This topic has been done to death over the ages so at the risk of sounding a little stereotypical, here goes.
Part one - why regulation probably won't work
I guess the obvious fears that society has had - that terrorists will use encryption to hide messages from authority - are finally surfacing. Yes it's happening, and it might make the job easier for secret service agencies if they had control over encryption. They might not be able to stop people using it, but one thing that has been requested is a requirement for the (probably US) government to have a back door into all developed encryption techniques, so it can be decrypted immediately with a warrant.
Even then it's sketchy though. There's no reason anyone who wanted to couldn't use older, "unprotected" software that didn't have the back door, and simply pump up the encryption strength. Then there's open source cryptography, or they could just write their own. (The USA and allies aren't the only countries in the world with good coders, and some leaders who hate the US have lots of money.)
In the end though, I think it comes down to the same argument as with something like gun restrictions - except probably an even stronger argument. By restricting cryptography, it restricts the law-abiding citizens. But given the ability for information to get around, it would be virtually impossible to restrict the lawbreakers. For a terrorist, breaking an encryption law alongside everything else it is likely to be irrelevant. Unless encryption was completely banned, it would probably be hard to detect, too.
Part two - the benefits of encryption
I was able to get a letter published in the local newspaper a few months ago highlighting the benefits of encryption. I think it's a good to point out to people exactly why encryption is good, and it's not just a "the government is spying on me" type of thing.
Most people don't even realise that they put all sorts of information in a typical email. Names, addresses, phone numbers, their salaries and net worth, how old their children are, when they'll be away on holiday, and the list goes on.
Anyone in the right place can intecept said emails and other internet traffic, and if it's not encrypted then it's relatively simple to track some information down. Now while your typical hacker/cracker/manager isn't necessarily as likely to break into your home as some other people, it's an important point that information can be sold.
Want a list of all the houses in your suburban area where nobody will be home on the weekend? For a small fee, it might not be too long before some people will do some data mining for a small fee.
It's very difficult to use encryption at the moment, because (simply) nobody else does. I usually digitally sign my emails just for show, and when anybody asks about it, I can give them my little talk and reasoning about it.
Ideally it needs some large companies to get more involved though. If someone like Mircosoft built encryption into Outlook, for example, generating keys for people as part of the setup and switching it on by default, there would be a lot more people using it as habit.. even if they didn't know exactly how it worked or what it was for.
Another thing I think would be quite cool is if it became common for ISP's and domain holders to run their own keyservers for addresses at their domain. When I want ot email someone I can just go and grab their public key directly. It wouldn't solve all the possible problems, but it'd be a big step ahead for trust than having big, centralised keyservers.
Cryptography doesn't solve all the privacy problems on the Internet, but it's a big step in the right direction. I'd certainly rather have cryptography for my own legitimate use than not have it, and see criminals using it anyway.
jesterzog Fight the light