How Much Is Encryption Worth to the Economy?

FBI Director James Comey

FBI Director James Comey Andrew Harnik/AP

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.”