Is there a charitable interpretation of this that I'm not seeing? Or is this truly as terrifying as it appears?
Per the source (https://cdn.arstechnica.net/wp-content/uploads/2017/02/fedsr...), the prosecutors already have a case based on checksums of the media that the defendant had downloaded, and per the logs, stored on his external hard drive. I imagine that the prosecution wants the media so they can perform harm reduction services for the identified, affected children and/or improve their data for going after other/future child abusers.
My understanding is that the prosecution doesn't need the decrypted data to secure a guilty verdict, but as they're entitled to it, they likely want it for secondary benefit.
A simple solution is to have your encryption software automatically add a large garbage file inside every encrypted volume. When you have something to hide, replace the garbage file with your new encrypted data.
This lets you nest your encryption to arbitrary depth, allowing plenty of room for plausible deniability. E.g. you could put your financial records at the first level, pictures from an erotic crossdressing forum at the second level, and the stuff you’re ACTUALLY hiding at the third level.
Maybe it's safer to keep encrypted stuff anonymously in cloud storage. Mr. Rawls could have run his Freenet node on an anonymously-leased VPS, used Tor onion services for the various WebGUIs, and accessed it all via Tails. There would have been nothing local to go after.
Nonetheless, a line has been crossed, and cyber-libertarians have been predicting this breach for as long as I can remember. There’s nothing cyber-libertarians love more than a technical solution to state oppression.