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The Misaligned Incentives for Cloud Security

Russia’s Sunburst cyberespionage campaign, discovered late last year, impacted more than 100 large companies and US federal agencies, including the Treasury, Energy, Justice, and Homeland Security departments. A crucial part of the Russians’ success was their ability to move through these organizations by compromising cloud and local network identity systems to then access cloud accounts and pilfer emails and files.

Hackers said by the US government to have been working for the Kremlin targeted a widely used Microsoft cloud service that synchronizes user identities. The hackers stole security certificates to create their own identities, which allowed them to bypass safeguards such as multifactor authentication and gain access to Office 365 accounts, impacting thousands of users at the affected companies and government agencies.

It wasn’t the first time cloud services were the focus of a cyberattack, and it certainly won’t be the last. Cloud weaknesses were also critical in a 2019 breach at Capital One. There, an Amazon Web Services cloud vulnerability, compounded by Capital One’s own struggle to properly configure a complex cloud service, led to the disclosure of tens of millions of customer records, including credit card applications, Social Security numbers, and bank account information.

This trend of attacks on cloud services by criminals, hackers, and nation states is growing as cloud computing takes over worldwide as the default model for information technologies. Leaked data is bad enough, but disruption to the cloud, even an outage at a single provider, could quickly cost the global economy billions of dollars a day.

Cloud computing is an important source of risk both because it has quickly supplanted traditional IT and because it concentrates ownership of design choices at a very small number of companies. First, cloud is increasingly the default mode of computing for organizations, meaning ever more users and critical data from national intelligence and defense agencies ride on these technologies. Second, cloud computing services, especially those supplied by the world’s four largest providers — Amazon, Microsoft, Alibaba, and Google — concentrate key security and technology design choices inside a small number of organizations. The consequences of bad decisions or poorly made trade-offs can quickly scale to hundreds of millions of users.

The cloud is everywhere. Some cloud companies provide software as a service, support your Netflix habit, or carry your Slack chats. Others provide computing infrastructure like business databases and storage space. The largest cloud companies provide both.

The cloud can be deployed in several different ways, each of which shift the balance of responsibility for the security of this technology. But the cloud provider plays an important role in every case. Choices the provider makes in how these technologies are designed, built, and deployed influence the user’s security — yet the user has very little influence over them. Then, if Google or Amazon has a vulnerability in their servers — which you are unlikely to know about and have no control over — you suffer the consequences.

The problem is one of economics. On the surface, it might seem that competition between cloud companies gives them an incentive to invest in their users’ security. But several market failures get in the way of that ideal. First, security is largely an externality for these cloud companies, because the losses due to data breaches are largely borne by their users. As long as a cloud provider isn’t losing customers by the droves — which generally doesn’t happen after a security incident — it is incentivized to underinvest in security. Additionally, data shows that investors don’t punish the cloud service companies either: Stock price dips after a public security breach are both small and temporary.

Second, public information about cloud security generally doesn’t share the design trade-offs involved in building these cloud services or provide much transparency about the resulting risks. While cloud companies have to publicly disclose copious amounts of security design and operational information, it can be impossible for consumers to understand which threats the cloud services are taking into account, and how. This lack of understanding makes it hard to assess a cloud service’s overall security. As a result, customers and users aren’t able to differentiate between secure and insecure services, so they don’t base their buying and use decisions on it.

Third, cybersecurity is complex — and even more complex when the cloud is involved. For a customer like a company or government agency, the security dependencies of various cloud and on-premises network systems and services can be subtle and hard to map out. This means that users can’t adequately assess the security of cloud services or how they will interact with their own networks. This is a classic “lemons market” in economics, and the result is that cloud providers provide variable levels of security, as documented by Dan Geer, the chief information security officer for In-Q-Tel, and Wade Baker, a professor at Virginia Tech’s College of Business, when they looked at the prevalence of severe security findings at the top 10 largest cloud providers. Yet most consumers are none the wiser.

The result is a market failure where cloud service providers don’t compete to provide the best security for their customers and users at the lowest cost. Instead, cloud companies take the chance that they won’t get hacked, and past experience tells them they can weather the storm if they do. This kind of decision-making and priority-setting takes place at the executive level, of course, and doesn’t reflect the dedication and technical skill of product engineers and security specialists. The effect of this underinvestment is pernicious, however, by piling on risk that’s largely hidden from users. Widespread adoption of cloud computing carries that risk to an organization’s network, to its customers and users, and, in turn, to the wider internet.

