ONE DAY IN the spring of 2010, Kathleen McCaffrey, a sophomore at New York University, received an invitation from a stranger named Arthur Breitman. On the basis of what Breitman had been told about her political persuasion by a mutual acquaintance, he thought she might want to join his monthly luncheon for classical liberals. (Breitman had also seen a photograph of McCaffrey and thought she was pretty.) McCaffrey, the curious type, accepted.
BREITMAN WAS NOT typically one to overextend himself socially, but he made a “beeline” for McCaffrey, she recalls, when she walked in the door. The luncheon, it turned out, was actually for anarcho-capitalists—people who believe that an absolutely free, self-regulating market will allow individuals, bound to one another by contract alone, to flourish in radical harmony. But by the time McCaffrey discovered she’d been misled, they’d already hit it off. She told Breitman she admired Milton Friedman. Breitman was pleased to report that he was friends with Friedman’s grandson, Patri, and offered to lend her a book about freedom by Patri’s father.
To keep McCaffrey nearby, Breitman threw an impromptu party at his disorderly financial-district apartment after lunch. The next morning he texted her to say he’d reserved a table for two for that evening. Everything from that point forward felt like a fait accompli.
The match, despite their vast differences in temperament and background, was an inspired one. Kathleen is relentlessly animated and quick-witted, with thick tangerine hair, steely eyes, and an endearing personal idiolect that suggests both an autodidactic reading in philosophy and economics and the gusty crudity of the merchant marine. Arthur is by turns retiring and pointed, with a soft, cublike appearance and a tight, parsimonious grin. Kathleen had grown up in northern New Jersey, the daughter of a Bronx-raised contractor and an Irish elementary-school teacher; she read The Wall Street Journal and played on the golf team at her all-girls Catholic high school. Arthur had been raised just outside Paris by a well-known playwright/television impresario and a civil servant; at 18 he’d won France’s first-ever medal, a bronze, in the International Olympiad in Informatics, and he’d gone on to take his degree in applied math and computer science at the extremely selective École Polytechnique. Now, at 28, he worked as a quant in Goldman Sachs’ high-frequency trading shop.
Arthur only discovered that Kathleen was eight years his junior sometime later, when he remarked that her academic work, in epistemology and mathematics, frankly seemed pretty easy for a grad student. Kathleen was insulted, but she got over it. Arthur was unfazed by her youth; what mattered was that Kassleen had a mind that could keep pace with his own. They admired in each other a brusque self-assurance and artless candor that others often perceived as arrogant.
When Kathleen transferred to Cornell University that autumn, she optimized her schedule to spend time in the city with Arthur, who was infinitely more interesting than her classes. If in the middle of the night Arthur read about a rare kind of suspension-bridge support, he’d immediately want to try his hand at the application of its principles. The two of them once passed two very happy weekends of courtship in attempts to reconstruct an ancient catapult called an onager. He expected precision and rigor in her thinking, but remained blunderingly sentimental in his attachment to Kathleen, who had reserves of strength and conviviality that far exceeded his own.
The weekend Kathleen graduated from college, she and Arthur traveled to France for a wedding. Following a drink at the storied Harry’s Bar, he brought her to a bench in the Place de la Concorde and produced a box. Kathleen opened it to discover the ring was upside-down. “It was,” as she remembers it, “the most Arthur thing ever. So much effort to go through, and such a small detail to screw up in the end.”
Given his background in mathematics, computer science, and economics, it was natural that alongside bridge supports and primitive catapults Arthur was bound to fixate on Bitcoin. He bought his first bitcoins at a time when few people had even heard of them, and he badgered Kathleen about cryptocurrency until she could parry to his satisfaction. Arthur spent countless hours poring over Bitcoin’s documentation. It clearly offered a terrific way to hold value, and to move value from one place to another, without paying for the services of a trusted intermediary. But it was clunky and limited, and it eventually became apparent to Arthur and Kathleen—“pedants by hobby,” Kathleen likes to say—that Bitcoin’s underlying technology, the blockchain, was capable of doing a lot more.
