From:	 Declan McCullagh <declan@well.com>
To:	 politech@politechbot.com
Subject: FC: Bruce Schneier on computer security: "Things are getting worse"
Date:	 Mon, 16 Jul 2001 06:00:45 -0700
Cc:	 schneier@counterpane.com


SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
E-consumer Science, Technology, and Space Subcommittee hearing to examine 
security risks for the E-consumer. Witnesses: Vinton Cerf, senior vice 
president, Internet Architecture and Technology, WorldCom; Harris Miller, 
president, Information Technology Assn. of America; Bruce Schneier, CTO, 
Counterpane Internet Security, Inc. Location: 253 Russell Senate Office 
Building. 1 p.m. Contact: 202-224-5115 http://www.senate.gov/~commerce

********

Date: Sat, 14 Jul 2001 09:17:28 -0500
To: Declan McCullagh <declan@well.com>
From: Bruce Schneier <schneier@counterpane.com>
Subject: My Monday's Testimony

Here is a copy of my written testimony.  Consider it embargoed until Monday.

Thanks,
Bruce

**************************************************************************
Bruce Schneier, CTO, Counterpane Internet Security, Inc.  Ph: 408-777-3612
19050 Pruneridge Ave, Cupertino, CA 95014


Testimony and Statement for the Record of
Bruce Schneier

Chief Technical Officer, Counterpane Internet Security, Inc.

Hearing on
Internet Security

Before the

Subcommittee on Science, Technology, and Space of the
Committee on Commerce, Science and Transportation

United States Senate

July 16, 2001
253 Russell Senate Office Building


My name is Bruce Schneier. I am the founder and Chief Technical Officer of 
Counterpane Internet Security. Inc. Counterpane was founded to address the 
immediate need for increased Internet security, and essentially provides 
burglar alarm services for computer networks. I am the author of seven 
books on cryptography and computer security, as well as hundreds of 
articles and papers on those topics. For several years, I have been a 
security consultant to many major Internet companies.

I'd like to thank the Committee for holding this hearing today. Internet 
security is an enormously important issue, and one that will become 
increasingly important as the Internet affects the lives of more people. 
Simply stated, during the last decade the Internet has transitioned from a 
technological plaything for a few people to a critical infrastructure as 
fundamental as the phone system. Internet security has transitioned from an 
academic curiosity to a fundamental enabling technology for our future. The 
limits of Internet security are the limits of the Internet, and the limits 
of the Internet profoundly affect our country as the Information Economy 
continues to grow.

I believe that there are two questions before the Committee today. The 
first is whether the Internet is safe enough to conduct business on. The 
second, if you agree that the Internet is not safe enough, is what we can 
do to improve the situation. I will focus my remarks on these two issues.


Introduction

The Internet is critical to business. Companies have no choice but to 
connect their internal networks to the rest of the worldto link with 
customers, suppliers, partners, and their own employees. But with that 
connection comes new threats: malicious hackers, criminals, industrial 
spies. These network predators regularly steal corporate assets and 
intellectual property, cause service breaks and system failures, sully 
corporate brands, and frighten customers. Unless companies can successfully 
navigate around these, they will not be able to unlock the full business 
potential of the Internet.

Traditional approaches to computer security center around preventive 
techniques, and they don't work. Despite decades of research, and hundreds 
of available security products, the Internet has steadily become more 
dangerous. The increased complexity of the Internet and its applications, 
the rush to put more services and people on the Internet, and the desire to 
interconnect everything all contribute to the increased insecurity of the 
digital world.

Security based solely on preventive products is inherently fragile. Newly 
discovered attacks, the proliferation of attack tools, and flaws in the 
products themselves all result in a network becoming vulnerable at random 
(and increasingly frequent) intervals.

Active security monitoring is a key component missing in most networks. 
Insurance is another. In business, insurance is the risk manager of last 
resort. And in most cases, insurance drives security requirements. 
Companies install a burglar alarm system in their warehouse not because it 
reduces theft, but because it reduces their insurance rates. As the need 
for Internet security becomes more universally recognized , insurance 
companies will begin to drive security requirements and demand product 
improvements.

The third key component to a secure Internet is law enforcement. The 
primary reason we live in a safe society is that we prosecute criminals. 
Today the Internet is a lawless society; hackers can break into computers 
with relative impunity. We need to turn the Internet into a lawful society, 
through regular prosecution and conviction of Internet criminals.


The Importance of Security

When I began working in computer security, the only interest was from the 
military and a few scattered privacy advocates. The Internet has changed 
all that. The promise of the Internet is to be a mirror of society. 
Everything we do in the real world, we want to do on the Internet: conduct 
private conversations, keep personal papers, sign letters and contracts, 
speak anonymously, rely on the integrity of information, gamble, vote, 
publish digital documents. All of these things require security. Computer 
security is a fundamental enabling technology of the Internet; it's what 
transforms the Internet from an academic curiosity into a serious business 
tool. The limits of security are the limits of the Internet. And no 
business or person is without these security needs.

