The financial issue was the potentially huge liability due to a legal action or battle, not the (small) costs of operating the service; my cofounder and I are both not really able to take a lavabit-style stand (I do DoD/USG consulting work, so I have additional special considerations in doing anything which isn't absolutely legally compliant in every appearance which Ladar et al didn't have...).
We're still working on similar things, now without the revenue from the privacy vpn service.
I'm very pleased that there are people working in this area, and I look forward to seeing what happens.
(There's a new group trying to re-launch "HavenCo", although it has no real connection to Sealand; it's a VPN service and some mail and stuff run out of non-Sealand colos. I wouldn't touch it, myself.)
There is no solution to any of this other than pure technology. You want something where even the operators can't do worse than shut the service down, even if you have a gun to their heads. That's not technically feasible given current technology, but is a 6-24 months of development from being practical. And even with better technology, you end up having to worry about the entire stack, all the time -- constant vigilance is expensive.
> decent profits to cover costs
Do you mean it was meeting costs and growing in a way which would have led to profit in the absence of a legal tangle with the FBI or whatever?
If we were the legally best VPN option, I would probably have pushed to keep it going anyway and just shut down when/if that happened, but as it is, non-us providers run by non-US people (there are several good ones) are an objectively better option, so in good conscience there's no reason to continue running a US privacy VPN service without technical controls to prevent being compelled to screw over a user.