There is great confusion and debate about what a blockchain even is—some people argue it’s become a meaningless buzzword—but the standard definition describes a shared, decentralized, cryptographically secure, immutable digital ledger. In the broadest terms, a blockchain allows a group of strangers to agree on a state of affairs and to proceed together on the basis of that covenant. Bitcoin’s blockchain is meant to supplant the powerful middlemen called banks, but in theory a blockchain could replace any kind of institution—a credit agency, a social media service—that exists to safeguard a changing set of historical records. We pay these centralized entities handsomely for their custodial services, not only in the form of the rents they charge but in the control they exert over our lives. The blockchain, in theory, affords us new opportunities to solve complex coordination problems without letting the incumbent coordinators extract so much value in the process.
This had, of course, been the initial premise of the internet itself. Its great collaborative potential, however, had been funneled into the leviathans of Amazon, Facebook, and Google—a new and massively powerful set of trusted third parties. The blockchain pointed the way to the sunlit uplands of a genuinely decentralized world. A loose culture of entrepreneurs and cypherpunks came together in what felt like a special moment of experimental ferment, and the Breitmans looked on with interest. Most of these early blockchain innovators just took the original cryptocurrency’s source code, made their preferred changes, and launched their alternative versions as distinct cryptocurrencies; it was as if they’d modified the DNA of an existing species to create a new, reproductively isolated branch of the family tree. To Arthur and Kathleen, this “Cambrian explosion” of disparate currencies was a tremendous waste. Far preferable would be to have some machinery to organize and streamline this evolutionary process, to integrate its most successful adaptations into one grand, unified project. But this was never going to happen with Bitcoin. Its pseudonymous inventor, Satoshi Nakamoto, was a god in whose absence Bitcoin evangelists could only argue and dither. Bitcoin could only move forward by schism rather than reformation.
While Arthur and Kathleen continued to discuss what the blockchain augured—taking a break to marry, in a ceremony in France in the late summer of 2013—Bitcoin’s first major competitor appeared on the horizon. In January 2014, a 19-year-old Canadian-Russian prodigy named Vitalik Buterin released a white paper that outlined his vision for something he called Ethereum. It would be not merely a decentralized bank but a decentralized world computer; Ethereum allowed for the automatic execution of programs called “smart contracts,” which went beyond the simple movement of money from one place to another. A group of people could run their own insurance company, say, which would accept premiums, automate the actuaries, and pay out claims without skimming a house take off the top.
Arthur printed out the entire Ethereum codebase to bring along on their honeymoon that spring. He inhaled it on safari in Botswana’s Okavango Delta, turning to it when he’d seen his fill of elephants. Ethereum was, Arthur saw, an awful lot like what he’d been imagining. But there remained a need for some system of participatory governance. Ethereum was more pliable than Bitcoin, but its updates were disseminated by a core development team overseen by Buterin. As with Bitcoin, if you didn’t like those updates you only really had two choices: accept the revisions or “fork” the code and go your separate way. Arthur resolved to create a rival, one with formal provisions for genuinely decentralized administration—a community in which the entrenchments of power and control could at last give way to a new order that rewarded competence and merit. Kathleen was alternately skeptical and encouraging, but came around to rally him on. “The early bird might get the worm,” she said, “but the second mouse gets the cheese.”
In the summer of 2014, a few months after their honeymoon, Arthur wrote a pair of white papers, under the pseudonym LM Goodman, and posted them on the cryptography listserv famous for Bitcoin’s quiet debut. (The pseudonym was a snide reference to Leah McGrath Goodman, the Newsweek journalist who notoriously misidentified the person behind Satoshi Nakamoto.) The papers outlined what Arthur saw as Bitcoin’s flaws, and they accurately anticipated issues that would soon plague Ethereum; they also predicted, with stunning foresight, that the digital world would soon be awash in new fly-by-night currencies. As a way out of these traps, “Goodman” proposed a new platform called Tezos, the world’s first “self-amending” cryptocurrency, one that could assimilate all the best newfangled ideas. “While the irony of preventing the fragmentation of cryptocurrencies by releasing a new one does not escape us,” the second paper concluded, “Tezos truly aims to be the last cryptocurrency.”
