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. (See also: Is Kim Jong Un Behind Bitcoin Price Gains?)

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.

"Obviously there are a lot of rumors on how North Korea is involved in cryptocurrencies and how it affects the market," said Dr. Julian Hosp, the Co-founder and President of TenX. "What I see from my point of view and what I’ve heard talking to other people, is that North Korea is set to be mining themselves, which helps them a lot with funding a lot of their operations because they can mine Bitcoin or Monero."

Dr. Lee added: "Another thing that has been circulating, but seems to be more or less legit, is that they install malware to mine a cryptocurrency called Monero, the 13th biggest cryptocurrency by value that has been touted as being more anonymous than bitcoin and is very difficult to track. This malware mines the coins and sends them to North Korea."

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 have flocked to bitcoin in droves to avoid the hyper-inflationary massacre happening in the Bolivar. (See more: Venezuela's Petro Isn't Oil-Backed. It's Not Even a Cryptocurrency.)

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 stands out as the perfect solution for the budding financial problems that are caused by years of disconnection from the global economy.

Considering that even China is bearing down on Kim Jong Un’s rogue government, cryptocurrency serves as a pertinent tool for overcoming the challenges and barriers preventing commerce. Thanks to susceptible ancillary services like wallets and exchanges, North Korea can effectively mine or steal bitcoin to support its economy and missile program. 

North Korea has long been accused of state-supported hacking operations, a common variable that has turned up in several recent heists. One is a connection to Lazarus Group, a shadowy cabal with unconfirmed links to the government that is reportedly behind an attack on Sony Pictures in 2014, and more recently, the SWIFT network breach that cost Bangladesh Bank $81 million. However, it appears that the attention has now been turned to bitcoin thanks to its unique grey area functionality. (See also: Who Is Roger Ver, aka "Bitcoin Jesus"?)

While 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 mean 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. While the ransomware exhibited only limited success before it was identified by security experts, it likely served as a proving ground for future attacks related to cryptocurrency and the infrastructures that support it. (See also: Bitcoin Blackmail Scam Is On The Rise: Watch Out.)

Already, North Korea has purportedly taken advantage of their 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 has also been another component of that nation’s multi-faceted tactics. Another 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. 

Though the country’s coal exports to China, its main trading partner, have been drastically reduced due to sanctions, using cheap coal power for bitcoin mining gives the North Koreans a substantial edge. In effect, it provides the country a means to 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 crops 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? 

While these questions will likely yield few answers, North Korea’s relationship to bitcoin may only strengthen over time as the international community coalesces to crack down on what it perceives as the nation’s belligerence. Although its contribution to the proliferation of cryptocurrency is more malicious than positive, with few other outlets for financing and cross-border transaction, bitcoin stands out as the perfect resolution for North Korea’s many difficulties. 

Thanks to its lack of oversight and decentralized properties, bitcoin is ideal for evading foreign authorities and delivering the type of fungibility necessary to sustain the rogue nation’s ambitions. (See also: Why Is South Korea So Important to Bitcoin Prices?)

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