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By Kim Yoo-chul
North Korea isn't a stranger in the world of cryptocurrencies, as the digital tokens are the ideal form of money for the country given their anonymous nature and their use to easily raise capital.
The United Nations Security Council imposed economic sanctions on the North after its sixth and largest nuclear test, and there is no sign of them being lifted.
It's a bit of an exaggeration, but the rampant use of crypto-based assets and Pyongyang's interest in them raises the possibility that the secretive state may create its own cryptocurrency to circumvent the sanctions.
North Korea is said to have earned between $15 million and $200 million by mining and selling cryptocurrencies, according to sources familiar with the issue.
"Cryptocurrencies can be moved quickly and anonymously across borders and can be used to buy goods and services online or converted to hard currency," said Steven Kim, a research fellow at the Jeju Peace institute in South Korea.
Cyber security experts and reports have said that North Korean hackers are increasingly eyeing cryptocurrency exchanges and investors in order to raise funds.
A recent observation by the state-run Korea Development Bank (KDB), suggested North Korea is in the process of developing software products or even platforms associated with cryptocurrencies.
"We believe a North Korean IT firm, named Joseon Expo, has developed a platform to actively engage in crypto transactions between interested parties. North Korea was apparently trying to explore cryptocurrency opportunities," the KDB's economic institute said in a report, last week, adding hackers behind the North's regime have a strong preference for the "Monero" cryptocurrency.
"This is because Monero sports specialist privacy features, making it easier to launder stolen Monero than bitcoin. Between May and July last year, North Korea-backed cyber experts attempted to mine bitcoin in large volumes, however, they didn't get the profits they were after," the report said.
According to experts and analysts, North Korea may win backing from other countries such as Iran and Venezuela for funding using cryptocurrencies as these countries are already exploring state-sponsored digital assets as an "escape hatch."
The reason is clear. Crypto-assets aren't under the supervision of U.S. financial regulatory bodies. Iran and Venezuela are said to have been cooperating in their cryptocurrency planning with Russia, aiming to create a "block of countries" to challenge Western-dominated financial markets.
More specifically, it's possible to move cryptocurrencies through unregulated exchanges that don't apply anti-money laundering regulations. This makes it easier for the issuers or hackers to keep their anonymity and easily trade their crypto-assets for any of over 1,000 other cryptocurrnencies.
"The question is whether it would be possible for adversarial or rogue nations to use state-backed digital money to help establish an alternate system of international transactions, thereby weakening the West's ability to use sanctions as leverage against them. The answer is yes, provided they can handle large volumes," said Martin D. Weiss, the founder of Weiss Ratings.
"With digital money, a consortium of countries like North Korea and others could establish a system of payments that is faster and more efficient. Thanks to the higher level of security that this new form of digital money could provide, their payment system could be an attractive alternative to countries seeking to avoid sanctions," he said.
Conference for cryptocurrencies?
Now, North Korea is expected to hold a blockchain technologies and cryptocurrencies conference in Pyongyang in October.
Regarding the reports, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), South Korea's top two financial regulators, said they are checking for details about the upcoming event.
The two-day Korean International Blockchain Conference will also be a venue for participants to connect with representatives of North Korean controlled entities.
But it remains to be seen whether the North can raise money as leading cryptocurrency exchange operators are complying with anti-money laundering guidelines set by financial regulators in the West. For example, U.S. branches of Korean banks have handed over the history of their cryptocurrency transactions to U.S. financial regulators at their request.
U.S. and South Korean authorities have been keeping a close eye on the North's cyber activities after North Korean hackers were connected with recent attacks on cryptocurrency exchanges, according to officials at the FSC and FSS.
While North Korea has an improved understanding about cryptocurrencies and their estimated benefits in trading, the KDB report said the North is literally not in a "good condition" to expand cryptocurrency-centric businesses given the scarcity of quality experts, computers and electricity.
"The beauty of cryptocurrnecies is that they are decentralized. But because only limited Web access is available in the North, Pyongyang can't take advantage of cryptocurrencies in terms of unrestricted and anonymous transactions," said a senior fund manager at a U.S.-based investment bank in Seoul.