The risks are real. Everyone talks about the direct risks: theft of trade 
secrets, customer information, money. People also talk about the 
productivity losses due to computer security problems. What's the loss to a 
company if its e-mail goes down for two days? Or if ten people have to 
scramble to clean up after a particularly nasty intrusion? I've seen 
figures as high as $10 billion quoted for worldwide losses due to the 
ILOVEYOU virus; most of that is due to these productivity losses.

More important are the indirect risks: loss of customers, damage to brand, 
loss of goodwill. Last year Egghead.com had a network break-in and it was 
rumored that a million credit card numbers were stolen. Regardless of how 
the investigation turned out, some percentage of customers decided to shop 
elsewhere. When CD Universe suffered a credit card theft in early 2000, it 
cost them dearly in their war for market share against Amazon.com and 
CDNow. In the aftermath of the Microsoft attack in October 2000, the 
company spent much more money and effort containing the public relations 
problem than fixing the security problem. The public perception that their 
source code was untainted was much more important than any effects of the 
actual attack.

And more indirect risks are coming. European countries have strict privacy 
laws; American companies can be held liable if they do not take steps to 
protect the privacy of their European customers. While "safe harbor" 
provisions may provide immediate relief, it will not solve the problem once 
the European countries realize that their data is not being protected.

The U.S. has similar laws in particular industriesbanking and healthcareand 
there are bills in Congress to protect privacy more generally. We have not 
yet seen shareholder lawsuits against companies that failed to adequately 
secure their networks and suffered the consequences, but they're coming. 
Can company officers be held personally liable if they fail to provide for 
network security? The courts will be deciding this question in the next few 
years.

As risky as the Internet is, companies have no choice but to be there. The 
lures of new markets, new customers, new revenue sources, and new business 
models are just so great that companies will flock to the Internet 
regardless of the risks. There is no alternative. This, more than anything 
else, is why computer security is so important.


The Failure of Traditional Security

Five years ago, network security was relatively simple. No one had heard of 
denial-of-service attacks shutting down Web servers, Web page scripting 
flaws, or the latest vulnerabilities in Microsoft Outlook Express. In 
recent years came intrusion detection systems, public-key infrastructure, 
smart cards, VPNs, and biometrics. New networking services, wireless 
devices, and the latest products regularly turn network security upside 
down. There are literally hundreds of network security products you can 
buy, and they all claim to provide you with security. They regularly fail, 
but still you hear companies say: "Of course I'm secure. I bought a firewall."

Network security is an arms race, and the attackers have all the 
advantages. First, network defenders occupy what military strategists call 
"the position of the interior": the defender has to defend against every 
possible attack, while the attacker only has to find one weakness. Second, 
the immense complexity of modern networks makes them impossible to properly 
secure. And third, skilled attackers can encapsulate their attacks in 
software, allowing people with no skill to use them. It's no wonder 
businesses can't keep up with the threat.

What's amazing is that no one else can either. Computer security is a 
40-year-old discipline; every year there's new research, new technologies, 
new products, even new laws. And every year things get worse.

If there's anything computer security professionals have learned about the 
Internet, it's that security is relative. Nothing is foolproof. What's 
secure today may be insecure tomorrow. Even companies like Microsoft can 
get hacked, badly. There are no silver bullets. The way forward is not more 
products, but better processes. We have to stop looking for the magic 
preventive technology that will avoid the threats, and embrace processes 
that will help us manage the risks.


Security and Risk Management

Ask any network administrator what he needs security for, and he can 
describe the threats: Web site defacements, corruption and loss of data due 
to network penetrations, denial-of-service attacks, viruses and Trojans. 
The list seems endless, and the endless slew of news stories prove that the 
threats are real.

Ask that same network administrator how security technologies help, and 
he'll discuss avoiding the threats. This is the traditional paradigm of 
computer security, born out of a computer science mentality: figure out 
what the threats are, and build technologies to avoid them. The conceit is 
that technologies can somehow "solve" computer security, and the end result 
is a security program that becomes an expense and a barrier to business. 
How many times has the security officer said: "You can't do that; it would 
be insecure"?

This paradigm is wrong. Security is a people problem, not a technology 
problem. There is no computer security product-or even a suite of 
products-that acts as magical security dust, imbuing a network with the 
property of "secure." It can't be done. And it's not the way business works.

Businesses manage risks. They manage all sorts of risks; network security 
is just another one. And there are many different ways to manage risks. The 
ones you choose in a particular situation depend on the details of that 
situation. And failures happen regularly; many businesses manage their 
risks improperly, pay for their mistakes, and then soldier on. Businesses 
are remarkably resilient.

