January 16, 2017

Archives for October 2015

Provisions: how Bitcoin exchanges can prove their solvency

Millions of Bitcoin users store their bitcoins with online exchanges (e.g. Coinbase, Kraken) which store bitcoins on their customers’ behalf. They present an interface that looks somewhat like an online bank, allowing users to log in and request payments to other users or withdrawals. For many users this approach makes a lot more sense than the traditional approach of storing private keys on your laptop or phone and interacting with the Bitcoin network directly. Online exchanges require no software installation, enable a familiar password-based authentication model, and can guard against the risk of losing funds with a stolen laptop. Online exchanges can also improve the scalability and efficiency of Bitcoin by settling many logical transactions between users without actually moving funds on the block chain.

Of course, users must trust these exchanges not to get hacked or simply abscond with their money, both of which happened frequently in the early days of Bitcoin (nearly half of exchanges studied in a 2013 research paper failed). Famously, Mt. Gox was the largest online exchange until 2014 when it lost most of its customers’ funds under murky circumstances.

It has long been a goal of the Bitcoin community for exchanges to be able to cryptographically prove solvency—that is, to prove that they still control enough bitcoins to cover all of their customers’ accounts. Greg Maxwell first proposed an approach using Merkle trees in 2013, but this requires revealing (at a minimum) the total value of the exchange’s assets and which addresses the exchange controls. Exchanges have specifically cited these privacy risks as a reason they have not deployed proofs of solvency, relying on trusted audit instead.

In a new paper presented this month at CCS (co-authored with Gaby G. Dagher, Benedikt Bünz, Jeremy Clark and Dan Boneh), we present Provisions, the first cryptographic proof-of-solvency with strong privacy guarantees. Our protocol is suitable for Bitcoin but would work for most other cryptocurrencies (e.g. Litecoin, Ethereum). Our protocol hides the total assets and liabilities of the exchange, proving only that assets are strictly greater than liabilities. If desired, the value of this surplus can be proven. Provisions also hides all customer balances and hides which Bitcoin addresses the bank controls within a configurable anonymity set of other addresses on the block chain. The proofs are large, but reasonable to compute on a daily basis (in the tens of GB for a large exchange, computable in about an hour). Best of all, it is very simple and fast for each user to verify that they have been correctly included. We can even extend the protocol to prevent collusion between exchanges. The details are in the paper, the full version of which is now online.

While our Provisions protocol removes the privacy concerns of performing a cryptographic proof-of-solvency, there are still some practical deployment questions because the proof requires the exchange to compute using its private keys. Exchanges rightly go to great lengths to protect these keys, often keeping them offline and/or in hardware security modules. Performing a regular solvency proof requires careful thinking about the right internal procedure for accessing these keys.

These deployment questions can be solved. We hope that cryptographic proofs of solvency will soon be expected of upstanding exchanges. Incidents like that of Mt. Gox have greatly damaged public perception of the entire Bitcoin ecosystem. While solvency proofs can’t prevent exchange compromises, they would have made Mt. Gox’s troubles public earlier and more clearly. They would also shore up confidence in today’s exchanges which are (presumably) solvent.

Taking a step back, solvency proofs are yet another example where we can replace an  expensive and trust-laden process in the offline world (financial inspection by a trusted auditor) with a “trustless” cryptographic protocol. It’s always exciting to take a new step in that direction. There remain limits as to what cryptography can do though. Critically, solvency proofs do not create a binding obligation to pay. A malicious exchange could complete a Provisions proof and then immediately abscond with all of the money. For this reason, some form of government regulation of online exchanges makes sense. Though regulation is dreaded by many in the Bitcoin community, it appears to be on the horizon. Bills have been proposed in several states, largely aimed at exchanges. Interestingly, the model regulatory framework proposed by the Conference of State Bank Supervisors in September already mentions cryptographic solvency proofs as a means of demonstrating solvency. We hope this recommendation is enacted in law and solvency proofs are a tool to avoid the cost of the heavyweight auditing requirements traditionally demanded of banks, while simultaneously increasing transparency for exchange customers.

How is NSA breaking so much crypto?

There have been rumors for years that the NSA can decrypt a significant fraction of encrypted Internet traffic. In 2012, James Bamford published an article quoting anonymous former NSA officials stating that the agency had achieved a “computing breakthrough” that gave them “the ability to crack current public encryption.” The Snowden documents also hint at some extraordinary capabilities: they show that NSA has built extensive infrastructure to intercept and decrypt VPN traffic and suggest that the agency can decrypt at least some HTTPS and SSH connections on demand.

However, the documents do not explain how these breakthroughs work, and speculation about possible backdoors or broken algorithms has been rampant in the technical community. Yesterday at ACM CCS, one of the leading security research venues, we and twelve coauthors presented a paper that we think solves this technical mystery.

[Read more…]

Classified material in the public domain: what's a university to do?

Yesterday I posted some thoughts about Purdue University’s decision to destroy a video recording of my keynote address at its Dawn or Doom colloquium. The organizers had gone dark, and a promised public link was not forthcoming. After a couple of weeks of hoping to resolve the matter quietly, I did some digging and decided to write up what I learned. I posted on the web site of the Century Foundation, my main professional home:

It turns out that Purdue has wiped all copies of my video and slides from university servers, on grounds that I displayed classified documents briefly on screen. A breach report was filed with the university’s Research Information Assurance Officer, also known as the Site Security Officer, under the terms of Defense Department Operating Manual 5220.22-M. I am told that Purdue briefly considered, among other things, whether to destroy the projector I borrowed, lest contaminants remain.

I was, perhaps, naive, but pretty much all of that came as a real surprise.

Let’s rewind. Information Assurance? Site Security?

