Some people have predicted (advocated?) frictionless capitalism, which will be brought about by the use of digital technology to reduce transaction costs. However, in anonymous markets these costs may be quite high. Two main components of transaction cost in an anonymous market will be the cost to maintain anonymity and the cost to evaluate reputations. Maintaining anonymity requires that communications be done through special untraceable protocols. The current state-of-art (i.e. RemailerNet) adds several hours of transmition time to each message to achieve effective untraceability. Contract negotiation, for example, becomes very difficult under these circumstances. Untraceable communications also use up more computing and communications resources. Although remailers don't yet charge any money to pass along messages, this is sure to change in the future. Unless the structure of the Internet is completely redesigned, untraceable messages will always cost more than traceable ones, although I hope this cost difference can be reduced through technical advances. The second big part of transaction cost in an anonymous market is reputation evaluation. Of course, normal, everyday transactions require reputations to be evaluated. However, more effort and cost will be expanded on these evaluations in an anonymous market because the effects of misevaluations will be much more damaging. Reputations must be constantly reevaluated, as pseodonyms are easily transfered. Since no good theories of reputation currently exist, these evaluations are difficult to automate. Perhaps theoretical advances can make these evaluations easier and/or more accurate. However there does not appear to be any major research effort in this area. If these costs remain high, but anonymous markets develop regardless, it will be interesting to see how these costs affect the structure of the markets. Will special protocols for contract negotiations develop to minimize the number of round-trip messages? Will each market be dominated by a few big entities because people can't keep track of reputations of many smaller players? But then how will these big entities be organized? Wei Dai