NKorea’s nuclear program is funded by stolen cryptocurrency. Can it collapse?
Since the world’s second largest crypto exchange, FTX, declared bankruptcy earlier last month, the ripple 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, cryptocurrency theft has been a (relatively) easy way to finance the country’s expanding nuclear arsenal.
It is well documented that Kim Jong-un’s military operations hackers have been stealing cryptocurrency to support North Korea’s nuclear and missile programs for years.
However, with the general downturn in the crypto market, combined with the recent FTX collapse and countless other pitfalls, analysts estimate that North Korea has likely lost most of its crypto gate.
Can we expect the development of nuclear weapons to stop, or slow down? That seems unlikely.
What North Korea’s hackers have been up to
North Korea sponsors several hacker groups, including the Lazarus Group (also called 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 been investing in its national cybercrime arsenal for around 15 years. It is almost impossible for an organization to defend itself against an army of this size and caliber once attacked.
In 2016, Lazarus hackers came close to stealing $1 billion from Bangladesh’s National Bank – but a typo in the computer code meant they only got away with $81 million.
Since then, they have refined 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 around $1 billion in cryptocurrency this year. A large part of this would have come from Lazarus’ massively lucrative heist against the NFT-based online game Axie Infinity. In April, US authorities held the group responsible for stealing $620 million in cryptocurrency from the game.
For context, it is estimated that North Korea only earned about $142 million in trade exports in 2020.
Ok, so how much has it lost now?
It’s hard to say exactly how much cryptocurrency has been stolen (and used) by North Korean hackers – and therefore how much might be left.
In June, blockchain analyst and former FBI analyst Nick Carlsen told Reuters that one of North Korea’s cryptocaches had lost 80% to 85% of its value in a matter of weeks, falling below $10 million.
The losses will have intensified after the FTX collapse. According to a Chainalysis report in January, North Korea held about $170 million in stolen unwashed cryptocurrency, obtained from 49 hacks carried out from 2017 to 2021. It also claims that Ether was the most common cryptocurrency stolen by North Korea in 2021, and make up 58% of the total theft.
Ether’s value fell by more than 20% after FTX crash and remains low. It is reasonable to expect that North Korea will wait before withdrawing money. When it does, experts watching will be in a better place to figure out how much it has.
Why steal crypto to finance nuclear weapons tests?
The US, South Korea and Japan have warned North Korea against carrying out a seventh nuclear test. But Kim Jong-un doesn’t seem to be giving up. On Saturday, at the launch of North Korea’s largest ballistic missile to date, he told state media:
The ultimate goal is to own the world’s most powerful strategic force, the absolute power unparalleled in the century.
International sanctions and border closures due to COVID-19 have made it difficult for North Korea to trade and generate funds in other ways – making the cryptocurrency market an attractive target.
Cryptocurrency remains unregulated by most countries’ governments. At the same time, transactions can be made quickly, allowing more anonymity than transactions made through traditional banking systems.
It is also easier to hack a cryptocurrency exchange than it is to hack a bank. The latter is almost always reinforced by advanced security barriers and sometimes requires personal appearance.
No more missile tests, for now?
The rapid fall in the cryptocurrency, compounded by the FTX crash, will certainly have put a dent in North Korea’s nuclear military expansion fund. Nonetheless, Kim Jong-un’s cybercriminal army will likely find new sources of illicit revenue (and will likely continue to steal crypto as well).
North Korea has also had financial support from supporters in South Korea who follow the “Juche” ideology – the same Marxist-Leninist-adjacent political philosophy imposed in North Korea.
And in April, American crypto expert Virgil Griffith pleaded guilty to helping North Korea evade US sanctions by using cryptocurrency.
Then there is China – a key player in determining whether sanctions against North Korea will actually work. In May, China joined Russia in vetoing a draft proposal by the United States to tighten sanctions against North Korea, and continues to act on it.
As long as North Korea can reap economic benefits from China and other avenues as mentioned above, it is unlikely to stop its plans.
James Jin Kang, Assistant Professor, Computing and Security, Edith Cowan University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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