How Much Is Encryption Worth to the Economy?

With strong, ubiquitous encryption under fire, a new research paper tries to assess the economic benefits of encryption.

As the FBI and the technology industry spar over the spread of strong encryption standards to consumer devices and services, federal law-enforcement officials have made the case that unbreakable encryption would be a danger to national security, locking away the communications of critical suspects from agents who would be unable to prevent or prosecute crimes or terror attacks.

The tech industry, however, argues that consumers want better security and privacy and that a weaker encryption standard would be a huge economic hit to U.S. companies, because consumers would shift to apps and services with strong encryption made overseas.

But companies have not had an easy way of putting a finger on the economic effect of encryption—until now.

A paper released Monday by a pair of researchers at the Niskanen Center, a libertarian think tank and advocacy organization, examined the need for and benefits of encryption.

While the researchers were unable to offer a single number approximating the net worth of encryption, they argue that it is the foundation for an enormously valuable Internet economy—made up of sectors like online banking, e-commerce, and R&D—which they say could not survive without it.

The $40-plus trillion online banking industry, for example, would have been "significantly stunted" without strong cryptography, argue the authors—Ryan Hagemann and Josh Hampson—and the online purchases that in 2013 totaled more than $3.3 trillion depended on encryption for trust and security.

"It's more than just an anecdotal tautological argument that encryption has helped support the growth of the digital economy over the past 25 years," said Ryan Hagemann, the paper's primary author.

"People go online, they buy things, they engage in online financial transactions without a lot of security measures in place," Hagemann said. "It's not necessary for them to understand how encryption works; it's necessary for them to feel like they can engage in trusted transactions."

If encryption standards were weakened, Hagemann said—a change that would only come about through legislation—the trust that the digital economy is built on would crumble.

"It would be a giant red flag for cybercriminals, saying, 'Hey look at this! The doors are wide open.'"

The Obama administration has said that it will not push for legislation to address encryption, but has remained vague about its stance on the matter. An online petition on the White House website, however, recently exceeded 100,000 signatures, triggering an administration response.

The petition asks President Obama to "publicly affirm" his support for strong encryption. The White House has not yet responded.

FBI Director James Comey, however, continues to push for dialogue with the private sector about the future of encryption. He has said repeatedly that with a little effort, engineers should be able to come up with a solution that is both secure against attackers and open to law-enforcement officials who have a warrant in hand.

Technology experts, however, say such a compromise is impossible. Any door through which law enforcement could access encrypted communications represents a vulnerability that could just as easily be leveraged by a malicious hacker, they argue.

Although the Niskanen Center paper only makes the economic case for encryption, Hagemann says there are other reasons it's important. "There are all sorts of other cases to be made, from privacy concerns to human rights globally," he said.

"I think Comey needs to leave encryption alone."