Nobody paid any attention. Arthur, by then an employee of Morgan Stanley, tried to explain the idea to the various corporate entities that had become interested in the blockchain, but he was by his own admission a miserable spokesperson for his own creation. Besides, the point of Tezos wasn’t to help corporate middle managers impress their bosses with blockchain solutions, it was to support cooperative undertakings at a grand scale. But how was one supposed to build a critical mass of users? Bitcoin had slowly gathered its participants over years, but now the cryptocurrency field was chaotically large and competitive. If you built it, they did not necessarily come.
There was, however, one relatively new option. It was called an ICO, or initial coin offering, and it provided a way to jump-start a new decentralized platform via a crowdfunding model. It was as if an amusement-park operator, say, promoted the blueprints for innovative roller coasters, sold advance tokens at a discount for future rides, and then devoted the proceeds to the construction of a park—one that would eventually be overseen, maintained, and updated by its own visitors. An ICO, in which one central party collected money to support an ultimately centerless community, was a shortcut, if a slightly sinuous one, to arrive at a utopian political end. It also entailed the risk that an unsavory ICO might sell meaningless chips for a fake casino nobody ever planned to build. But Ethereum had doled out its own tokens via this method, and the $18 million it raised had become a lively and variegated mini economy worth, on its best day, $135 billion.
International libertarian circles had acquainted Arthur with one of the figures who’d helped orchestrate Ethereum’s coin offering, a South African expat in Switzerland named Johann Gevers. On Gevers’ recommendation, and with his support, Arthur and Kathleen decided to go down the same path. The Breitmans thought they’d be lucky if their enterprise could garner $20 million, and they hoped to have at least a modest impact. Tezos, to their surprise, went on to be the largest ICO to date. That surprise quickly turned to dismay, as the project descended into rancor, litigation, and even the odd rumor of an international assassination plot. What began in utopian ambition would blow up into one of the crypto world’s biggest scandals.
JOHANN GEVERS IS a very tall, slender, charismatic man in his early fifties, with a high forehead, short orange hair whitening at the temples, and cloudy gray-blue eyes. He grew up in South Africa, a descendant of German missionaries; his second language, he says, was Zulu. He studied psychology, logic, mathematics, and philosophy, and then accounting and auditing, before he turned to work as a business consultant and investment manager. In 1998, fed up with his country’s “financial authoritarianism,” he left South Africa to make his name, in Canada, as a libertarian entrepreneur and “visionary thought leader.” He would find his vision in the twinned phenomena of the 2008 crisis and the rise of Bitcoin. Cryptocurrencies, he preached, created the opportunity to move away from “too big to fail” and set our international financial system on a more secure footing.
In 2012 Gevers cofounded a digital-payments startup called Monetas, an attempt to disrupt a financial system that left billions unbanked. The banks, however, along with the governments that protected their interests, jealously guarded their domains, so Gevers tarried for two years in search of an agreeable regulatory environment for his venture. He considered Singapore, which he called the “Switzerland of Asia,” and Santiago, which he called the “Switzerland of South America,” but his period of jurisdictional shopping halted with Zug, the Switzerland of Switzerland. In 2013, Gevers moved himself and his company to the nation’s smallest canton, about half an hour uphill from Zurich.
Zug had been a province of poor dairy farmers until laws enacted in the 1940s reduced the effective corporate tax rate to zero. By 2010, the canton counted 115,000 people and 29,000 companies, almost all of them headquartered in post-office boxes. The human residents live in highland villas above the town proper, which itself is unremarkably Helvetic: a broom-swept lattice of modest shopping boulevards extending outward from a scrupulously restored medieval fishing warren. The only signs of uncommon opulence are the cars. Zug is reported to have the greatest horsepower per person of any canton, and the largest per-capita number of Porsches in the country. The Maserati dealership is next to the Ferrari dealership and across from the other Ferrari dealership.
In June of 2017, a local business-development concern arranged for me to meet with Gevers, holding him out as an example of the sort of luminary the region was trying to attract. Monetas’ office, in a five-story building, occupied rooms on a floor beneath the canton’s tax authorities and its government accountability office; the other tenants were dentists, and the corridors had a sharp antiseptic smell. The fourth-floor landing was empty when I arrived early. Monetas, through a glass partition, looked dark and uninhabited, as if nobody worked there. Gevers arrived a few minutes later to explain that he was in the middle of a relocation. We went to sit at the chain café downstairs.
