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Is there a valid reason to use any encryption at all if you generally can't sniff the traffic unless you can also sniff the key, and if the key is arbitrary and not verified against anything?

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AES is so cheap with hardware acceleration that I could see an argument that it prevents casual sniffing of the traffic. Personally I think the false sense of security would outweigh those benefits, but I'm not in their shoes.

But DES is so broken that it's more of a giant flashing beacon saying "look here there are terrible decisions being made!"

What casual sniffing? It's a pipe. If you can sniff that, you can sniff all the traffic because the very first message is the key in plaintext.

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