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Market estimates

If a business succeeds in providing financial liquidity for internet based interactions, and the money that it issues comes to be widely adopted, what is the likely volume?

According to the Internet Advertising Bureau 1998 internet advertising was worth about two billion, and growing so rapidly that its rate of growth is difficult to measure. It is likely that value of sale of information at about one cent a page will be substantially less than advertising, but of the same order of magnitude.

A cashlike medium that supports micropayments is unlikely to make a big difference to internet information providers, therefore they will be slow to adopt it and reluctant to change their ways.

According to Wired News the California internet porn industry grossed $875 million in 1998, out of a total California porn industry of about 5.175 billion.

Porn has always been the leading adopter of new internet technologies.

The current model of charging for porn is inconvenient. Porn sites ask people to subscribe, which most people are reluctant to do. It seems likely that the widespread availability of a cashlike medium that supports micropayments would make a big difference to porn site operators. They would be highly motivated to adopt it.

These figures for the internet porn industry are unreliable, because the industry is dominated by fly by night businesses who frequently pay no taxes and violate copyrights. One such business, run by a convicted criminal, was estimated in a recent lawsuit to gross one hundred million dollars. Another similar business is estimated to gross fifty million dollars. Therefore a total of over a billion dollars and growing fast is plausible.

Online sales of consumer goods were about nine billion, but probably for most of these credit cards, and future public key systems that work like credit cards, will be more appropriate than microcash, because the credit card companies provide an arbitration service, which people need when they buy physical goods.

The auction services provide the equivalent of the credit card arbitration service. Margins are low on many auctioned items, thus the sellers often ask for, and get, payment by check, because they do not want to pay for the services provided by the credit card companies. These people would be happy to adopt a cashlike medium for the internet. However because the instant gratification issue is less important for them, their need is not so great as the porn industry, and they will not be early adopters.

Business to business sales through the internet were similar. They are projected to reach about three hundred billion by 2002. For large businesses a mechanism for facilitating internet payments in business-to-business transactions is unimportant, because they have an internal apparatus that reduces transaction costs by aggregating many business-to-business transactions into a single payment. Because they will be reluctant to change this apparatus, they will be late adopters.

In much of the second and third world people lack confidence in their government issued money and government supervised banking system, usually because of large scale larceny. These people tend to use suitcases full of US dollar bills for purposes, such as buying a house, where we would use checks. Such people are apt to be robbed both by private thieves and by government officials. If internet money was available, particularly if the money was difficult to trace, a large number of such people would adopt it. These people probably will adopt when the cash is available and when the internet achieves large penetration among them.

Robert Solomon estimates that the amount of US paper money in circulation in second and third world countries for such purposes is about three hundred billion dollars. To be competitive with paper the transaction fees would need to be zero, so profit would come on the interest on the float, which would be something like ten billion dollars a year.

There would also be some float from the European black economy, which the EEC estimates IS about one thousand billion US$ per annum. However for these transactions theft is less of a problem, and the transactions smaller and face to face, hence cash is more convenient. Thus participants in the European black economy are likely to be late adopters.