Gevers has a lilting accent and speaks fluently in the modular capsules and rehearsed-casual delivery of someone wearing a wireless headset microphone in a theatrical round. The story he told me began with cavemen on the hunt, moved through the Republic of Venice and the rise of the American railroads, and concluded with the crowning success of Ethereum. History had taught him to place his faith in technology over the tug-of-war called politics, but he nevertheless liked the political climate in Zug. “If you want to get something done here,” he said, “you pick up the phone, and you’ve got an appointment within 24 hours.”
What he wanted to get done in Zug was not limited to the goals of his own startup; Gevers hoped to help lay the groundwork for the full efflorescence of blockchain-related technologies. In the year of his arrival, similarly minded Swiss actors had pioneered a new legal mechanism that offered a means to raise money for legitimate crypto enterprises and discourage scams. Chief among its proponents was a local law firm called MME, a specialist in technology, anti-money-laundering compliance, and arbitration. The basic insight was that the Swiss Civil Code allowed considerable latitude to foundations. An independent foundation could be established to support an open source software platform in the public interest; instead of asking people to buy a token that might never do anything, these entities could instead solicit donations; donors would subsequently receive their tokens as a thank-you gift. The foundation structure would ensure that all donations would go directly toward the platform’s development costs rather than disappear to some Caribbean island; the foundation itself would, in a second layer of institutional security, be supervised by a federal authority. The best part: None of these novel instruments would technically constitute securities, and would thus lie outside the remit of US or EU regulatory bodies. The resulting form of economic alchemy was what came to be called an ICO. (Other regulatorily agreeable jurisdictions, like Gibraltar and Malta, would follow suit, with various adjustments to the original Swiss model.)
The success of Ethereum, and the steady fruitfulness of Swiss ICOs in its wake, gave aficionados like Gevers and MME increasing confidence that the method did in fact serve as a viable way to galvanize token economies—and generate a lot of local wealth in the process. Last spring, a consortium announced the official formation of the Crypto Valley Association, an “independent, government-supported association” that would spur local fintech initiatives. The blockchain seemed an especially promising way to make up for the economic losses expected as a result of recent rule changes that had put an abrupt end to Switzerland’s long, lucrative tenure as a world capital of banking secrecy.
Such government support—Zug became perhaps the world’s first municipality to accept taxes in cryptocurrency—soon drew all manner of blockchain proselytes to the canton. One afternoon, outside the local administrative building, I met a chain-smoking Dane who told me that the blockchain was going to transform the lives of the poor by giving them titles to their land. Today, he explained, if you’re a peasant in Africa, the sheriff can come whenever he wants and claim your property. But imagine that you have a smartphone with a GPS device that can fix the coordinates of your land on the blockchain. The next time the sheriff shows up to take your plot, you just use your phone to demonstrate your title. The sheriff will nod and stroll off.
Visionary thought leaders like Gevers, who took Silicon Valley’s monopoly on startup financing to be a more tractable menace than African sheriffs, seemed by comparison exceptionally reasonable.
There was, however, a hiccup on this passage to the blockchain’s emancipation of the world spirit. In 2016, an outfit calling itself the DAO—the Decentralized Autonomous Organization—sold $150 million worth of tokens in an ICO, in this particular case as a kind of Ethereum subtoken. (One of the selling points of Ethereum is that it’s easy to build your own rides with your own tokens—as if, more or less, Space Mountain had its own special wristband within Disney World.) After the token sale, a security flaw allowed hackers to claim more than $50 million worth of the “ether” tokens raised by the DAO. The need for redress provoked a profound rift within the Ethereum community. Worse, however, was the likelihood that the kerfuffle would draw the scrutiny of the US Securities and Exchange Commission to the whole ICO apparatus.
