> > Tim, I actually use TruCrypt now to do exactly what you speak of.   I 
> > pre-allocate a fixed virtual disk, and use one passcode for one section of 
> > data and a different passcode for a different section of data.   It is 
> > impossible to determine if the disk is set up in this manner, and 
> > impossible to tell which section of data is being used.   It is actually 
> > quite easy to do.
> >   
> 
> All fine and dandy until the authorities say "Your honor, the defendant
> is using nested encryption, we didn't find the
> $self_incriminating_evidence so he obviously hasn't complied with our
> request".
> 
> double-edged sword.


Yeah, exactly.  Any investigator worth their salt will be able to tell
the partition that got decrypted is not big enough to account for
encrypted disk space.  That's where the one-time pad can create true
plausible deniability, if used correctly.  Any ciphertext of length N
can decrypt to any plaintext of length N.  Too bad it is too much of a
pain to implement in practice.

Thor: maybe you could make the investigator's job harder through a
combination of compression and encryption with a similar
dual-partition scheme as you're using with trucrypt.

tim

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