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The Untold Story of the Greatest Crypto Project Ever – PART 1

PART 1: Why You Never Heard About It

Continuing from the Introduction.

While what we did wasn’t entirely hidden, it was only partly public. And for reasons that will become clear as we go, no one on the inside has wanted to talk about it until now. While these people didn’t do much that was actually illegal (at least so far as I know), none of them wanted any “special attention” from the powers that be.

Nonetheless, I think it’s time to tell the story. A new generation of crypto advocates should be able to learn from what came before them.

The greatest crypto project, oddly enough, didn’t begin as a crypto project. Rather, it began the way that hyper-serious freedom projects generally did before the year 2000: as a new-nation project.

New-nation projects and calling upon Ayn Rand may not make sense to crypto advocates in the 21st century, but please believe me, if you were desperate for freedom in 1970 or 1980 or even 1990, these things were almost all you had. If you wanted to do something that might actually change the world, there wasn’t much else available.

And so, being children of the 20th century, quite a lot of people ponied up five or six thousand dollars apiece to get on board.

Remember, this is well before Bitcoin. It was also when the Internet was in its infancy. Newly formed telecom ventures were scrambling to lay enough trans-oceanic cables to make this new computer thing work, and the trusted voices of the early 1990s – The New York Times leading the parade – were continuously slamming the Internet as a threat to civilization. (Funny how all of that fell down the Memory Hole.)

And so, at some point in about 1994, a group of investors and hustlers put together a new project. This one was poised to actually work, because they had a close connection to the president of a major South American country. For a nice, quiet, seven-figure bribe, he was going to lease them 100 square miles of his country for 50 years. It would be a new Hong Kong… a laissez-faire paradise.

After several meetings with the corrupt president in which assurances were received (I wasn’t involved at that time; I’m repeating what I was told by people who were), the group took out full page ads in the Economist and, as I recall, Newsweek. Here’s a copy of the ad:

This was when the first round of fundraising began. And quite a significant number of people jumped in. At this point the core group quickly recruited contacts, including a strange cast of characters from both sides of the Cold War, which had recently ended. They formed their own trust, registered with no state, and appointed Mikhail Gorbachev’s translator – a pleasant, well-mannered man – as the trustee. (I’m not sure how they knew Gorbachev’s translator, but it was probably through one of the spies.)

All that said – and I doubt this is any surprise – El Presidente soon enough backed out of the deal (they always back out of the deal), leaving a moderately collusive group of new-nation advocates in a fix. They had taken in a lot of money, and they had no way to deliver what they had promised. My impression is that some of these men were scrupulously honest and others less so (there were no women I know of), but they all wanted an unruled space more than they wanted the money.

As you might imagine, frenzied discussions took place at this point. It also happened to be a moment when many of them were scheduled to go on an investment tour of South America. And it was on that tour that everything changed.

The key figure in this crucial turn was a man named Orlin Grabbe (GRAY-bee). Orlin was one of the financial wizards of his generation. He had grown up on a farm in Texas, spent some years with the Worldwide Church of God, and then leaped from one advanced degree and one elite university to another.

Orlin was exceptionally bright and soon enough ended up teaching at Wharton, an elite business school. He more or less invented modern arbitrage trading, as well as making basic contributions to financial derivatives. His book International Financial Markets became the standard text on the subject.

What happened next can’t be found on Wikipedia, but I learned it directly from Orlin and his friends. He was recruited to work for the US “intelligence community” and got a good look behind the curtain… then went running from what he saw, directly into cryptography. (Which was also, in those days, called “cryptology.”)

The beginning of Orlin’s series, “The End of Ordinary Money” (written at various points between 1987 and 1995), read this way:

Late one night while sharing a pharmacological product with a spook I met in the northeastern part of the United States, I mentioned I was studying cryptology.

“Cryptology is the future,” he responded emphatically. “It’s what’s going to protect us from Big Brother.”

Since he worked for the National Security Agency (NSA), the thought did occur to me that many would have taken the position that he and his colleagues were Big Brother. But I had learned years ago not to demonize people on the basis of an accidental profession… I additionally believed that one of our best defenses against the national security state was the perennial proclivity of clandestine organizations to piss off their own employees.

At any rate, the spook spoke the truth: cryptology represents the future of privacy, and more. By implication cryptology also represents the future of money, and the future of banking and finance.

As the investment tour proceeded, Orlin convinced the group that cryptography was the future and that it would give them most of what a new nation could provide, permanently and with mathematical certainty. This is not to say that he particularly trusted these men. I think he did some, and I know he didn’t others. But they committed real money to it, meaning that he’d be able to recruit the best people he could find and build the crypto systems he wanted to build.

Soon enough the deal was agreed upon, and a base of operations was being set up in Costa Rica, which was then the haven of choice for well-behaved ex-spies and assorted interesting characters.

And so a group of old-style libertarians, objectivists, and hustlers financed the biggest crypto project ever. It was a turning of generations. Minimally four million and perhaps seven million dollars went into it.

To be Continued…

Comments on this entry are closed.

  • http://knappster.blogspot.com/ Thomas L. Knapp

    Ah, those were the days (not “involved” too much, but I read my Grabbe and even wrote a piece or two for Laissez Faire City Times, taking pay via the Trust, etc.).

    • Paul Rosenberg

      Yes they were. 🙂

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