Although North Korea has long been known for firebrand rhetoric and provocative actions that have increased tensions with neighboring states, the secretive nation has surprisingly found itself at the center of a cryptocurrency revolution, largely out of necessity. There are widespread rumors that North Korean dictator Kim Jong Un is behind some of the wild price swings of bitcoin and other virtual currencies.
Years of crippling economic sanctions and pressure from proximal governments have forced North Korea to develop creative strategies for circumventing financial restrictions to further military hardware acquisition and other power-play capital. In its efforts to build an effective deterrent to what it perceives as external threats to its existence, North Korea has landed on a relatively straightforward path to overcoming these onerous restrictions: bitcoin.
The creative strategies employed by North Korea to leverage cryptocurrency came to the fore in Feb. 2021 when federal authorities announced that "three North Korean computer programmers have been indicted for conducting a series of cyberattacks to attempt to steal and extort more than $1.3 billion in cash and cryptocurrency from financial institutions and companies."
According to the Department of Justice, the programmers were part of a North Korean military intelligence agency with a history of nefarious dabblings. The same attachers had attempted to create and market a fraudulent blockchain platform, called the Marine Chain Token, in 2017 and 2018.
The World's Leading Bank Robbers
The Marine Chain Token allowed investors to buy ownership interests in marine shipping vessels with blockchain technology and, according to the Department of Justice, "allowed North Korea to secretly obtain funds from investors, control interests in marine shipping vessels, and evade U.S. sanctions.”
One of the hackers had been previously charged in 2018 with a cyberattack on Sony Pictures using ransomware known as WannaCry. In addition, the hackers are accused of targeting hundreds of cryptocurrency companies and stealing tens of millions of dollars worth of cryptocurrency.
In September 2018, the hackers stole $11.8 million from a New York financial services firm using a malicious CryptoNeuro Trader application.
North Korea's criminal cryptocurrency activities have been so egregious they prompted Assistant Attorney General John Demers of the Justice Department’s National Security Division to dub the hackers "the world's leading bank robbers" who use "keyboards rather than guns."
In the last 12 months, the bitcoin price has jumped by more than 400% as an increasing number of corporations grow comfortable accepting it both as tender and as a store of value and medium of exchange.
According to CNBC, Wall Street giants like Bank of New York Mellon announced that they were considering allowing the banking of bitcoin and treating the currency like U.S. Treasury bonds and stocks. Paypal and Mastercard are now supporting cryptocurrencies, and the car manufacturer Tesla is planning to do so.
Most of the earliest press that bitcoin received focused on its illicit use in black market activities and transactions, an idea that was confirmed by the prosecution of Silk Road’s founders. Furthermore, tools like tumbling and local bitcoins make it even more difficult to trace transactions in certain cases.
While not foolproof or completely anonymous due to the transparency of the associated bitcoin ledger, it is still a very effective model for sidestepping financial restrictions. Just ask Venezuelans, who flocked to bitcoin in droves in 2020 to avoid the hyper-inflationary massacre happening to the Bolivar currency.
Finding Financing in Unlikely Places
In North Korea’s case, however, bitcoin is an effective tool for several reasons. For a hermit kingdom that is cut off from the modern financial system and has little access to hard currency, it is easy to understand why bitcoin is so appealing. It is the perfect solution for the nation's financial problems caused by years of disconnection from the global economy. Thanks to susceptible ancillary services like wallets and exchanges, North Korea can effectively mine or steal bitcoin to support its economy and missile program.
While it is true that bitcoin transactions can be traced via the decentralized ledger, the numerous ways to scatter and withdraw bitcoins outside of mainstream finance, whether via a process called tumbling or person-to-person transactions on LocalBitcoins.com, make it more difficult to track true ownership. In addition, little oversight from regulatory bodies means bitcoin can masterfully be moved across the globe with very few limitations.
Weaponizing Cross-Border Transactability
The decentralized properties that make bitcoin an attractive haven for certain parties lend themselves deeply to North Korea’s applications. A perfect example is the WannaCry ransomware, which locked users out of their computers until they paid a ransom in bitcoin. The ransomware exhibited only limited success before it was identified by security experts, but it likely served as a proving ground for future attacks related to cryptocurrency and the infrastructures that support it.
Already, North Korea has purportedly taken advantage of its proximity to neighboring South Korea and the nation’s own momentum in the cryptocurrency sphere. The December 2017 hack of Youbit is considered among the most brazen attempts yet to steal bitcoin, with hackers absconding with over 17% of the exchange’s assets, forcing the firm into bankruptcy proceedings.
A growing number of attacks on exchange infrastructures is widely ascribed to Pyongyang’s support of the nation’s own cyber army, although due to the difficult nature of penetrating the nation’s intranet, this remains unconfirmed.
Apart from the focus on outright theft, mining is a component of North Korea's multi-faceted tactics. A strategy allegedly deployed by the Andariel hacking collective, a group widely attributed to North Korea, was to target servers in foreign countries for the purpose of mining bitcoin, which would then be delivered to the attackers’ wallets. Furthermore, accomplishing mining locally has been readily possible thanks to an abundance of cheap energy from coal.
Despite sanctions on coal exports to China, its main trading partner, using cheap coal power for bitcoin mining gives the North Koreans a substantial edge. In effect, the country can export its commodity production without having to transfer any raw materials. Thanks to no restrictions on bitcoin’s cross-border movement, North Korea has found a relatively efficient way to monetize its mining efforts with minimal risk of getting caught in the sanctions dragnet.
Turning Weaknesses into Strengths
The entirety of North Korea’s activity in cryptocurrency ultimately remains a mystery due to the nature of bitcoin itself and the nation’s opacity. How bitcoin is converted and ultimately withdrawn from the system is one of the questions that crop up in many readers’ minds. The even bigger question though is how are these revenues spent? Is it for financing weapons development programs, funding more attacks, or just propping up the broader economy?
There are no answers to these questions, only signs that North Korea’s relationship to bitcoin will only strengthen over time as the international community coalesces to crack down on what it perceives as the nation’s belligerence. North Korea's contribution to the proliferation of cryptocurrency is more malicious than positive, but with few other outlets for financing and cross-border transaction, bitcoin stands out as the perfect resolution for North Korea’s many difficulties.
As far as North Korea's effect on bitcoin price is concerned, the North Korean regime's crypto activities are most likely driving up the price of digital currencies. At the same time, North Korea can take advantage of the investments or illicit gains in relative anonymity thanks to the lack of oversight and decentralized properties of cryptocurrencies.