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Software is written to run on Linux (desktop, server, Android) though, and a more secure OS without applications for it isn't much good. I think in the long term, the ideal would be having a robust microkernel with drivers, filesystems, etc. divided up and isolated well.
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It needs a way to run existing applications though. The virtualization approach is the most realistic / pragmatic right now. Ideally, I'd like to see a Linux compatibility layer able to avoid having the Linux kernel in the guest, and virtualization could also become optional.
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If we want the services provided by Linux, we have to run it somewhere either as host or guest. I have no basic issues with the Qubes+Xen virtual model; its robust in practice and clear-headed in concept. Feature-rich kernels are good to have if they run as guests.
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A guest being compromised is still a problem even when it's isolated from the rest of the system. The security of the guests still matters and the Linux kernel is large part of their attack surface and is the weak link for sandboxes they have internally like the Chromium sandbox.
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But then we're talking about sandboxes within sandboxes. Qubes focuses the user's attention on the qube/vm as the tool to manage risk. And I say this as author of a project that aims to improve Qubes guest security:
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For example, for messaging, you could have a Qube for each identity you use if you can afford the memory requirements. However, it's still a serious problem if the messaging application is compromised and your key, contacts and all the logs for that identity are obtained...
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