Recent hacks of large corporations show that the current state of computer security is severely lacking and that new thinking is needed in this realm. While this is a big and complex field I’m going to focus on a few specific areas and suggest some ways that security may be enhanced.

The popularity of cryptocurrencies like Bitcoin has created an evolutionary pressure to build very secure systems for handling cryptographic private keys. Since the stakes are high – loss of private keys often mean direct loss of money – there is great interest in developing hardware based systems for securing and handling private keys.

We will discuss the current landscape and suggest some ideas for improving computer security in the specific areas of Payment systems, Authentication and Data storage. The main idea is to transform the various security requirements of these areas into the one security requirement of handling and securing cryptographic private keys.

Recent hacks and breaches

During 2014 there have been multiple high-profile hacks of major corporations. These companies include

The data stolen from these hacks included credit card numbers, personal information and in the case of Sony Entertainment also emails and social security numbers of employees. In the case of Chase Bank 76 million households were affected, implying that everyone who has ever had an account with Chase bank now has some of their personal information compromised.

The Sony Entertainment hack was very spectacular since it involved a complete takeover of the computer systems of the company and basically all company information (personal information of employees including SSNs, all company emails, unfinished versions of upcoming movies) was released to the public. It is probably conservative to assume that several other corporations have had similar total breaches which are not known because the attacker did not publicly reveal the hacks. Even if a breach is discovered internally after the fact it may well be kept secret to avoid embarrassment.

The media discussion around these hacks have focused more on who the hackers are (Russian organized crime? Chinese intelligence services? North Korean military hackers?) and less on how to prevent hacks or safeguard data if a breach occurs. If the issue of prevention comes up the solution always seems to gravitate towards an amorphous promise to “increase the cybersecurity budget”. The (US) government is also quick to try to pass “Information sharing” laws which are more focused on letting the NSA and FBI get easier access to company information than actually securing this information.

Payment systems

The Target and Home Depot hacks shows the perils of using a 50-year old system designed when the concept of the Internet did not exist. The credit card system authenticates a user to make a transaction based on their card number, a short security code printed on the card, along with personal information about the card user. This authentication scheme makes it necessary to give out personal data to every merchant you do business with. Since only one of the merchants need to be hacked it is pretty much certain that the personal information associated with your credit card is now in the hands of hackers.

Systems built on top of the credit card system like Apple Pay remedy the situation somewhat since with this scheme the merchant do not need to obtain the personal information of the customer. The bank and credit card company still need to know this data but the problem is mitigated.

Payment systems like Bitcoin are digital but work in a way that’s closer to cash than credit cards. Since transactions are irreversible and Bitcoin addresses are pseudonymous the merchant does not need to know any personal information at all about the customer in order to process a transaction. The customer data is therefore secure in the sense that the data need not be shared to begin with.

With Bitcoin the responsibility for security shifts to the customer. If the customer loses control over her private key all bitcoins controlled by that private key are lost. This might seem like a big problem, but it might be a good trade off: It is impossible for the user to control data held by hundreds of third parties, but it is possible to physically secure private keys.


The most common system of user authentication currently is the system of usernames and passwords. This system has numerous well-known problems:

  1. Humans are very bad at choosing secure passwords, making it easy to guess or brute-force.
  2. The need to keep track of hundreds of passwords for different services.
  3. Entering the password on an unsecured system can compromise the password.
  4. A malicious website can capture the username and password which can then be used to gain entry.
  5. Often services provide password-recovery systems based on questions whose answers are easy to guess or research.

The first two items on the list lead to most people using a password like “password” on every single service they are signed up on. Even if they choose a secure password they will often use the same one for each service. Thus if one of their services is hacked it implies that all other services where that password was used is now compromised.

One major component of the iCloud celebrity breach was the use of a password recovery system where the user is encouraged to provide answers to “security questions” based on easily researched information like “where did you grow up?” or “what’s your mother’s maiden name?”.

One way to remedy many of the problems above is to use a password manager such as 1Password which is an encrypted container that holds all the users passwords. The user can now select long randomly generated, secure passwords that are unique to each service. Also answers to security questions should be randomly generated, secure passwords. If a service is compromised it’s easy to generate a new password for that one service while knowing that the passwords for all other services are still secure.

One downside of the password manager approach is that if one uses the password manager on a compromised system there is now the risk of total breach of all the passwords. There have been recent reports of malware targeting password managers so this is a real risk. Using a password manager on a malware-hardened system like iOS is probably the most secure way of dealing with passwords today.

An authentication method that remedies all of the problems above is public-key authentication. Some examples of this authentication system include BitId and BitAuth who both use the elliptic curve cryptography of the Bitcoin network. Another method is SQRL.

Public-key authentication works by verifying that the user is in possession of a certain private key. Specifically, the user submits her public key to the service to be associated with her account. Then when a login is requested the service sends a challenge message to the requestor. The user signs the challenge message with her private key and returns the signed message to the service. The service checks that the signature matches the public key and if it does allows the login.

One of the benefits of the public-key authentication method is that the signing of the message can occur on a device other than the device on which the user is logging in. Thus the private key can be stored on a malware-hardened device such as an iPhone, where the signing can be done using a dedicated app further protected by a PIN or by TouchID. Thus in this case we automatically get a form of two-factor authentication.

For even more sensitive services a special-purpose private-key management device like Trezor can be used. Even if the user is logging in on a potentially compromised system like a library computer her private key is never exposed to the system.

Note the similarity with the Payments section above: When making a credit card payment you authenticate yourself to the credit card company and your bank. When making a Bitcoin payment you authenticate yourself to the Bitcoin network when you request a transfer of bitcoins. As with the Payments section we see that secure authentication can be reduced to securing private keys.

Data storage

The best way to ensure that sensitive data is secure in the event of a breach is to have the data encrypted whenever it is not directly in use. To protect emails or other messages from being exposed end-to-end encryption should be used between users so that an attacker would have to obtain the private keys of all employees in order to expose all emails as was done in the Sony Entertainment hack.

A side-effect of always encrypting data at rest is that in terms of security it doesn’t matter where the data is stored, as long as the data is validated when retrieved, and the storage provider can be trusted to not lose or delete the data. Thus a cloud storage service like Dropbox can be used even if the user does not trust the storage service provider to respect the privacy of the user.

Another recent development is decentralized data storage services like Storj or MaidSafe. These services work by splitting the user data into shards, encrypting the shards and storing them on the personal computers of (financially incentivized) volunteers. Thus in this case we have a system where the data is stored on completely untrusted devices, but since the data is encrypted, validated and stored in a redundant fashion this data storage system is (theoretically) perfectly secure.

In the case of decentralized data storage systems the protection of the stored data is completely reduced to the protection of the private keys associated to the encryption of the data and the location of the encrypted shards on the network. If the attacker does not have access to the private keys they would not know where the data is stored nor how to decrypt it, but if they obtain the private keys they will immediately get full access to all the data.

Thus we have seen that in the case of data storage, similar to payment systems and authentication, securing the stored data can be reduced to securing a private key. With data storage one challenge is that with data that need to be accessed frequently constant encryption and decryption might be too costly.

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Written by

Christian Lundkvist


10 March 2015