[My apologies in advance if you see several copies of this message. I am posting this fairly widely due to the severity and importance of the problem described.] As you may already have heard via the popular press, First Virtual Holdings has developed and demonstrated a program which completely undermines the security of every known credit-card encryption mechanism for Internet commerce. This is a very serious matter, and we want to make sure that the Internet community is properly informed about the nature of the problem that we have uncovered, and the manner in which we have made the information known. In this (unavoidably lengthy) post, I will try to explain the nature of the problem and its implications for Internet commerce. In deference to those who are not technically oriented, the detailed explanation of how the attack works will be the LAST part of this message. First of all, let me be perfectly clear about the nature of the problem we have exposed. It is NOT a bug in a single program, and it is therefore NOT something that can be fixed with a "patch" or any other kind of software upgrade. Instead, we have demonstrated a very general attack that undermines ALL programs that ask users to type a credit card number into their home computer. We have tested the program and confirmed that it undermines the security of the credit card encryption software from Netscape and Cybercash, and we expect that it will work similarly for ANY future software based on the encryption of credit card numbers on the desktop. Quite simply, we believe that this program demonstrates a FATAL flaw in one whole approach to Internet commerce, and that the use of software to encrypt credit card numbers can NEVER be made safe. For consumers, we recommend the following simple rule: NEVER TYPE YOUR CREDIT CARD NUMBER INTO A COMPUTER. We should also be clear about the Internet commerce mechanisms that are NOT affected by this problem. First Virtual is unaffected because we never ask the user to put a credit card number at risk by typing it into a computer. Hardware-based solutions can also be devised that are immune to this attack, including solutions based on smart cards and solutions based on "card swipe" machines in the home. We believe that current digital cash solutions are also not vulnerable to this attack, although some variants of digital cash may be vulnerable to a similar form of attack. Commerce mechanisms based on the use of telephones or fax machines to transmit credit card numbers are also unaffected by this kind of attack. Other proposed commerce mechanisms should, from now on, be evaluated with this kind of attack in mind. The bottom line: INTERNET COMMERCE CAN BE VERY SAFE, WITH SEVERAL DIFFERENT MECHANISMS, BUT ENCRYPTING CREDIT CARDS ON THE DESKTOP IS NOT ONE OF THE SAFE MECHANISMS. It's important to understand why we have taken this step. Obviously, as the long-time leaders in Internet commerce, the last thing we would want to do is to undermine general confidence in Internet commerce. However, we realized that many people believed that credit card encryption was a safe and easy path to Internet commerce, and that very few people understood how easily it could be undermined. Upon investigation, we were frankly startled to realize just how easy it was -- a single programmer got the first version of our program running in about a week. Aside from our obvious interest in promoting our own commerce mechanism, we felt that we had an ethical obligation to bring this problem to the attention of the consumers, banks, and other financial institutions who could conceivably suffer catastrophic losses if software encryption of credit card numbers became widespread. We also realize that we have an obligation to do everything possible to avoid helping any unscrupulous people who might seek to utilize this flaw for malicious purposes. We have accordingly been extremely responsible in how we have handled our discovery. We first demonstrated and explained our program to vital organizations such as CERT (the Computer Emergency Response Team) and the ABA (American Banking Association). Only after many such private disclosures, none of which revealed any defense against our technique, did we publicly disclose the existence of this program. In addition, we have taken several steps to "cripple" our demonstration program, all of which will be discussed below. Furthermore, we have NOT made the program itself generally available. We are currently demonstrating it to selected financial institutions and government agencies, and will provide copies of the program only to CERT and a few other independent security-minded organizations. We have also alerted Netscape to the problem as part of their "bugs bounty" program. At some future date, we might conceivably distribute the program, in binary form on CD ROM, to selected financial institutions. The source code will always be very closely guarded. Unfortunately, however, the general method of attack is extremely easy to duplicate, and we don't know of any good way to alert the public to the problem without explaining it. THE TECHNIQUE Our basic approach was to write a computer program that runs undetected while it monitors your computer system. A sophisticated version of such a program can intercept and analyze every keystroke, mouse-click, and even messages sent to your screen, but all we needed was the keystrokes. Selectively intercepted information can be immediately and secretly transmitted via Internet protocols, or stored for later use. First Virtual's research team has built and demonstrated a particular implementation of such a program, which only watches for credit card numbers. Whenever you type a credit card number into your computer -- even if you are talking to "secure" encryption software -- it captures your card number. Our program doesn't do anything harmful with your credit card number, but merely announces that it has captured it. A malicious program of this type could quietly transmit your credit card number to criminals without your knowledge. The underlying problem is that the desktop -- the consumer's computer -- is not secure. There is no way of ensuring that all software installed on the consumer's machine can be trusted. Given this fact, it is unwise to trust ANY software such as a "secure" browser, because malicious software could have easily been interposed between the user and the trusted software. The bottom line for consumers is that, on personal computers, INFORMATION IS INSECURE THE MOMENT YOU TOUCH A KEY. We have dramatically proven that security ends the moment you type sensitive information into your computer. The vulnerability lies in the fact that information must travel from your keyboard, into your computer's operating system, and then to your "secure" application. It can be easily intercepted along the way. This kind of insecurity is very frightening, and has implications far beyond credit card theft. However, credit