Since the second largest cryptocurrency exchange in the world, FTXfiled for bankruptcy earlier this month, the effects have been felt far and wide.
But among the many victims there are also some not so innocent parties. For the Democratic People’s Republic of Korea, a country facing heavy sanctions, stealing cryptocurrency has been a (relatively) easy way to finance the country’s growing nuclear arsenal.
It is well documented that hackers from Kim Jong-un’s military operations have been stealing cryptocurrency to support North Korea’s nuclear and missile program for several years.
But with the general decline in the cryptocurrency market, coupled with the recent collapse of the FTX and countless other pitfalls, analysts estimate that North Korea has probably lost most of its cryptocurrency haul.
Can we expect their development of nuclear weapons to stop or slow down? It seems unlikely.
What North Korean hackers have been up to
North Korea sponsors several hacker groups, such as the Lazarus Group (also called the Guardian of Peace and Whois Team) and Advanced Persistent Threat 38 (APT38).
Although no one knows exactly how many North Korean-backed hackers there are, experts have estimated that Kim Jong-un has between 6,000 and 7,000 working both inside and outside the country.
North Korea has invested in its national cybercrime arsenal for about 15 years. It is almost impossible for an organization to defend itself against an army of this size and caliber once it has been launched.
In 2016, Lazarus hackers came close to stealing $1 billion from the Bangladesh National Bank, but a bug in the computer code meant they only made off with $81 million.
Since then, they have perfected their methods. Lazarus has been accused of stealing $571 million from cryptocurrency exchanges between January 2017 and September 2018, $316 million from 2019 to November 2020, and $840 million in the first five months of 2022.
According to Chainalysis, North Korean hackers have stolen an estimated total of about $1 billion worth of cryptocurrency this year. A large part of this figure would come from Lazarus’ lucrative heist against the NFT-based online game Axie Infinity. In April, US authorities found the group responsible for stealing $620 million worth of in-game cryptocurrency.
For context, it is estimated that North Korea only earned about $142 million from trade exports in 2020.
Okay, so how much have you lost now?
It is difficult to say exactly how much cryptocurrency has been stolen (and used) by North Korean hackers, and therefore how much could remain.
In June, blockchain analyst and former FBI analyst Nick Carlsen told Reuters that one of North Korea’s cryptocurrency caches had lost between 80% and 85% of its value in several weeks, falling to less than $10 million.
The losses will have intensified after the collapse of FTX. According to a Chainalysis report, in January North Korea had close to $170 million in unwashed stolen cryptocurrency, taken from 49 hacks carried out between 2017 and 2021. It also claims that Ether was the most commonly stolen cryptocurrency by North Korea in 2021. , constituting 58% of the total theft.
The value of Ether fell more than 20% after the fall of FTX, and it remains low. It is reasonable to expect North Korea to wait before cashing out. When you do, the experts watching you will be in a better position to figure out how much you have.
Why steal cryptocurrency to finance nuclear weapons tests?
The United States, South Korea and Japan have warned North Korea not to carry out a seventh nuclear test. But Kim Jong-un doesn’t seem to budge. Days ago, at the launch of North Korea’s largest ballistic missile to date, he told state media that the ultimate goal is to possess the most powerful strategic force in the world, the absolute force unprecedented in a century.
International sanctions and border closures due to COVID-19 have made it difficult for North Korea to trade and generate funds through other means, making the cryptocurrency market an attractive target.
Cryptocurrency remains unregulated by the governments of most countries. At the same time, transactions can be carried out quickly and allow for greater anonymity than those carried out through traditional banking systems.
It is also easier to hack a cryptocurrency exchange than a bank. The latter are almost always reinforced by advanced security barriers and sometimes require in-person appearances.
No more missile tests, for now?
The rapid fall in the value of cryptocurrencies, compounded by the collapse of the FTX, will certainly have left a dent in North Korea’s nuclear military expansion funds. Nevertheless, Kim Jong-un’s army of cybercriminals will likely find new sources of illicit income (and probably continue to steal crypto as well).
North Korea has also had the financial support of South Korean supporters who follow the “Juche” ideology, the same Marxist-Leninist political philosophy imposed on North Korea.
And in April, US crypto expert Virgil Griffith pleaded guilty to helping North Korea circumvent US sanctions through the use of cryptocurrency.
There is also China, a key player in deciding whether sanctions against North Korea really work.. In May, China joined Russia in vetoing a draft US proposal to toughen sanctions against North Korea, and continues to trade with it.
As long as North Korea can derive financial benefits from China, and from other avenues like the ones mentioned above, it is unlikely to stop its plans.
*Article originally published by The Conversation- James Jin Kang is Associate Professor of Computer Science and Security, Edith Cowan University
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