November 9, 2015

Encryption, Trust, and the Online Economy: An Assessment of the Economic Benefits Associated with Encryption



The problems of online security and the non-economic benefits of encryption are well understood, but there has yet to be a comprehensive analysis of the economic benefits created by the spread of encryption. This is not surprising. When encryption is working properly, the user is not even aware of its existence.

In order to gauge the overall benefits of encryption, we examined five separate metrics that rely on encryption: (1) online banking and financial transactions, (2) e-Commerce and online retail, (3) information communication technologies (ICT) security revenue, employment, and insurance, (4) research and development investment, and (5) consumer surplus. In each of these areas, the available data indicates strong growth trends over the past quarter century. In some situations the growth has been profound. The growth of e-Commerce, for example, has skyrocketed from total annual sales of $100 million in 1994 to over $250 billion as of 2009.

Although e-Commerce has seen some of the most significant growth, the final concluding graph will show that each of these metrics has grown precipitously over the observed years. The one exception to this trend is consumer surplus. As we discuss, consumer surplus is a difficult measure to standardize for analysis and among all the metrics examined, is the least informative of the value of encryption in the online ecosystem.

It’s not possible to say precisely how much of this growth is due specifically to the wide availability and use of secure encryption. However, it is exceedingly unlikely that these sectors would have boomed as they did without the assurance of security that encryption provides. Even if the specific contribution of encryption in the growth of these fields is proportionately small, the scale of these increases is so large that even a small contribution would be large, and economically significant, in absolute terms. Future work is needed to more precisely specify how much of this observed growth is owed specifically to encryption.

Read the entire paper here.