make cellular telephone calls in Moscow, because they want to be able to listen to all of this stuff. So we've got this conflict between the two halves of the National Security Agency, and the side that wins is almost always the people that slurp up traffic. They never talk about any of the techniques they use, and they try to keep them as secret as possible. And until the early 1970s there was almost no private sector research on cryptography done in the world. The National Security Agency had a monopoly on information about cryptography, and to this day they never have said -- they still have a great reluctance to declassify things from the Second World War. Put it that way. By the way, the National Security Agency is truly huge. They have at least ninety thousand employees that we know of. They occupy the entire Ft. Meade military base just outside of Washington. It really is bigger than all the other intelligence agencies put together. It's of course an agency that's extremely secretive, and until the 1970s they did not even admit that the N.S.A. existed. N.S.A. was said to stand for "No Such Agency." Something rather interesting happened, however, in the early Seventies, which is that a few computer scientists and mathematicians, specifically Whitfield Diffy, Ralph Merkel and Martin Helman, came up with the first major discovery in cryptography outside of the government sector in about fifty or sixty years, which was this notion called "public key cryptography." It's an idea that was so feared by the National Security Agency that they actually attempted to quash all open research and publication on the subject. They discovered that it was not possible to do so, much to their chagrin. This little thing called the First Amendment gets in the way. But to this day they attempt with every means possible that they can to try to deter research in the public sector. Now what was it that Diffy, Helman and Merkel came up with that they considered to be so dangerous? I have to explain a little bit more about cryptography than I like to in order to explain this. The reason it's more than I'd like to is because frankly unless you're really interested on an intimate level cryptography gets rather boring. It's like discussing the details of auto mechanics. It doesn't make for interesting talks. But I'll talk about it for a minute anyway. All modern cryptosystems have two components to them. There is an algorithm and there is a key. The algorithm is basically your recipe for saying how you're going to take your message in on one end, scramble it up and spit it out the other end. But the algorithm is not a complete recipe. It's missing a portion. That portion is the key. The idea is that by having this thing called a key, that's -- it's just like a key to a lock in a door. Thousands of people can own exactly the same model of Yale lock all over this city, but because each of them uses a different key on their lock two people who own the same brand of lock can't open each other's doors. Well, it's exactly the same idea. By separating out this small piece of information -- it's usually a large number these days -- two users of a system can -- different people can communicate using the same cryptographic system without being able to read each other's messages, and indeed one of the rules for designing cryptosystems is that the cryptosystem should only depend on the key for secrecy. You should be able to tell people exactly how you're encrypting things, but just not tell them what the key is. And they should be unable to decipher your traffic no matter how hard they try. Now most people know that -- you know, your ordinary door, you walk up to it, you unlock it, use a key, you lock it again, you use the same key. This is actually the way that most cryptosystems used to be before Diffy, Helman and Merkel. Now this causes a problem. Let's say that I want to communicate with Dave. Okay. Now we have to exchange a key securely. I can't just call him up on the phone and say, "Hey, Dave. This is the key we're going to use," because someone can be tapping the phone line. I have to actually go up to Dave, you know, hand him the key, and then go off -- or send a courier and then go off and later on communicate with it. But let's say that I want to then communicate with, say, you. I can't use the same key I'm using with Dave, because then you could read the traffic and I wouldn't necessarily want you to be able to read the traffic. So okay, now I have two sets of keys. Well, let's say I'm communicating with several hundred people regularly. Well, I have to exchange keys with all of them. This is an enormous pain in the ass. What Merkel, Helman and Diffy came up with was something called the public key concept. It's a really neat idea. Imagine for a moment -- imagine a mailbox for a moment that has a mail slot in it. Okay? And once something's been stuck in the mail slot it's inside the mailbox and the only way to open the mailbox is with this key. But anyone can stuff things into the mail slot. Anyone can put things in, but only the owner of the key to open the mailbox can get things out. The idea that they had was this. Let's say that we had cryptography systems in which there were two keys, two keys that cannot be determined from each other. I cannot figure out what one of the keys is based on what the other key is. One of the keys encrypts things: takes them, scrambles them up, makes them look like gibberish. You cannot, however, unscramble things with that key. You need the second key in order to descramble things. The scrambling key is the encryption key, or the public key. It's called a public key because I can give it away. I can put in the phonebook or in an ad in the New York Times or anywhere else I want, "this is my public key." Anyone on earth can use that, because you cannot determine from that key what the decryption or private key is, the key that I keep to myself, that I don't tell anyone, and which is the only way to read things that have been scrambled up with the public key. Now this is a real revolution. Now I can just give thousands of people the same key to