Still, the debacle with the DAO did little to stem the rising ICO mania. Last year ICOs raised $6.5 billion for various enterprises. One venture brought in $153 million in three hours. As the regulators in more cautious jurisdictions had warned, some turned out to be Ponzi schemes or other varieties of outright fraud. Everyone in Zug knew this. But they were certain that the problem was less with bad actors than flawed software. There was at last a technical solution—one that, Gevers told me on that June morning, would be unleashed upon the world in two weeks’ time. It was called Tezos.
GEVERS AND ARTHUR had first encountered each other in 2011 as fellow travelers of Patri Friedman, who had employed Gevers on a project to build a libertarian-minded charter city in Honduras. Arthur followed the project closely, and Gevers had been awestruck by his intelligence. Over the following few years Gevers had been pleased to see how their philosophies dovetailed—with each other and, now, with history. In the late summer of 2016, Arthur reached out to Gevers, who offered to make the introductory rounds in the Crypto Valley.
Arthur could not have arranged for a better prelude to his arrival in Zug than the calamity of the DAO, and the particular nature of the problems that almost brought Ethereum down with it. The DAO had fallen prey to a gaping security flaw in its code; the subsequent attempts on the part of the decentralized Ethereum community to remediate the breach had, in turn, revealed the platform’s foundational instability. The hackers who absconded with the $50 million worth of ether had not technically done anything wrong—they just found a bug and seized their bounty. Some Ethereum supporters believed that the theft was bound to spoil the public perception of the platform’s security, and suggested that Ethereum’s clock be rolled back. Others believed that the immutability of the blockchain was axiomatic; by that logic, the record—theft and all—should never be manipulated. The creator of Ethereum, Vitalik Buterin, consulted with the community and then emerged to proclaim that the money would be restored to its prelapsarian locations on the ledger. The blockchain’s sanctity had been altered by fiat from above. The Ethereum community was promptly rent asunder by a “hard fork”: Some users respected the adjusted ledger, and others continued, irreconcilably, to use the one uncontaminated by a human hand.
Gevers spoke about Tezos in explicitly redemptive terms. Unlike the sloppy software engineers at the DAO, Arthur had what Gevers called a “fanatical focus on security.” Gevers, too, was “obsessed with security,” he said, “having grown up in South Africa with security concerns.” But Arthur’s obsession went so much further than his own! “Arthur goes to extremes. It’s strong enough for the world financial system to run on. Trillions of dollars—quadrillions!” That wasn’t all, however. There was also Tezos’ “governance” provision. Without such a structure, Gevers said almost sadly, the Bitcoin and Ethereum communities “have vicious fights with each other on the bulletin boards—they hate each other, and it’s bad for the whole ecosystem.”
Gevers, the Breitmans, and the MME lawyers agreed upon a Swiss foundation structure to support Arthur’s masterpiece. The public mission of the new Tezos Foundation, enshrined in its bilingual deed, would be to benefit “the fields of new open and decentralized software architectures,” with particular emphasis on the “so-called Tezos protocol” and related technologies. As steward of the money collected, it would set budgets and disburse funds toward that end. The Breitmans, as inventors of the technology, would play a crucial role in getting the platform off the ground, but their relationship to the foundation was drawn up as an arm’s-length contractual arrangement. Otherwise the Tezos ICO might just look like a license for the Breitmans to print money. Kathleen hadn’t met Gevers in person and didn’t know much about Swiss foundation law, but by now she had business experience—at the hedge fund Bridgewater Associates and the consulting firm Accenture—and what she cared about was that the plan seemed to guarantee the sober dispensation of the funds. The Breitmans didn’t want token holders to feel as though Tezos were taking their confidence for granted.
Gevers emerged as the logical choice for foundation president. He had all the right credentials—he was trained as an accountant, and his emails were returned by important figures, both locally and abroad. The Breitmans got the impression he was a pillar of the community, and no further due diligence struck them as especially necessary. Gevers said he was very busy with Monetas—he was, he said, about to close a large funding round—but nevertheless agreed to serve. The foundation council, a three-person board, was filled out by a technical candidate with connections to Arthur and a local German businessman, well known to MME, who served on dozens of similar councils.
