When a data owner's (a business) sensitive data is breached it is difficult to quantify the monetary loss. According to respectable survey sources, the average cost of sensitive data breach for a large size company is about $50,000. I am attempting here to think about this in simple mathametical terms:

There is a data breach. From the data owner's perspective the loss is:

Loss = Cost to protect data + Loss of business due to data theft aka cost of competitive disadvantage

From the data thief's perspective

Net Gain= [Cost of producing the data  *  Data freshness factor] - Cost to steal the data + Profit of business due to data aka gain of competitive advantage

From the above two equations it is very clear that this is not a zero sum game. There is a clear cost asymmetry for a data owner and for a data thief. When there is an asymmetry there is an opportunity. Data owner would not even know that the data is lost because the original copy of the data may be still intact - data thief could have simply copied the data. Data theft does not look like a car theft, there is no vacuum left behind. 

This motivates a data thief to keep the cost to steal low, steal highly valuable data that has a long shelf life and in a way that data owner will never even be aware of theft.

From a data thief's perspective, the cost to steal data if kept high would disincentive him. Moreover, Data freshness factor, i.e. how valuable this data is over period of time plays an important role. A good example is content of today's newspaper is hardly valuable tomorrow, but the content of newspaper two days ahead (if can be procured)would be invaluable. Data relevance is a function of time and other marketplace variables -  Data freshness Factor accounts for that variable. A good way to discourage data thief is to increase his/her cost to steal the data. There are other inferences from the above equation. If there exists no competitive advantage with the stolen data, hardly any thief would even venture to steal the data in the first place. If the cost of producing data is very low, then probably thief can just produce the data himself and would not attempt to steal the data. If the cost of theft is kept high, it would definitely deter the data thief from stealing data using technical mechanisms, then the data thief would exploit weak links in data security such as use of social engineering to get access to the data.

From data owner perspective protecting data becomes very important. How much would the owner be willing to spend? Not definitely the cost equal to cost of producing the data. 1% to 10% of cost of producing data is considered prudent. For a data owner it is difficult to estimate cost of data protection of a specific data, because it is not easy to chunkify data protection costs. Moreover, as Dan Geer says in his book, a data owner has to protect himself from number of intruders not just one.

It pays for a data owner to: be aware of data breaches (or data leaks), employ appropriate mechanisms to protect the data; the cost of protection which is fractional cost of the valuable data and enhance information security awareness of personnel who handle the data.

Data loss is not a zero sum game. The advantage is in favor of a data thief (data thieves rather). Data owner does not give much thought on the value of data unless there is a data theft. But, a data thief has every reason to think about economics of data theft before he acts to steal the data else data thief won't survive in this game and he is very well aware of his advantageous position.

Doesn’t this seem backwards to you? Shouldn’t the MBTA be suing the vendor who sold them the flawed system? Security problems go away by mandating independant security testing before a product is accepted, not by trying to get security researchers to be quiet. This is a good example of how the reactive approach doesn’t work. The flaws are still in the system and suing researchers has just shined a bright light on them.

Update 08/09/2008 6:00pm EST:

The EFF is appealing the injunction which is blocking the students from speaking about the results of their testing.

A telling quote from Kurt Opsahl, staff attorney at the EFF gets to the heart of the issue:

“Courts have found that the First Amendment covers these things. We believe that this is a protected speech activity. When you discuss security issues, if you are telling the truth, that is something that should be protected.”

Apparently the MBTA has known about this problem since at least March, 2008 when a graduate student from the University of Virginia announced he was able to break the encryption system.

The U of VA researcher gave an interview where he described why security by obscurity is not a valid security approach for a cryptosystem:

Q: What are your thoughts on security by obscurity? Is NXP using this method of protection?

A: Security-through-obscurity hardly ever works. The lack of proper peer-review often even hurts the security of the system. Our Mifare work discovered several vulnerabilities that could be fixed without increasing the cost of the cards. NXP did for a long time rely on obscurity for the security of some of their products, but now decided against this outdated design approach and instead bases the security of newer RFID cards on publicly scrutinized cryptography and independent evaluations.

Q: Can you explain “Kerckhoffs Principle” and why it applies to your work?

A: Kerchoff, who lived in the 19th century, observed that keeping anything secret is really hard. So instead of relying on the secrecy of your whole system, it would a lot easier to only rely on the secrecy of a small secret key. Security systems should hence be publicly known and analyzed, and only the key should be secret. When properly realised for RFID cards, Kerchoff’s principle means that by analyzing their own cards, thieves cannot compromise your cards. This is contrary to our Mifare work, where we only analyzed a few copies of the the secret algorithm that is found in all cards and were consequently able affect the security of all the other billion cards out there.

The MBTA not only accepted a security system which relied on security by obscurity but once accepting this flawed model must try to maintain this obscurity with the court system.

The documents detailing the presentation are here.

Thieves took a legitimate paper Farecard with $40 in value, sliced the card's magnetic strip into four lengthwise pieces, and then reattached one piece each to four separate defunct paper Farecards. The thieves then took the doctored Farecards to a Farecard machine and added fare, typically a nickel. By doing so, the doctored Farecard would go into the machine and a legitimate Farecard with the new value, $40.05, would come out.