send mail to me or to have phone conversations with me or what have you, and all I have to do is keep one key private and I'm secure. I no longer have any problem with key distribution. Now this might not sound terribly revolutionary, but consider that we live in the modern age and we've got lots of computers and computerized telephone systems and things like that. Because of public key cryptography -- and this is not practical without public key cryptography -- I can build a telephone system where, every pair of phones in the country have public keys associated with them and the public keys are published off somewhere and when you pick up the telephone and dial a number, your telephone asks a database somewhere what the public key is for the number I'm calling, finds it out and scrambles the entire telephone conver- sation using that public key. So instead of having to worry about and sweat over distributing keys to everyone I talk to, I can afford to encrypt my conver- sations with the corner store, or the pizza parlor that I'm calling to give an order to. I can encrypt absolutely everything. This wasn't practical before public key cryptography was invented. Public key cryptography makes cryptography really cheap and easy to use. This is something that the N.S.A. doesn't like, obviously, and that's why they tried to keep this information from being published to the point that N.S.A. officials who were apparently not acting under official orders sent letters to lots of publications telling them that if they published any information on this they'd be violating acts about the publication of classified information, and they tried to contend that all research in cryptography was born secret and that once you wrote a paper you couldn't read it again unless you had a security clearance. Unfortunately, as I mentioned, they were forced to back off of this. There were lots of reasons for this, one of which is that the courts didn't agree with them. One of them is that lots of the research goes on in foreign countries, which, believe it or not, are not run by the U.S. government, at least not all of them, not yet. But anyway, what happened was that in the early Seventies these people came up with this new concept. This spurred an interesting revolution, because suddenly lots of people in academia saw that there was interesting research to be done in cryptography and that they could do it outside of the N.S.A. Before the early 1970s all the cryptographers in the United States for the most part who had any degree of serious interest in the subject worked for the N.S.A. That was it. That was your only career path. Now there are thousands of people who work on cryptography in academia in this country and in countries around the world, and it's a real serious subject of study. There are conferences several times a year, people publish this stuff in the open literature. So there is now this thriving field of study, which the N.S.A. really doesn't like -- because as I mentioned, the people who are basically that big ear trying to listen to all the conversations around the world -- and by the way, when I say they try to, I really mean it. They've got listening posts all over the world to try to intercept every possible radio transmission, microwave-transmitted telephone call, every satellite-based communication, everything they can get they tap-- you know, cables going between foreign countries -- everything they can possibly do to listen to as many conversations as they can. MALE: Supposedly they monitor every overseas phone call in this country. PM: Yeah. Whether or not they actually do is a matter of speculation, but it's thought by many that they do. FEMALE: Well, they do sample. DM: We don't know what they do for sure. FEMALE: No, trust me. DM: Okay. FEMALE: So if you say, "Bomb the World Trade Center," they pick up on those words. DM: Possibly. Anyway -- while all of this was happening in the mid- Seventies and early Eighties with cryptography developing as a field of study, at the same time the computer revolution was happening. Now computers -- I know that everyone on earth by now has heard about -- has seen their People Magazine or Time Magazine or Schlock Magazine No. 525th article on the Information Superhighway, and the Internet and how wonderful it all is -- and you probably all want to fall over and gag when you hear any more hype from people who don't know what they're talking about. Well, I'm going to give you some more hype, but at least I do know what I'm talking about. The Internet is a really amazing thing. I can sit in my office in New York and I can collaborate with an- other person who's working in Australia and I can send mail to friends of mine that gets there instantaneously who happen to be in Finland -- or communicate with tens of thousands of people that I've never met. If it wasn't for the Internet, I never would have met Dave. In fact if it wasn't for the Internet the Cypherpunks Movement would never have started, because all the people involved in it found each other over the Net. Now in the future, whether you like it or not, the Net's going to be where you do your catalog shopping ... DM: Perry, I just have to mention. There are about 700 plus Cypherpunks today. I've met I think three of them in the flesh in a year and a half. PM: I've met more, but it's amazing how many people you get to know and be friends with and you've never seen. But you know, I -- in the future it's possible for many kinds of work to be done remotely thanks to these technologies. If you're a writer you don't need to be anywhere in particular, do you? I mean you can write your books in Fiji for all you care. And if you're a reporter, unless you're a beat reporter and you go out to interview the fireman at the fire or what have you, if you're someone who, say, covers wider issues you can do your business from almost anywhere that you've got a telephone and a computer. The Internet makes that an even bigger thing. In the future I'm probably going to be able to send a little message down to the pizza parlor around the corner and have a pizza delivered over the