The Advantages of Data Encryption Imagine a world where complete privacy exists. Your business affairs are your personal matter. The government isn't looking over your shoulder all the time. Such a world does exist. The only question is whether the government will succeed in getting its electronic tentacles into it. This private world exists thanks to technological advances in data encryption, the electronic coding of data. Encryption is an electronic procedure that digitally encodes (converts into unintelligible gibberish) and decodes (converts back to readable language). Today any reasonably powerful desktop computer can encrypt and decrypt messages which the most powerful supercomputers in the world, working together, could not decrypt. Programs to do this are very inexpensive, and already available to anyone. Most encryption programs take advantage of a mathematically sophisticated encryption technology that requires two different keys, both of which are necessary to decrypt the message. The sender needs only one to send a message. The receiver decodes the message with the second key -- which never needs to leave his computer, where it can be protected by passwords. Although the mathematics are daunting, the program makes the process simple and straightforward. Examples of everyday uses are a writer who sends chapters of his new book to his publisher; collaborators on an invention working at a distance and needing to keep others from claim-jumping a discovery; paying bills or ordering from mail-order catalogs by sending encrypted credit card numbers over the telephone; an accountant who scrambles backup tapes so that clients needn't worry about lost confidentiality if the tapes are lost or stolen; and attorneys communicating with clients and other attorneys via encrypted documents. At the same time, the costs of international communications and transportation have declined to the point where even the average individual can afford to internationalize. And countries around the world are competing for that business. You can take advantage of what these countries have to offer to safeguard your freedom and privacy using exactly the same techniques as giant multinational companies. Encrypted messages can move across international borders without interference, by telephone, by radio, or by courier. A "message" means anything that can be digitized -- a sequence of words, music, a digitized picture, a forbidden magazine or book, etc. Here's just one way to hide a message in plain sight: Music is now available on digital audio tape (DAT) in a cassette just a little fatter than an ordinary audio cassette. One DAT cassette can completely cloak about 600 books (80 megabytes) of information interleaved with the music, securely encrypted on the digital tape in such a way that this library's existence on the tape would be invisible even to powerful computers. These 600 books of information could be made to disappear into an ordinary digital tape of Beethoven. DAT records music in 16 bit bytes, but that precision is beyond the perception. The 16th bit of the signal is too small to be detected by the human ear. A long message can be substituted, in encrypted form, in the positions of all the 16th bits of music. Anyone playing the tape would hear Beethoven in the exact digital quality they would hear on a purchased Beethoven tape. Anyone examining the tape with a computer would see only digital music. Only by matching an untampered tape bit by bit on a computer could someone detect the difference. Even then, the random-looking differences would appear to be noise acquired while duplicating a digital tape through an analog CD player, as is normally done. This "noise" would have to be decrypted (not likely) to prove that it was something other than noise. This means that it's already totally hopeless to stop the flow of bits across borders. Because anyone carrying a single music cassette bought in a store could be carrying the entire computerized files of the Stealth Bomber, and it would be completely and totally imperceptible. And as more of our information systems become digital (replacing analog), when we have satellites beaming digital television signals, and digitized faxes being sent over fiber-optic cables, we will probably be able to interleave and conceal real messages in perfectly innocent looking faxes and other communications in the same way. Another benefit of encryption technology is that it provides verification of identity, while staying anonymous. You may correspond in complete privacy with a "name" and never know who it is, but you can verify that it is the same party that you have dealt with before, and none other. Privacy of electronic communications leads to an ability to do business from anywhere in the world, with anybody in the world. In an information economy, transfer of product can occur in privacy through barter. Anonymous vendor "A" can negotiate by electronic mail with anonymous buyer "B" to trade information (a research report or a computer program, for example) for other information of value. Neither party reports the transaction for tax purposes, and neither can identify the other. Depending upon the citizenship and residence of the parties, such tax avoidance may be a criminal offense. But it will occur, contributing to the government's inability to collect taxes. The illegal uses of data encryption are likely to be insignificant by comparison to the legal uses. Secure transfer of work product from an offshore consultant or computer programmer will increase the ability to work from anywhere, without fear of one's output being intercepted and copied by data pirates. It is