To take a concrete example, consider a physical store and the risk of 
shoplifting. Most grocery stores accept the risk as a cost of doing 
business. Clothing stores might put tags on all their garments and sensors 
at the doorways; they mitigate the risk with a technology. A jewelry store 
might mitigate the risk through procedures: all merchandise stays locked 
up, customers are not allowed to handle anything unattended, etc. And that 
same jewelry store will carry theft insurance, another risk management tool.

More security isn't always better. You could improve the security of a bank 
by strip-searching everyone who walks through the front door. But if you 
did this, you would have no business. Studies show that most shoplifting at 
department stores occurs in dressing rooms. You could improve security by 
removing the dressing rooms, but the losses in sales would more than make 
up for the decrease in shoplifting. What all of these businesses are 
looking for is adequate security at a reasonable cost. This is what we need 
on the Internet as wellsecurity that allows a company to offer new 
services, to expand into new markets, and to attract and retain new 
customers. And the particular computer security solutions they choose 
depend on who they are and what they are doing.


Detection and Response

Most computer security is sold as a prophylactic: encryption prevents 
eavesdropping, firewalls prevent unauthorized network access, PKI prevents 
impersonation. To the world at large, this is a strange marketing strategy. 
A door lock is never sold with the slogan: "This lock prevents burglaries." 
No one ever asks to purchase "a device that will prevent murder." But 
computer security products are sold that way all the time. Companies 
regularly try to buy "a device that prevents hacking." This is no more 
possible than an anti-murder device.

When you buy a safe, it comes with a rating. 30TL30 minutes, tools. 
60TRTL60 minutes, torch and tools. What this means is that a professional 
safecracker, with safecracking tools and an oxyacetylene torch, can break 
open the safe in an hour. If an alarm doesn't sound and guards don't come 
running within that hour, the safe is worthless. The safe buys you time; 
you have to spend it wisely.

Real-world security includes prevention, detection, and response. If the 
prevention mechanisms were perfect, you wouldn't need detection and 
response. But no prevention mechanism is perfect. This is especially true 
for computer networks. All software products have security bugs, most 
network devices are misconfigured, and users make all sorts of mistakes. 
Without detection and response, the prevention mechanisms only have limited 
value. They're fragile. And detection and response are not only more cost 
effective, but also more effective, than piling on more prevention.

On the Internet, this translates to monitoring. In October 2000, Microsoft 
discovered that an attacker had penetrated their corporate network weeks 
before, and might have viewed or even altered the source code for some of 
their products. Administrators discovered this breach when they noticed 
twenty new accounts being created on a server. Then they went back through 
their network's audit logs and pieced together how the attacker got in and 
what he did. If someone had been monitoring those audit logsautomatically 
generated by the firewalls, servers, routers, etc.in real time, the 
attacker could have been detected and repelled at the point of entry.

That's real security. It doesn't matter how the attacker gets in, or what 
he is doing. If there are enough motion sensors, electric eyes, and 
pressure plates in your house, you'll catch the burglar regardless of how 
he got in. If you are monitoring your network carefully enough, you'll 
catch a hacker regardless of what vulnerability he exploited to gain 
access. And if you can respond quickly and effectively, you can repel the 
attacker before he does any damage. Good detection and response can make up 
for imperfect prevention.

And real security is about people. On the day you're attacked, it doesn't 
matter how your network is configured, what kind of boxes you have, or how 
many security devices you've installed. What matters is who is defending you.

Prevention systems are never perfect. No bank ever says: "Our safe is so 
good, we don't need an alarm system." No museum ever says: "Our door and 
window locks are so good, we don't need night watchmen." Detection and 
response are how we get security in the real world, and they're the only 
way we can possibly get security on the Internet. We must invest in network 
monitoring if we are to properly manage the risks associated with our 
nation's network infrastructure.


Insurance

Eventually, the insurance industry will subsume the computer security 
industry. Not that insurance companies will start marketing security 
products, but rather that the kind of firewall you usealong with the kind 
of authentication scheme you use, the kind of operating system you use, and 
the kind of network monitoring scheme you usewill be strongly influenced by 
the constraints of insurance.

Consider security, and safety, in the real world. Businesses don't install 
building alarms because it makes them feel safer; they do it because they 
get a reduction in their insurance rates. Building owners don't install 
sprinkler systems out of affection for their tenants, but because building 
codes and insurance policies demand it. Deciding what kind of theft and 
fire prevention equipment to install are risk management decisions.

