The following appeared in this week's "Newsweek," June 7, 1993, p. 70. Our own Eric Hughes is briefly quoted. Any mistakes are the fault of either me or my OCR program. The Code of the Future Uncle Sam wants you to use ciphers it can crack Forget the castle. If only Queen Elizabeth had given Chuck and Di a thumbnail-size computer chip for their wedding, she would have been spared reading in the London tabs how her son" wanted to live in [his lover's] trousers," among other excerpts from taped phone conversations. Instead, the chip would have converted their words into "hsssssss." No signal analyzer, no supercomputer, no wiretap could have decoded the white noise. The device that works this reputation-saving magic is called a Data Encryption Standard (DES) chip, and there's no practical way to crack it. That's what America's supersecret spymasters, the National Security Agency, intended when they designed the cryptographic system in the 1970s with IBM. While that delights industry and privacy advocates, it's come back to haunt the government: wiretaps are useless against any suspect using a DES-encrypted phone. So in April the Clinton administration announced it was backing the NSA in its push to impose a universal encryption standard to which the Feds alone would hold the keys. The agency argues that's the only way to ensure it will always be able to decode foreign communications. Civil libertarians and corporations don't see it that way. Says computer-security expert Eric Hughes of Berkeley," The government is saying, 'If you want to lock something up, you have to [give us] the key'." No one doubts that the nation's voice, data, electronic mail and other communications need locks, and fast. Industrial spies grab fax, e-mail and other computer and microwave transmissions out of the air. Hackers broke into Internet, a world-wide computer network, 773 times last year, 90 percent more than in 1991. Hackers also peek into computers that hold medical records, credit-card purchases, even video rentals. Cellular phones offer as much privacy as going on "Oprah." The FBI can't keep up with all the cybercrime. Secret codes can, and since World War, II codes have been based on algorithms--formulas that transform one set of numbers into another. NSA's new chip, to be used in a secure phone sold by AT&T, encrypts computer transmissions and phone conversations with an algorithm so complex "it would take a CRAY YMP [supercomputer] over a billion years to solve," says Raymond Kammer of the National Institute of Standards and Technology (NIST), which worked with NSA on the algorithm. Yet the principle is simple. A sending phone and a receiving phone electronically choose one algorithm, out of millions, for their conversation (diagram). The only way to unscramble the resulting 10001100101s is to obtain the "keys," which will be held by two agencies chosen by the attorney general. The agencies-this is the part NSA likes-would give them to officials who have the requisite wiretap warrant. But industry has a couple of problems with this. First, NSA has yet to explain how the chip works, so outside verification that it's hackproof will have to wait. Worse, with millions of NSA chips in use, the agencies holding the keys would have to store them on computers, which are vulnerable to recreational hackers, foreign spooks and industrial spies. For now, no one is forced to use the NSA chip. But manufacturers who put a rival chip into, say, their modems would likely be denied government contracts, as well asexport licenses for the NSA-proof products. Even that may not appease the spymasters. "No one rules out a mandatory encryption standard," says NIST spokesman Mat Heyman. That's industry's greatest fear, which NIST will attempt to allay in meetings this week. And next week Rep. Edward Markey holds hearings on whether NSA can keep the keys to its codes safe from hackers. Or even Fleet Street. SHARON BEGLEY with MELINDA LIU in Washington and JOSHUA COOPER RAMO