technically feasible to use these techniques to create a totally secret banking system, with account owners identities being unknown even to the bank. Credits could be transferred between accounts from anywhere in the world through encrypted communications. In a world where governments are increasingly subscribing to treaties limiting banking secrecy, and requiring identification of depositors, it is unlikely that this technical possibility will actually occur in the near future. But unlikely is not impossible -- and the time may come when some government permits such a service, or when entrepreneurs sneak it in the back door by calling it a barter exchange instead of a bank. Since everything is electronic, such a service could even be operated from a ship, an orbiting space station, or The Moon. It is only thirty years since the first Moon landing -- who knows what the next thirty years might bring. The data haven may eventually supplement the tax haven. Meanwhile, data encryption is available to anybody for whatever use they wish to make of it. A package offering basic information on encryption, including copies of several different computer programs for IBM- compatible computers, is called The Privacy Disk and is available for $49.95 from Noble Software, 51 MacDougal Street, Suite 192, New York, New York 10012. (A 3.5" diskette will be sent unless you specify a 5.25" diskette.) With the Clinton administration making proposals to outlaw the sale of encryption programs, this is something you might want to buy now and put away even if you have no immediate use for it. Like the old saw about not being able to see the forest for the trees, it's easy for those who work with computers every day to forget how profoundly the technology has changed the world we live in. Every day more than $1.9 trillion changes hands electronically in the financial markets. There are two major developments in recent economic history. The first was President Nixon's decision in 1971 to give up the gold standard for the U.S. dollar. The second was the rise of the market for financial derivatives, conceptual deals that are based on future events, such as fluctuations in the interest rate. When these events combined with the maturity of the electronic banking network, it meant money lost any real value. Money was no longer connected to anything tangible, such as gold, and existed solely as volatile electronic impulses. Derivatives embody this concept. Though worth billions on paper, they represent neither real products nor the value of these products. Even commodities futures, which would seem tied to the real world of corn and pork bellies, are more wager than investment. These trends, combined with the creation of the post-War global economy, have cut adrift the financial markets to trade in abstract concepts over electronic networks, with the result being ongoing volatility. We are talking as much about the death of money as the death of the income tax. That death of money brings us back to the idea of the electronic exchange, and anonymous encrypted transactions. A stock or commodities exchange functions without the need for cash going in or out of the marketplace, so an offshore exchange dealing in stocks, commodities, financial derivatives, or other replacements for money begins to become possible. The anonymous part may be difficult to achieve in the current political and legal climate, but the anonymity of transactions becomes less relevant if the transactions are being done by traders, financial institutions, and brokers who are based in tax havens and don't have to stay anonymous because they don't have to pay taxes anyway. At an even simpler level, data encryption already makes possible a more flexible and portable economy. Salesmen on the road now frequently work with laptop (or even palmtop) computers that they use to prepare and transmit orders. Some still stop at the nearest telephone to plug in the computer, but more and more of them are using computers with built-in cellular telephone or other wireless connections, allowing them to have instantaneous transmission to and from their headquarters. Most frequently these orders are processed directly into the company's computer system, and processed for shipment without any human intervention. Encryption becomes necessary to protect the integrity of the information -- one wouldn't want a competitor following a salesman around picking up copies of the orders on his car radio, or stealing the laptop out of the car during lunch and being able to read all the records. The criminal element seems to have grasped this technology more quickly than the legitimate business world -- on the street corners of any big city one can find drug dealers equipped with pagers, pocket telephones and computers. They started with pagers, then realized they could get free of telephone wires completely by using pocket telephones so that their exact locations could not be determined. Now many of them have graduated to computers with wireless transmission to forward the orders. The dealer takes the customer's order and the cash, and relays it to an associate who then delivers the drugs after checking the surrounding area. The dealer is never holding the actual drugs. From these illegal beginnings, legitimate business also becomes more portable. But as the need for a fixed location diminishes, so does the ability of the tax collector to assess income tax. The business becomes so invisible that there is nothing to grasp. One of the best sources of research reports on privacy matters of all types is Eden Press, Box 8410, Fountain Valley, California 92728, who will send a free catalog on request.