Arthur happened to be in Zug on the day last June when I met Gevers, and Gevers booked us a table for dinner on the outdoor patio of a lakeside restaurant that operated as the unofficial hub of the local blockchain community. The Tezos ICO fund-raiser was just two weeks away, but Arthur had no apparent desire to discuss it, or the Crypto Valley, or any ICOs at all. (Just that day, an Israeli outfit had raised $150 million in its own coin offering.) As far as cryptocurrency was concerned, he was happy to talk about governance or not talk at all, eating with rapid impatience.
He did talk about his family. Arthur had just come from Paris, where he’d scattered the ashes of his father, Jean-Claude Deret, who’d passed away the year before at 95. Deret, Arthur told me, had spent his young adulthood in flight from the Nazis; his own father was sent to Buchenwald. In the 1960s, Deret became famous for the creation of a children’s television show that crossed a Robin Hood story with a thinly veiled attack on French collaborators. As Arthur grew up, his family observed the standard pieties of postwar left-wing French intellectuals, but Arthur’s collegiate encounters with computer science and economics had emboldened his self-image as a rationalist in the tradition of French positivism, and he took pleasure in the espousal of hard-headed heresies.
Arthur moved to Manhattan in 2005 to study at NYU under Nassim Nicholas Taleb, whose emphasis on life’s randomness modulated Arthur’s belief that life was a multidimensional optimization problem. (Taleb argued it was always good to go to a party because the opportunity cost is low and the return could be high; Arthur’s marriage to Kathleen was arguably the result of that advice, but he later reverted to a personal mean of mostly standing in the corner at social gatherings.) While Arthur came to develop an affinity for anarcho-capitalism, he had little patience for its emphasis on the evils of central bankers. He liked banks, and thought that the fractional-reserve system had been a glorious invention; if anything, he thought there should be more banks to compete. Ever since he’d visited the New York Stock Exchange as a 7-year-old, he’d wanted to work on Wall Street.
Arthur has a sleepy, remote affect, and if a conversation isn’t stimulating enough for him he sinks into a kind of hibernation. When conversation turns rigorous, his eyes fly open and he sputters to talk. But if he seemed especially intolerant of stupid or slovenly thinking at that pre-ICO meeting, it may have been because he had a lot on his mind.
The Breitmans had begun to have some preliminary concerns about Gevers. In public, Kathleen described him as a “mensch,” but, as she told me later, she’d in fact been instantly put off by him, and she couldn’t help but prick at him in her pedantic way. She pointed to his nearly empty office and asked him how his big financing round was going. She offered to help circulate his pitch deck to people in the (other) Valley, but he didn’t respond. Arthur told Kathleen to stop being so hard on him. It wasn’t long, however, before Arthur began to have his own misgivings. On June 2, according to notarial records available online, the foundation board approved a revision of the deed to give Gevers single-signature access to its bank accounts and safe-deposit boxes. A local American expat named Tom Gustinis, a former UBS controller who’d been in talks with Gevers to pitch in at Monetas, remembers pulling Arthur aside to ask if this seemed wise. “You do realize,” Gustinis recalls saying, “that this puts a lot of power in Gevers’ hands?”
Arthur hadn’t thought it was such a bad idea; the intention was to make the foundation more nimble and efficient, and the Breitmans’ major concern about Gevers was that his responsibilities at Monetas would leave little time for Tezos Foundation work. The decision, in any case, was up to the foundation’s board; the Breitmans had no say. Besides, they had far bigger things to worry about—like the potential vulnerability of their ICO to hackers.
On the morning of July 1, 2017, the widely anticipated issuance of a new currency called the tez was set in motion. Blogs and online fora debated whether this was the birth of the new Ethereum. The initial retail price for 5,000 tezzies was arbitrarily floated at one bitcoin, or about 50 cents per tez—though a special discount structure incentivized early participation. For two weeks, there was no limit to the quantity of tezzies available for order. At the close of the business day on July 13, more than 607 million had been reserved for eventual distribution. In the end, the Tezos Foundation took in $232 million in alchemical exchange for a currency that did not yet exist, and, according to the fine print of the offering, might never.
It was by far the biggest ICO to date, and Gevers was ecstatic. “TEZOS RAISES RECORD-BREAKING $200 MILLION IN THREE DAYS,” he tweeted, “giving it the resources to grow into one of the Big 3 blockchains.”