In return-on-investment terms, the most successful “crypto” company in all of history — likely never to be rivaled — was called Crypto AG and was based in Switzerland.
Crypto AG started out building code-making machines and encryption devices in World War II, with the U.S. military as its first client. Over the following 50-plus years, Crypto AG sold its world-class encryption technology to more than 120 countries. It even sold equipment to the Vatican.
And yet, while Crypto AG reaped large profits doing this, the real prize wasn’t money. It was intelligence.
That is because, from the very beginning, Crypto AG was a CIA front.
The CIA, in cooperation with its West German counterpart, had secret backdoor access to Crypto AG’s code-making tools and encryption services, which were sold to more than half the countries in the world.
Crypto AG thus gave the CIA hypothetical ability to eavesdrop on anyone — politicians, diplomats, generals, heads of state, chief executives, even the pope.
The story is told in the Washington Post, and it is one of the wildest things you will read in 2020. It’s called “The Intelligence Coup of the Century” and you can read it here. The Post broke the story in conjunction with ZDF, a German public broadcaster, after gaining access to classified CIA files.
“From 1970 on, the CIA and its code-breaking sibling, the National Security Agency, controlled nearly every aspect of Crypto’s operations,” the Washington Post writes.
They “monitored Iran’s mullahs during the 1979 hostage crisis, fed intelligence about Argentina’s military to Britain during the Falklands War, tracked the assassination campaigns of South American dictators,” and more.
Germany’s spy agency, the BND, got nervous and left the partnership in the 1990s. But the CIA kept milking Crypto AG through 2018, at which point they disbanded Crypto AG and sold the assets, according to the report.
As espionage concerns heat up over Huawei, 5G equipment, and the possibility of a new, multi-front cold war between the U.S. and China, the Crypto AG story feels appropriate for the times we live in. It also helps explain the high-stakes nature of the encryption fight between governments and tech companies.
For example, Apple, one of the most valuable companies in the world, is in a constant state of pushback against federal agencies and law enforcement officials who want break-in capability for Apple’s iPhones.
The rationale of law enforcement is that, if an iPhone belonging to a criminal or a terrorist is seized, an ability to access the iPhone’s contents could solve big cases, break up crime rings, or even save lives.
But the counter-concern from Apple and other tech giants is that, if you give away a security backdoor — to anyone at all — you lose control of who might walk through it.
If the FBI had a workaround to get into iPhones, for example, the CIA and NSA would have it too, by legal means or otherwise. Worse still, a breach of government security could put the backdoor in private hands.
The Crypto AG story also has cryptocurrency implications, the most basic one being: “When it comes to encryption, you can’t be sure who to trust.”
Privacy features enabled by complicated software code leave the user vulnerable to the organization that wrote the code — or to some other organization that knows how to exploit it.
The only surefire way to avoid a Crypto AG-type operation — a digital wolf in sheep’s clothing — is to move away from centralized solutions and toward decentralized ones. Rather than questioning the intent of the controlling organization, the idea is to have no controlling organization at all.
While the Crypto AG story is a negative for many cryptocurrencies — so-called “privacy” cryptos come to mind — it may yet be a positive for Bitcoin, which has retaken $10,000 on the day of this writing. There is a negative trust effect when governments and their agencies see their schemes and deceits revealed. The less that governments can be trusted, the more alternatives are needed. And so, as trust in government declines, the more a decentralized solution like Bitcoin — a stateless currency and a sovereign asset without borders — should see its demand rise.
TradeSmith Research Team