I review a lot of movies for Reelay, and I’d love to see this one someday… In the early 1990s, amid the collapse of the Soviet Union and the dawn of the internet, two men in Arizona envisioned something far more ambitious than a tech startup—they launched a sovereign nation.

Welcome to the Dominion of Melchizedek, a country that never existed beyond a PC and some clever graphic design. This tale of digital deception would foreshadow a new era of cybercrime that now threatens the very foundations of global security. David Pedley and his son Mark saw a unique opportunity amid the intersection of the rapid dissolution of the Soviet Union and the rise of the internet. With just a PC and some design tools, they created a new sovereign nation: the Republic of Melchizedek, a former Soviet Republic purportedly located as an archipelago in the South Pacific.

The nation of Melchizedek featured a website, a flag, and a plethora of official documents. The founders established a detailed backstory and governmental structure to give their creation a semblance of legitimacy. They even got “citizens” by selling passports to individuals seeking to escape the law or taxes in other countries. The early internet, with its relative anonymity and lack of regulatory oversight, provided fertile ground for the Pedleys’ craft. Melchizedek’s founders sought and, in some cases, obtained recognition from several small and unsuspecting countries and were even granted provisional statutes at the UN for a brief period. These recognitions bolstered their claims of legitimacy and attracted more clients to their fraudulent schemes. They appointed ambassadors and opened consulates worldwide, further enhancing their façade of sovereignty.

But the Pedleys were just getting started.

Within months, the Dominion of Melchizedek opened its own Central Bank. The Central Bank of Melchizedek conveniently had the highest level of bank secrecy laws in the world. The founders were able to acquire a provisional license, granting entry to international global banking networks. They promptly expanded their scheme by issuing fake banking licenses which were sold to other fraudsters who used them to create phony banks globally. These banks then attracted deposits from unsuspecting investors with promises of high returns and confidentiality. The deposited funds were often siphoned off and laundered through a complex web of transactions, never to be found again. By the late 1990s, the Bank of Melchizedek had sold nearly 300 banking licenses globally and were known to have earned at least $500M. It was a breathtaking endeavor whose full scope and impact remains unknown.

When authorities finally arrested the Pedleys, police discovered that the Sovereign Bank of Melchizedek did not in fact maintain strict privacy for their clients’ bank records. They never kept records at all. The story of Melchizedek, unique in its scale and audacity, is simply a preview to tech-enabled fraud. Technology and global crime have become an enormous industry. The principles that allowed Melchizedek to thrive—exploiting regulatory gaps, leveraging innovative technology, and exploiting online identity—underpin many modern fraud schemes. And as technology has advanced, the sophistication and scale of cybercrime have exploded.

Today, the financial impact of cybercrime in the United States is staggering. The Government Accountability Office (GAO) estimates annual fraud losses are currently between $233 billion and $521 billion. According to Statista, these costs will grow to nearly $2 trillion before the end of this decade. Somewhere, someone is getting very, very rich. And it’s probably not someone we would like very much. Where the billions of stolen funds end up is less widely understood. This ignorance is partially because the nature of cybercrimes makes them difficult to track; and partially because acknowledging successful hacks and pointing fingers at other countries are not without other complications. Sometimes the most awkward questions are the ones that everyone already knows the answers to.

What is known is chilling.

A significant amount of the money stolen in the US is likely funneled to China, Russia, North Korea, Iran, and non-state terror organizations where the funds are used to support cyber warfare, arms and/or human trafficking, the financing of terrorist operations, and more. The Director of National Intelligence’s most recent Annual Threat Assessment cited state-sponsored malicious cyber actors, and China in particular, as one of the greatest and most persistent threats to U.S. national security. The report noted that “PRC state-sponsored cyber actors are seeking to pre-position themselves on information technology networks for disruptive or destructive cyberattacks against U.S. critical infrastructure in the event of a major crisis or conflict with the United States.”

Thirty years ago, two men with a basic computer created a fictitious country that exposed glaring vulnerabilities in global financial systems. Today, state-sponsored actors wield far more sophisticated tools, aiming not just to exploit systems but to establish dominions of digital control. The lines between cybercrime, economic warfare, and traditional national security threats have blurred beyond recognition.

I think as we stand on the precipice of a new era of conflict, we must radically rethink our approach to national defense. In a world where a single line of code can do more damage than a squadron of fighter jets, our very survival depends on our ability to adapt.

As we face this brave new world of digital threats, one thing is clear: the next war won’t just be fought with bullets and bombs, but with bits and bytes. And that digital conflict has already started. As always, our mission is to fund, build, and scale critical technology companies. Don’t hesitate to reach out.