Skype's Crypto Revolution

Mass encryption. 1.15 billion downloads. Hundreds of millions of people are using Skype's strong cryptography to talk. Encrypted for the very first time. Thanks to Skype. This is a notable achievement.

The last successful mass distribution of cryptography was SSL (secure sockets layer). Browsers alert you are talking securely to a web site by the little closed padlock icon. SSL let the world feel safe to share secrets. Banking. Taxes. Voting. Medical records. Divorce. School.

Skype's encryption gives people the same freedom to talk.

Most people don't know Skype safeguards their calls. There is no "padlock" to show that the other people in your conversation are also using secure Skype clients.

America's "founding fathers" would have liked cryptography a lot.  They would have viewed it as protected under the Second Amendment where "the People" are guaranteed the right to bear arms, not just for personal defense (which was obvious to them), but also because politicians prefer unarmed peasants. An unarmed populace is much easier to dominate. And so is a populace without the ability to have privacy.

— Hudson Barton

What data does Skype keep?

Clearly Skype has call records from SkypeIn and SkypeOut, so they can bill for time according to their tariffs and charge appropriate taxes. They also have records of when you log in through a client or the web to the authentication service.

Skype may keep a copy of the material in your account that's backed up onto Skype servers (profile, contacts, history, preferences like call forwarding). However that data may be encrypted so Skype wouldn't have the burden of sharing the data under a subpoena or be exposed to financial risks in the event of a security breach.

While it's not impossible for Skype to have engineered tattle-tale features into the client, reporting on p2p activity, there is no evidence of spyware in research done by independent researchers or by anyone else.

Skype has compelling business interests to assure customer privacy. Unless you're from China, you don't load Skype with the assumption your government, your employer, your priest, your ex's private detective, your insurance company, your political party, your local police department, or anyone else has the ability to know who you talk with or what you say to each other. You trust your phone company and Skype to keep your confidences as much as physically and legally possible. Unlike your phone company, Skype has done more to encrypt conversations.

Skype is legally better off not keeping any data it does not absolutely need to keep. And there is no technical reason for Skype to keep a log of your in-Skype-network chats or calls.