Security
The generator is not appropriate for use in simulations, only for cryptography, because it is very slow. However, there is a proof reducing its security to the computational difficulty of the Quadratic residuosity problem. Since the only known way to solve that problem requires factoring the modulus, the difficulty of Integer factorization is generally regarded as providing security. When the primes are chosen appropriately, and O(log log M) lower-order bits of each xn are output, then in the limit as M grows large, distinguishing the output bits from random should be at least as difficult as factoring M.
If integer factorization is difficult (as is suspected) then B.B.S. with large M should have an output free from any nonrandom patterns that can be discovered with any reasonable amount of calculation. Thus it appears to be as secure as other encryption technologies tied to the factorization problem, such as RSA encryption.
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