cards embody and demonstrate the kind of information that is MOST vulnerable to this kind of attack. Credit card numbers are far more vulnerable to this kind of attack than most other forms of information because of the following particular characteristics of credit card numbers: -- Credit card numbers are easily recognized by simple pattern recognition. -- Credit card numbers are "one way" financial instruments, with no user-level confirmation or verification required for their use. -- Credit card numbers are of direct financial value. In short, credit card numbers are an almost perfect example of how NOT to design a payment instrument for an insecure public computer network such as the Internet. DETAILS: HOW TO TOTALLY UNDERMINE SOFTWARE ENCRYPTION OF CREDIT CARDS First Virtual's demonstration credit-card interception program, once installed, observes every keystroke that you type, watching for credit card numbers. It recognizes credit card numbers with almost perfect accuracy, because credit card numbers are specifically designed to match a simple, self-identifying pattern, including a check digit. Our program is even smart about punctuation and simple editing functions, so that nearly any credit card number that you type into your computer is immediately recognized as such by this program. When our program spots a credit card number, it immediately plays a warning sound and pops up a window on your screen, including an iconic representation of the type of credit card that you have just entered, along with a clear explanation of what has just happened. The current program works only on Microsoft Windows (Windows 3.1, Windows NT, and Windows 95), but we believe that it would be simple to implement on Macintosh and UNIX systems as well. The program doesn't exploit any "holes" or bugs in the operating system. It uses existing, necessary operating system facilities which are part of the published Windows API, and which are necessary for the implementation of screen savers, keyboard macros, and other important software packages. First Virtual's intent is to educate the public, certainly not to endanger it. For that reason, our program incorporates four important precautions intended to prevent any possibility of harm: 1) Our program is not self-replicating. While a malicious program exploiting the same security flaw could easily be embedded in a virus, spreading itself all over the world, that was not our goal. Instead, the program must be deliberately and manually installed on each computer on which it is to run. 2) Our program always puts up an icon on your screen when it is watching your keystrokes. This is certainly not necessary, and it is clear that a malicious program would be unlikely to do this. 3) Our program is easy to remove from your computer, and even offers an "Uninstall" button to the user. Obviously a malicious program would hide itself as well as possible, and make itself as hard to remove as possible. 4) Our program never transmits your credit card over the Internet. While a program using this approach could transmit your information to a criminal in a totally untraceable manner, we would never do anything like that. In fact, we erase your credit card number from our program's memory before we even tell you that we've seen it, thus making sure that the credit card number can't even be retrieved by an inspection of our program's memory. It is frankly difficult to overstate the severity of the problem demonstrated by our program. A clever criminal could use viral techniques to spread a malicious program based on the same approach, and would be no more likely to be caught in the act than the authors of any of the computer viruses that plague the world today. Once it detects a credit card number, a criminal program could use any of several techniques to send that number to the original criminal without providing any way to trace the criminal's receipt of it. (If you're skeptical about this claim, we'd prefer to talk with you privately, as we've never seen the "best" methods for doing this spelled out in public, and we would prefer to keep it that way.) Altogether, this means that if millions of credit card numbers were being typed into Internet-connected personal computers, a criminal could obtain a virtually unlimited supply of card numbers for his own use. In fact, for all we know this could already be happening today. The first visible sign of such an attack, if it were well-executed, would be a gradual rise in the overall rate of credit card fraud. POSSIBLE SOLUTIONS First Virtual believes that the flaw we have uncovered is fatal. In the foreseeable future, all commerce schemes based on software encryption of credit cards on the desktop are completely vulnerable to this sort of attack. The basic problem is that software encryption of credit cards is predicated on the notion of "trusted software". On the consumer computing platforms, however, general purpose operating system functionality makes it unwise to assume too strong a level of trust in such software. No operating system with anything less than military-grade security (B2) is likely to be safe from an attack such as this one. This does not mean that Internet commerce is dead. Any scheme that is not based on self-identifying one-way financial instruments such as credit cards will be essentially unaffected by this problem. Moreover, even credit cards may be made safe on the Internet using one of two approaches: secure hardware add-ons and the First Virtual approach. First Virtual's Internet Payment Systems never places the consumer's credit card number on the Internet. Instead, the consumer provides it to us by telephone when the account is opened. After that, all purchases are made using a "Virtual PIN". Virtual PINs are essentially Internet aliases for underlying payment mechanisms such as credit card numbers, but with several kinds of added security. Virtual PINs are free-form text, with no recognizable pattern, which makes them much harder to detect with the kind of attack we have just demonstrated. Moreover, Virtual PINs are only usable in conjunction with First Virtual's unique email verification process. No payment is made until the consumer confirms an email query, which means that defrauding First Virtual is a multi-step process that is extremely difficult to automate. (For more details, we recommend our paper, "Perils and Pitfalls of Practical CyberCommerce", available via ftp from ftp://ftp.fv.com/pub/nsb/fv-austin.txt.) The bottom line, once again, for those of you who have read this far: NEVER TYPE YOUR CREDIT CARD NUMBER INTO A COMPUTER. There's simply no other way to keep credit cards safe on the net. The program we have demonstrated completely undermines the security of all known programs that claim to handle credit card numbers safely on the Internet. -------- Nathaniel Borenstein <nsb@fv.com> Chief Scientist, First Virtual Holdings FAQ & PGP key: nsb+faq@nsb.fv.com