This aggregation of cybersecurity risk creates a national security challenge. Policymakers can help address the challenge by setting clear expectations for the security of cloud services — and for making decisions and design trade-offs about that security transparent. The Biden administration, including newly nominated National Cyber Director Chris Inglis, should lead an interagency effort to work with cloud providers to review their threat models and evaluate the security architecture of their various offerings. This effort to require greater transparency from cloud providers and exert more scrutiny of their security engineering efforts should be accompanied by a push to modernize cybersecurity regulations for the cloud era.

The Federal Risk and Authorization Management Program (FedRAMP), which is the principal US government program for assessing the risk of cloud services and authorizing them for use by government agencies, would be a prime vehicle for these efforts. A recent executive order outlines several steps to make FedRAMP faster and more responsive. But the program is still focused largely on the security of individual services rather than the cloud vendors’ deeper architectural choices and threat models. Congressional action should reinforce and extend the executive order by adding new obligations for vendors to provide transparency about design trade-offs, threat models, and resulting risks. These changes could help transform FedRAMP into a more effective tool of security governance even as it becomes faster and more efficient.

Cloud providers have become important national infrastructure. Not since the heights of the mainframe era between the 1960s and early 1980s has the world witnessed computing systems of such complexity used by so many but designed and created by so few. The security of this infrastructure demands greater transparency and public accountability — if only to match the consequences of its failure.

This essay was written with Trey Herr, and previously appeared in Foreign Policy.

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The Cost of Cyberattacks Is Less than You Might Think

Interesting research from Sasha Romanosky at RAND:

Abstract: In 2013, the US President signed an executive order designed to help secure the nation’s critical infrastructure from cyberattacks. As part of that order, he directed the National Institute for Standards and Technology (NIST) to develop a framework that would become an authoritative source for information security best practices. Because adoption of the framework is voluntary, it faces the challenge of incentivizing firms to follow along. Will frameworks such as that proposed by NIST really induce firms to adopt better security controls? And if not, why? This research seeks to examine the composition and costs of cyber events, and attempts to address whether or not there exist incentives for firms to improve their security practices and reduce the risk of attack. Specifically, we examine a sample of over 12 000 cyber events that include data breaches, security incidents, privacy violations, and phishing crimes. First, we analyze the characteristics of these breaches (such as causes and types of information compromised). We then examine the breach and litigation rate, by industry, and identify the industries that incur the greatest costs from cyber events. We then compare these costs to bad debts and fraud within other industries. The findings suggest that public concerns regarding the increasing rates of breaches and legal actions may be excessive compared to the relatively modest financial impact to firms that suffer these events. Public concerns regarding the increasing rates of breaches and legal actions, conflict, however, with our findings that show a much smaller financial impact to firms that suffer these events. Specifically, we find that the cost of a typical cyber incident in our sample is less than $200 000 (about the same as the firm’s annual IT security budget), and that this represents only 0.4% of their estimated annual revenues.

The result is that it often makes business sense to underspend on cybersecurity and just pay the costs of breaches:

Romanosky analyzed 12,000 incident reports and found that typically they only account for 0.4 per cent of a company’s annual revenues. That compares to billing fraud, which averages at 5 per cent, or retail shrinkage (ie, shoplifting and insider theft), which accounts for 1.3 per cent of revenues.

As for reputational damage, Romanosky found that it was almost impossible to quantify. He spoke to many executives and none of them could give a reliable metric for how to measure the PR cost of a public failure of IT security systems.

He also noted that the effects of a data incident typically don’t have many ramifications on the stock price of a company in the long term. Under the circumstances, it doesn’t make a lot of sense to invest too much in cyber security.

What’s being left out of these costs are the externalities. Yes, the costs to a company of a cyberattack are low to them, but there are often substantial additional costs borne by other people. The way to look at this is not to conclude that cybersecurity isn’t really a problem, but instead that there is a significant market failure that governments need to address.

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Economic Failures of HTTPS Encryption

Interesting paper: “Security Collapse of the HTTPS Market.” From the conclusion:

Recent breaches at CAs have exposed several systemic vulnerabilities and market failures inherent in the current HTTPS authentication model: the security of the entire ecosystem suffers if any of the hundreds of CAs is compromised (weakest link); browsers are unable to revoke trust in major CAs (“too big to fail”); CAs manage to conceal security incidents (information asymmetry); and ultimately customers and end users bear the liability and damages of security incidents (negative externalities).

Understanding the market and value chain for HTTPS is essential to address these systemic vulnerabilities. The market is highly concentrated, with very large price differences among suppliers and limited price competition. Paradoxically, the current vulnerabilities benefit rather than hurt the dominant CAs, because among others, they are too big to fail.

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