Tough call---part of me says that they blew it off while the rest of me says they put the information to work (as best as they were able) In any event I doubt they got back to him...
Amusing anecdote, I was quite taken with the 'Java Ring' (which was a class ring type ring with a Dallas iButton on it) because it could be a 'secret decoder ring' with real crypto, except that all the crypto bits were disabled because they did not have permission from the NSA to turn them on.
So I wrote an Enigma Machine simulator for it [1] which used BASE64 to encrypt (or decrypt) messages. And in the process of doing research for that article I discovered the patent for the 'rotor' used in enigma [2] which was filed in Oct 10th, 1944 but didn't issue until Oct 12th, 1976! Talk about your submarine patent! But the other interesting thing about 1976 is that the DES encryption standard was announced in November of that year.
I don't doubt for a minute that Nash's work was influential on the thinking at least of the development of that standard.
Well, they might have used the idea, but it's not really something easily tractable even for them.
I have to admit, I'm reading Rivest's source code and I don't completely grok the encryption scheme yet, but it seems to me that it works like this. Here's the problem: you've got this very pretty conjecture which says "give me just 26 cards, there are about 2^88 permutations of them, and choosing one at random produces a much larger set of possibilities than we could guess in the forseeable future with brute-force techniques." He then provide a cipher which takes a shuffled deck and 26 spots in memory, and uses the red half and the black half to provide a random pathway for the bits through this network, since at each step there is an incoming bit which tells which way you shuffle. (And I gather that also some of the cards may basically be flipped upside down when storing the key, which means "flip the bit as you transmit it.")
It's perfectly valid as an observation, and a nice conjecture, although I'm a little bit concerned in many ways about the design, since it still seems like it only has 2^26 state leaked pretty straightforwardly one bit at a time from two different locations. But maybe he's correct.
Still there's something technologically missing. This is a very simple algorithm for modern computers with their array lookups, and I suppose the military had all the budget they needed to build large machines which can actually push around these bits, but that sort of mixing network would have been really difficult to implement mechanically. In a world where computers were too expensive to distribute to every ship's captain, I could see the NSA being much less interested in this sort of physically pushing bits around a complicated network via pathways that won't be known until run-time.
The PDF record shows both parties replied to each other a couple times but the NSA thought his method didn't meet their security criteria.
But they also could have shelved it for years until someone had a use for it, the same as Hedy Lamarr's frequency hopping patent. (Granted, they probably modified it slightly so they didn't have to give him any credit)