The risk taker of last resort is the insurance industry, and businesses 
achieve security through insurance. They take the risks they are not 
willing to accept themselves, bundle them up, and pay someone else to make 
them go away. If a warehouse is insured properly, the owner is 
significantly less worried about fire or other disasters. Similarly, if a 
network is insured properly, the owner is significantly less worried about 
the hacking risks.

This is the future. Concerned about denial-of-service attacks? Get 
bandwidth interruption insurance. Concerned about data corruption? Get data 
integrity insurance. (I'm making these policy names up, here.) Concerned 
about negative publicity due to a widely publicized network attack? Get a 
rider on your good name insurance that covers that sort of event. The 
insurance industry isn't offering all of these policies yet, but it is coming.

The effects of this change will be considerable. Every business will have 
network security insurance, just as every business has insurance against 
fire, theft, and any other reasonable threat. To do otherwise would be to 
behave recklessly and be open to lawsuits. Details of network security 
become check boxes when it comes time to calculate the premium. Do you have 
a firewall? Which brand? Your rate may be one price if you have this brand, 
and a different price if you have another brand. Do you have a service 
monitoring your network? If you do, your rate goes down this much.

This process changes everything. What will happen when the CFO looks at his 
premium and realizes that it will go down 50% if he gets rid of all his 
insecure Windows operating systems and replaces them with a secure version 
of Linux? The choice of which operating system to use will no longer be 
100% technical. Microsoft, and other companies with shoddy security, will 
start losing sales because companies don't want to pay the insurance 
premiums. In this vision of the future, how secure a product is becomes a 
real, measurable, feature that companies are willing to pay for...because 
it saves them money in the long run. Already some insurance companies are 
starting to do this.

Other systems will be affected, too. Online merchants and brick-and-mortar 
merchants will have different insurance premiums, because the risks are 
different. Businesses can add authentication mechanismspublic-key 
certificates, biometrics, smart cardsand either save or lose money 
depending on their effectiveness. Computer security "snake-oil" peddlers 
who make outlandish claims and sell ridiculous products will find no buyers 
as long as the insurance industry doesn't recognize their value. In fact, 
the whole point of buying a security product or hiring a security service 
will not be based on threat avoidance; it will be based on risk management.

And it will be about time. Sooner or later, the insurance industry will 
sell everyone anti-hacking policies. It will be unthinkable not to have 
one. And then we'll start seeing good security rewarded in the marketplace.


Law Enforcement

The primary reason we feel safe walking the streets of our country is 
because criminals are arrested and prosecuted. In areas where prosecution 
is less common, the streets are more dangerous. In countries where 
prosecution is rare or arbitrary, criminals run rampant. This same thinking 
must be applied to the Internet.

Right now, most criminal hackers can operate with impunity, and they know 
that. Most Internet crimes are never discovered by the victims. Of those 
that are known, most are covered up. Of those that are made public, most 
never result in arrests, let alone convictions. The Internet is still a 
lawless environment.

This needs to change. Prosecution and conviction of criminals has two 
effects. One, it sends a clear message to everyone else. And two, it takes 
the convicted criminals out of circulation during their incarceration. Both 
of these things act as a deterrence.

One of the best things that happened for Internet security in the year 2000 
was the series of high-profile prosecutions and convictions. This has had a 
visible chilling effect on some hacking groups. But more is required.

This is not easy. The Internet was not designed to aid forensic analysis, 
and many types of hacks are not currently traceable. Jurisdiction is also a 
problem; our criminal justice system is not designed to deal with criminals 
who can be anywhere in the world while attacking someone in another part of 
the world. But we need to do it.


Conclusion

Network security risks will always be with us. The downside of being in a 
highly connected network is that we are all connected with the best and 
worst of society. Security products will not solve the problems of Internet 
security, any more than they solve the security problems in the real world. 
The best we can do is to manage the risks: employ technological and 
procedural mitigation while at the same time allowing businesses to thrive.

Security equals vigilance, a day-to-day process. There are hundreds of 
technological solutions, but none that will ultimately fix the problem. 
It's been thousands of years, and the world still isn't a safe place. There 
is no way to "solve" the burglary problem. There is no device you can buy 
to prevent murder. No matter how fast technology advances, guards and 
alarms are still state-of-the-art.

The key to effective security is human intervention. Automatic security is 
necessarily flawed. Smart attackers bypass the security, and new attacks 
fool products. People are needed to recognize, and respond to, new attacks 
and new threats. It's a simple matter of regaining a balance of power: 
human minds are the attackers, so human minds need to be the defenders as well.

I believe that the Internet will never be totally secure. In fact, I 
believe that the Internet will continue to get less and less secure as it 
gets more interesting, more useful, and more valuable. Just like the real 
world, security is a process. And the processes of detection and response, 
risk management and insurance, and forensics and prosecution will serve the 
Internet world just as they serve the real world.





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