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updated 12/20/2011 6:18:40 PM ET 2011-12-20T23:18:40

Call Chicken Little! The sky is falling! Our smartphones are tracking our every move! Big Brother is real! Or wait: There's no reason to worry about a loss of privacy, because as we move into 2012, privacy doesn't exist anymore — right?

For most of the past year, the news has been full of stories about smartphones loaded with secret software that tracks our keystrokes or follows our every move.

But the truth is that if you own and use a cellphone, you've already given up a good part of your personal privacy. Your cellular carrier — and the government, if it asks for it — already has a record of every number you've ever dialed, every text-message you've ever sent, all the places you've ever been and, if you've got a smartphone, every website you've ever visited.

Most people may not be aware of this. That may be why the recent discovery of a diagnostic software program called Carrier IQ transformed what once were standard privacy concerns into full-blown paranoia.

[ Is It Legal for Your Cellphone to Track You?]

To recap, an amateur Android hacker in Connecticut found Carrier IQ on his phone in November, grew concerned about what it did, discovered that it was secretly installed on millions of smartphones and began to raise technical questions online. The Carrier IQ company threatened to sue him.

Rather than back down, the hacker posted a YouTube video that seemed to show Carrier IQ logging keystrokes and keeping records of Web-browsing activity. Suddenly the media were up in arms about this hidden spyware, which even the Carrier IQ company admitted was nearly impossible to remove from certain Android phones.

(Sprint, Carrier IQ's biggest customer, said last week it would stop using the software.)

Just the tip of the iceberg?

"It's important to note that Carrier IQ isn't the only threat to consumers' privacy concerns with smartphones," said Ashley Podhradsky, an assistant professor of computing and security technology at Drexel University in Philadelphia. "In May of 2011, news broke of Apple monitoring users' physical locations through location-based services on their iPhone.

"There was a large outcry from the public about privacy concerns, especially since one in six iPhone users are children. If the file that contains the user's location information, it would essentially serve as a map for locations they frequent, such as their home, work, or school."

Even so, the ways our phones track us do serve some purpose.

"Much of the data shared is inherently needed to provide the basic services, such as the phone numbers we call," said Don DeBolt, director of threat research for Total Defense, an anti-virus software maker in Islandia, NY. "We trust that the service provider will perform the necessary due diligence to protect the data we share and protect our privacy. Each service provider provides an encompassing privacy policy that governs the services they provide, the data they collect and how they share it."

However, privacy becomes more complicated as more third parties are introduced with the installation of every new application.

"That third party may not perform the same due diligence as your carrier, they may have an entirely different privacy policy, and the simple fact of storing your data in more places increases the chances of compromise," DeBolt said. "Smartphone owners are encouraged to be selective about the apps they install and review the privacy policies of all apps."

Carriers aren't whom you should worry about

Perhaps the focus on privacy — or the lack thereof — is pointed in the wrong direction. While most phone users worry about how their phones track them, Catalin Cosoi, global research director at anti-virus firm Bitdefender in Bucharest, Romania, believes the biggest threat to privacy is mobile malware.

"We noticed a serious increase in the past months of malware samples for Android devices," Cosoi said. "Eighty percent of this malware was specifically created to extract personal details from the device and to forward these details to different servers on the Internet, such as contact lists, text messages, browser history, GPS location, etc, with the other 20 percent of malware being created for obtaining a fast profit."

That said, Cosoi admitted that consumer concern about privacy is justified.

"Social-media services, traffic-monitoring services, marketing-research companies, blogs, forums and professional networks now aggregate and maintain huge amounts of information about hundreds of millions of individuals around the world," he explained. "Because of differing standards in security, this data is not always well protected, or can actually be sold for a profit without [the users'] consent. We have placed a lot of our lives into a system that is not 100 percent safe to do so still."

Much ado about nothing?

Not everyone agrees with the idea that our phones are "spying" on us. Jason LaFollette, CEO and found of Citrrus, a mobile-app developer in Herndon, Va., thinks the privacy scare is overblown and rooted in hyperbole and user confusion.

"Consumers should be extremely concerned about their privacy, especially in today's hyperconnected world," LaFollette said. "However, the media should play the role of educator and empower users to maintain their privacy when using mobile devices, [instead] of feeding the idea that privacy is out of the user's control.

"It is my feeling that privacy issues have not fundamentally changed. Wireless phones have always allowed carriers and government agencies to track users and computers connected to the Internet have always allowed users to publish private information if they aren't careful," he added. "Smartphones may have made it possible for people to get themselves in trouble anytime, anywhere, but their manufacturers have also explicitly recognized the problem and taken steps to put users in control."

So should we be worried about wireless carriers, app makers, government agencies and even our spouses knowing too much about our daily lives, thanks to our cellphones? It doesn't hurt to be aware of the issue, but as long as you're using the phone securely and making sure you aren't giving away too much personal information or financial data, the notion that you've lost all privacy is probably overblown.

Or perhaps we need to think about the privacy issue in a whole different way, said Art Neill of New Media Rights, a non-profit legal clinic and advocacy group based in San Diego.

"I think that rather than expressing generalized fears about the potential dangers of technologies which can be used for good or evil," Neill argued, "criticism needs to be specific and focus on making sure users are given full disclosure about how they are being tracked and how their information is being used."

As the saying goes, knowledge is power. And with knowledge, even Chicken Little eventually realized the sky wasn't falling.

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