Internet. Everything you do is going to be done over the Net. MALE: Isn't it going to taste a little funny sucking through that wire? PM: Well, no. MALE: No worse than Domino's, I guess. PM: It tastes fine once you encrypt the pizza. Anyway -- the thing is that the Internet -- now when Dave said that the Internet is an anarchic thing, this is not a lie. This is literally the truth. The Internet has no central control, no central planning. It's operated basically on the premise of, "Okay. I've got a connection. Oh, you want to connect up? Okay. Connect up to me." There is no such thing as a central Internet management office. There is -- yes? Q: What's the Internet Naming Authority? PM: The I.A.N.A. is -- to the extent that there is any sort of central organization, that can be said to be it. But what do they do? They give out Internet numbers. If they stopped doing it, people would probably start routing in NBGP domains, you know, on their own and assigning their own numbers. It's not like you can exert control over the Net that way. But never mind. I don't want to... COMMENT: It fits most people's definition of God. The circle whose center is everywhere, whose circumfrence cannot be found. PM: The Net is organized basically without any -- the Net has no knowledge of what borders are. Okay? I can communicate with a machine in Finland as easily as I can communicate with a machine in New York. One of the results of this is that when people in one country are told, "Oh, you can't put this sort of information up on your computer," well, generally speaking someone in another country will offer to put the information up for them. And at that point the attempt to control the flow of information is completely meaningless. Does everyone know -- there's this court case now in Canada where the Canadian press has been forced not to say anything about the court case. Well, of course anyone who's in Canada and is connected to the Internet can read all the details that they want to. Borders are completely meaningless. The U.S. government has this interesting rule that you cannot export cryptographic software from the United States. I'll get into that more later. But one of the interesting results of this is that when people have built large packages -- large pieces of software that involve cryptography -- what they've generally done is to just specify how the cryptographic pieces have to fit in, and people in foreign countries have written a dozen or couple of dozen lines of computer software to implement those things and put them up on computers in Finland. For some reason putting this stuff up on computers in Finland is really popular. I don't know why. [LAUGHTER] Really, it is. The Network traffic between the United States and France is dwarfed by a factor of five compared to the traffic between the U.S. and Finland. It doesn't make any sense, but that's the way it is. But, you know, the Internet has changed the way many people who are computer professionals now live. For instance, the chairman of Autodesk, which is this very successful computer company, decided that he didn't like living in the U.S. So he moved to Switzerland, got an Internet connection and managed his company from then on from there. I think recently he decided he wanted to retire and hired another manager, but never mind; the point is that the Net really breaks down barriers to information. You can not restrict information to one country, you cannot keep information from flooding around the world almost instantaneously to any place that's on the Net. Everyone is on the Net. The Russians are on the Net. People in Singapore -- where the government of Singapore thinks that they're exerting control over what books can be sold in the country, I have news for them. Stuff going over the Net is far racier than anything that they think that they're censoring at the border. So here we have this wonderful Internet, and the problem with it is it's completely insecure. The way it's been built right now, anywhere I tap a line I get enormous amounts of traffic going by and it's all conveniently already computerized so I can use computers to listen in on it. If the N.S.A. wanted to build a computer system to watch all the electronic mail going between two countries, it would be nice, easy, feasible. There'd be no problem. This is a problem. Now the problem is of course easily solved with cryptography. If you encrypt all your communications, suddenly it's impossible to tap them. This is of course something that the National Security Agency doesn't like, so they try to do things like restricting the export of cryptographic software from the U.S. Well, I have news for you. Software is just information. Software is no different from any other kind of information, and if I put software up on the Net suddenly it's in every country in the world within hours. Mysterious how this happens. This has happened with cryptographic software several times. There's a fellow by the name of Phil Zimmerman who wrote a nice public key cryptography package called PGP, put it up on a machine in the United States. Well, wouldn't you know it -- available in Italy -- oh. By the way. Duncan has about ten copies of PGP for anyone who wants them. [LAUGHTER] We're having trouble controlling the distribution of cryptography software here. [LAUGHTER] Anyway. Sorry. Flying disks. Yes. But seriously, that's as easy as it is to get your hands on cryptography software these days. It's all over the Internet. People can download it from Finland, from Italy, from France and England. It's everywhere. And the N.S.A. doesn't like this, either. Now stepping back from that for a moment, I'll mention that we've talked about ordinary applications for cryptography up to now: how to keep your communications secret using cryptography. We touched earlier on the fact that you can do banking using crypto- graphy. Now why would this be particularly interesting? Well, this guy David Chaum, in Holland, came up with a system -- and I'll just ask you to take this on faith -- you can read a book like Bruce Schneider's book [Applied Cryptography] later if you like and figure out