The slump in cryptocurrency markets has evaporated millions of dollars in funds stolen by North Korean hackers, threatening a major source of funding for the sanctions-stricken country and its weapons programs.
North Korea has poured resources into stealing cryptocurrency in recent years. This made it a potent threat, and led to one of the largest cryptocurrency heists on record in March, with nearly $615 million stolen.
The sudden drop in cryptocurrency values, which began in May amid a broader economic slowdown, complicates Pyongyang's ability to make money from this and other theft. It may influence how it plans to fund its weapons programs.
It comes as North Korea is testing a record number of missiles. The Korea Institute for Defense Analytics in Seoul estimates that the tests have cost up to $620 million so far this year. North Korea is preparing to resume nuclear tests amid an economic crisis.
The value of North Korea's unsupervised ancient cryptocurrency holdings has fallen from $170 million to $65 million since the beginning of the year. It includes the funds stolen in 49 hacks from 2017 to 2021.
One of the North Korean cryptocurrency wallets has lost between 80% and 85% of its value in the past few weeks. It is now worth less than $10 million from tens of millions of dollars.
US authorities said the attack on blockchain project Ronin, which runs the game Axi Infinity, was orchestrated by North Korea's Lazarus Group.
Lazarus is under the control of the General Bureau of Reconnaissance, North Korea's main intelligence office. He has been accused of being involved in the WannaCry ransomware attacks, the hacking of international banks and customer accounts, and the 2014 cyber attacks on Sony.
Analysts are reluctant to provide details about the types of cryptocurrencies North Korea holds, which could reveal investigation methods. Ethereum accounted for about 58%, or about $230 million, of the $400 million stolen in 2021.
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Convert cryptocurrency to cash
Publicly available blockchain data is used to track transactions and identify potential crimes. North Korea is subject to widespread international sanctions.
- This gives them limited access to global trade or other sources of income and makes cryptocurrency thefts attractive.
- Although cryptocurrency is estimated to be a small part of North Korea's financial resources. But cyber attacks have become essential to Pyongyang's ability to evade sanctions and raise funds for its nuclear and missile programs.
- North Korea gets a fraction of what it steals from the value of the cryptocurrency because it is forced to turn to intermediaries to convert or buy those currencies.
- A report in February estimated that in some transactions North Korea received a third of the value of the currency it stole.
After acquiring cryptocurrency in a robbery, North Korea sometimes converts it into bitcoin. It then looks for middlemen who buy it at a discount for cash, which is often kept outside the country.
North Korea is among the losers in currencies
North Korea has turned to sophisticated methods of laundering stolen cryptocurrency. This increased their use of cryptocurrency mixers, a service that mixes crypto funds from thousands of electronic addresses.
The contents of a particular title are often publicly visible, allowing any North Korea-related investigations to be monitored.
The attackers tricked people into giving them access or a security breach to steal digital money from online wallets to addresses controlled by North Korea.
The sheer scale of the recent hacks has strained North Korea's ability to monetize cryptocurrency as quickly as in the past. This means that some funds are static even as their value declines.
Bitcoin has lost about 54% of its value this year and smaller currencies have also been hit hard. This reflects a drop in stock prices linked to investor concerns about higher interest rates and the growing possibility of a global recession.
A transfer to cash remains a basic requirement for North Korea if it wants to use the stolen money. Most of the goods or products North Koreans want to buy are traded in US dollars or other fiat currencies, not cryptocurrencies.
North Korean hackers wait for rapid drops in value or exchange rates before converting currencies into cash.
This is sometimes counterproductive because there is no set time when the value of the digital currency can rise rapidly. There are many cases of extremely low-value crypto-money held in North Korea-linked wallets.
But North Korea's crypto behavior has not yet seen much change. Few analysts expect North Korea to give up on crypto theft.
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