NEW YORK (InsideBitcoins) — Late last night (New York time) cloud storage provider Mega announced that PayPal will no longer process customer payments. Mega claims that the pressure for the move came from Visa and Mastercard, who themselves were influenced by Senator Patrick Leahy. The justification for the payment blockade seems to stem from NetNames, a report on “shadowy” file-hosting sites. The report was partially funded by Digital Citizens Alliance, which is supported by the Motion Picture Association of America (MPAA)

Mega’s encryption is the problem

MegaLogoAlthough Mega noted that PayPal’s decision to immediately break ties with the cloud storage provider was non-negotiable, they also relayed the fact that PayPal didn’t seem to have any personal issues with the company originally founded by the controversial Kim Dotcom. When pressed for a specific issue that led to PayPal’s final decision, the online payments giant noted that Mega’s use of end-to-end encryption is the main problem. In their blog post related to this incident, Mega quoted PayPal as saying the encryption methods create an “unknowability of what is on the platform.”

Unlike many of the other widely-used cloud storage services on the Internet, Mega is unable to see what their customers are storing on their servers. This is due to the company’s use of client-side encryption. All files are encrypted on a customer’s local computer before they are uploaded to Mega’s servers. This is similar to how Blockchain.info’s bitcoin wallet works with its management of user private keys. The point of this sort of encryption model is to drastically reduce the amount of trust required in the service provider. Not only is the user’s data protected from the company storing the day, they’re also protected from possible searches of that data from law enforcement.

As we’ve seen with past examples, such as Hushmail and Lavabit, governments generally do not like it when they’re unable to access certain user data due to the use of encryption.

Kim Dotcom hints at a bitcoin solution

Of course, anyone who knows the history of bitcoin will be reminded of Wikileaks when hearing about this story. In 2011, major payment providers were persuaded to block donations to Wikileaks from around the world, which led the company to accepting the censorship-resistant bitcoin. It seems that Mega may take a similar path when it comes to their response to this financial censorship. It has already been possible to purchase storage on Mega servers via bitcoin through resellers for a couple of years, and Kim Dotcom claimed the world should “give bitcoin a boost” in response to PayPal’s decision.

Not compromising on privacy

Although they’ve yet to find a solution for traditional payment options, Mega has vowed not to compromise on their use of end-to-end encryption. They’ve also stated, “[Mega] is proud to not be a part of the USA business network that discriminates against legitimate international business.” Mega has lifted storage limits on all accounts until they’re able to find a proper solution, and current subscribers have also received two more months of storage free of charge. If they’re unable to find a solution for traditional payment options, bitcoin may become the only way to purchase a Mega cloud storage subscription.

Correction: A previous version of this article claimed Lavabit used client-side encryption. This statement was incorrect. More information on Lavabit’s use of encryption can be found in this Moxie Marlinspike blog post.

You can follow @kyletorpey on Twitter.

 

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