why this would be so -- but it is possible to construct a money transfer system in which it is guaranteed that all parties are anonymous and no parties have to trust each other. Now that's a really neat feature, isn't it? You don't have to trust the other parties, and you don't necessarily have to know who they are. Now remember that the Internet allows communications to go all over the world now. So let me give you the following little scenario. Let's say that I had a little pocket computer in my -- you have an Apple Newton, don't you? Is it with you? Let me hold that for a minute. Now I don't know if people are aware, but, you know, this is as small as computers have gotten and in fact this is large compared to the HP100. There's a very powerful computer here. It even has a communication link so it can talk to other computers. Right here. I can keep it with me. Let's say that I'm sitting in a cafe in the East Village, say, and I'm going to meet up with this guy who has promised to give me this contraband I've been really interested in -- nude pictures of Nancy Reagan. Okay? So he shows up in the cafe. You know, I've never seen the guy before. Never mind. I look at the pictures. Yes, I want them. We both get out our little computers, put them in front of each other. Each of us presses a button and suddenly I've paid him $10,000 which I've extracted from my offshore bank account over the Internet, handed to him and lord knows what he's done with it. He might have sent it for all I know to the same bank or to one on the other side of the world. No way to know. No way to trace it. Now U.S. banking law says that I can't do business with foreign banks inside the U.S., but it's very difficult in the presence of strong cryptography to know whether or not I am communicating with a foreign bank. Or to regulate the transport of money. If you're living in the underground economy and you're dealing with cash all the time it gets very cumbersome, you know? You're carrying around $10,000 in cash. It's a big wad of bills. Keeping cash in your home is inconvenient, moving cash around is inconvenient. It's dangerous. You can't get interest paid on your cash. So what you really want is offshore banking, but offshore banking has been inaccessible to people. Well, this might very well blow that wide open, and I'm certain that the I.R.S. and the N.S.A. dislike this possibility. Imagine what happens if half the population finds itself able to function in the underground economy with all the ease with which they can function in the above-ground economy right now. They've got their bank, they've got -- you know, they can make investments if they want. They can transfer money. Hell, it's more conven- ient. It's much more convenient than the way we do things right now, and I can clear and transact -- right now if I wanted to, say, a credit card transaction, you know, a merchant has to be set up to do a credit card transaction and it's really risky. Someone can steal the credit card numbers, etc. This is extremely secure, and I can exchange information with anyone and I can do it using ordinary equipment that I can buy off the shelf. That's another thing that I want to point out here. Every computer is dangerous to them. Every single computer in the world is an extremely high quality cypher machine if it has the right programs, and programs are really easy to copy. They're as free as air. They move very fast. I can throw one -- pretty inaccurately, but never mind. Anyway -- flying software, faster than the internet... [OVERLAPPING COMMENTS AND LAUGHTER] The people in Fort Meade, you know, at the N.S.A. --their offices are known as the Puzzle Palace to some people, largely because to a large extent what they do is they spend their days worrying about really intricate mathematical problems. And there's -- I suspect not much that makes the people in the Puzzle Palace more nervous than the notion that equipment that anyone in the world can buy for a couple of hundred dollars can make it impossible for them to tap some communications. It's incredibly cheap -- cryptography software is virtually free right now. Almost anyone can get software that's really good for free. And computers are cheap. And you can't keep the software from moving around. This is probably the stuff of their nightmares. You know, remember that their mission is to listen in on every- thing, and they're faced with the threat that they may be able to listen in on nothing. Compound that with the fact that then we have these science fiction scenarios of people able to conduct untraceable, unwatchable transactions without the I.R.S.'s all- seeing eye being able to detect it -- or FINCEN's. How many people here know what FINCEN is? I'm curious. Okay, we have two or three people who know what FINCEN is. Do you know what FINCEN is, sir? MALE: No, I don't. PM: FINCEN is the government agency that collects information on all of your large bank transfers and tries to note if you are engaging in a pattern of criminality with them. Right now it can only watch all of your transfers over $10,000, or things that are suspiciously close to $10,000. They would like to watch all of your bank transactions. This is all in the name of... Oh, by the way. Does everyone knows what the Four Horsemen of the modern governmental Apocalypse are? The excuses for virtually every civil rights reduction that's happened in the last few years. The Four Horsemen are: terrorists, drug dealers, pornographers and child molesters. Okay. Now all the time you're told, "But what if terrorists got their hands on cryptography technology?" By the way, the answer to this is that anyone who wants to get their hands on it -- let's put it this way. This book [Applied Cryptography] can be purchased in any bookstore. Explains everything about the state of the art in modern cryptography. Any of you who knew enough about computers could pick this book up and write software probably good enough that the government could not listen in on your communications. Trying to keep this stuff out of the hands of anyone is rather difficult. The horse is already long out of the barn.