These are familiar terms elsewhere, but new to me in a university context. I learned that Purdue, like a number of its peers, has a “facility security clearance” to perform classified U.S. government research. The manual of regulations runs to 141 pages. (Its terms forbid uncleared trustees to ask about the work underway on their campus, but that’s a subject for another day.) The pertinent provision here, spelled out at length in a manual called Classified Information Spillage, requires “sanitization, physical removal, or destruction” of classified information discovered on unauthorized media.

Two things happened in rapid sequence around the time I told Purdue about my post.

First, the university broke a week-long silence and expressed a measure of regret:

UPDATE: Just after posting this item I received an email from Julie Rosa, who heads strategic communications for Purdue. She confirmed that Purdue wiped my video after consulting the Defense Security Service, but the university now believes it went too far.

“In an overreaction while attempting to comply with regulations, the video was ordered to be deleted instead of just blocking the piece of information in question. Just FYI: The conference organizers were not even aware that any of this had happened until well after the video was already gone.”

“I’m told we are attempting to recover the video, but I have not heard yet whether that is going to be possible. When I find out, I will let you know and we will, of course, provide a copy to you.”

Then Edward Snowden tweeted the link, and the Century Foundation’s web site melted down. It now redirects to Medium, where you can find the full story.

I have not heard back from Purdue today about recovery of the video. It is not clear to me how recovery is even possible, if Purdue followed Pentagon guidelines for secure destruction. Moreover, although the university seems to suggest it could have posted most of the video, it does not promise to do so now. Most importantly, the best that I can hope for here is that my remarks and slides will be made available in redacted form — with classified images removed, and some of my central points therefore missing. There would be one version of the talk for the few hundred people who were in the room on Sept. 24, and for however many watched the live stream, and another version left as the only record.

For our purposes here, the most notable questions have to do with academic freedom in the context of national security. How did a university come to “sanitize” a public lecture it had solicited, on the subject of NSA surveillance, from an author known to possess the Snowden documents? How could it profess to be shocked to find that spillage is going on at such a talk? The beginning of an answer came, I now see, in the question and answer period after my Purdue remarks. A post-doctoral research engineer stood up to ask whether the documents I had put on display were unclassified. “No,” I replied. “They’re classified still.” Eugene Spafford, a professor of computer science there, later attributed that concern to “junior security rangers” on the faculty and staff. But the display of Top Secret material, he said, “once noted, … is something that cannot be unnoted.”

Someone reported my answer to Purdue’s Research Information Assurance Officer, who reported in turn to Purdue’s representative at the Defense Security Service. By the terms of its Pentagon agreement, Purdue decided it was now obliged to wipe the video of my talk in its entirety. I regard this as a rather devout reading of the rules, which allowed Purdue to “realistically consider the potential harm that may result from compromise of spilled information.” The slides I showed had been viewed already by millions of people online. Even so, federal funding might be at stake for Purdue, and the notoriously vague terms of the Espionage Act hung over the decision. For most lawyers, “abundance of caution” would be the default choice. Certainly that kind of thinking is commonplace, and sometimes appropriate, in military and intelligence services.

But universities are not secret agencies. They cannot lightly wear the shackles of a National Industrial Security Program, as Purdue agreed to do. The values at their core, in principle and often in practice, are open inquiry and expression.

I do not claim I suffered any great harm when Purdue purged my remarks from its conference proceedings. I do not lack for publishers or public forums. But the next person whose talk is disappeared may have fewer resources.

More importantly, to my mind, Purdue has compromised its own independence and that of its students and faculty. It set an unhappy precedent, even if the people responsible thought they were merely following routine procedures.

One can criticize the university for its choices, and quite a few have since I published my post. What interests me is how nearly the results were foreordained once Purdue made itself eligible for Top Secret work.

Think of it as a classic case of mission creep. Purdue invited the secret-keepers of the Defense Security Service into one cloistered corner of campus (“a small but significant fraction” of research in certain fields, as the university counsel put it). The trustees accepted what may have seemed a limited burden, confined to the precincts of classified research.

Now the security apparatus claims jurisdiction over the campus (“facility”) at large. The university finds itself “sanitizing” a conference that has nothing to do with any government contract.

I am glad to see that Princeton takes the view that “[s]ecurity regulations and classification of information are at variance with the basic objectives of a University.” It does not permit faculty members to do classified work on campus, which avoids Purdue’s “facility” problem. And even so, at Princeton and elsewhere, there may be an undercurrent of self-censorship and informal restraint against the use of documents derived from unauthorized leaks.

Two of my best students nearly dropped a course I taught a few years back, called “Secrecy, Accountability and the National Security State,” when they learned the syllabus would include documents from Wikileaks. Both had security clearances, for summer jobs, and feared losing them. I told them I would put the documents on Blackboard, so they need not visit the Wikileaks site itself, but the readings were mandatory. Both, to their credit, stayed in the course. They did so against the advice of some of their mentors, including faculty members. The advice was purely practical. The U.S. government will not give a clear answer when asked whether this sort of exposure to published secrets will harm job prospects or future security clearances. Why take the risk?

Every student and scholar must decide for him- or herself, but I think universities should push back harder, and perhaps in concert. There is a treasure trove of primary documents in the archives made available by Snowden and Chelsea Manning. The government may wish otherwise, but that information is irretrievably in the public domain. Should a faculty member ignore the Snowden documents when designing a course on network security architecture? Should a student write a dissertation on modern U.S.-Saudi relations without consulting the numerous diplomatic cables on Wikileaks? To me, those would be abdications of the basic duty to seek out authoritative sources of knowledge, wherever they reside.

I would be interested to learn how others have grappled with these questions. I expect to write about them in my forthcoming book on surveillance, privacy and secrecy.