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Under the Chokehold of Sanctions, Pyongyang Finds Forex Trove in Crypto Theft

In March 2022, a senior software engineer based in Singapore received a job offer from a gaming company. This was a welcome relief, given the challenging circumstances at their current workplace, Sky Mavis, creators of the play-to-earn game Axie Infinity. The company had experienced a significant setback as the value of its in-game cryptocurrency took a nosedive.

Upon completing the job application process, the engineer eagerly opened the PDF containing the salary details, only to discover that the job offer was fraudulent. The consequences were severe — North Korean hackers had successfully breached Sky Mavis’s security, gaining access to the private keys essential for the company’s cryptocurrency account. The result was a staggering heist, amounting to approximately $600 million, marking one of the most significant thefts in history.

North Korea’s motivation for such cybercrimes stems from the impact of international sanctions on its ability to engage in legitimate trade. Facing restrictions on exports and imports, the country sought alternative means of obtaining foreign currency, eventually turning to cryptocurrency theft as a primary income source.

The genesis of North Korea’s economic struggles dates back to 2017 when heightened tensions led to stringent sanctions imposed by the United Nations. These measures aimed to sever North Korea’s access to foreign currency, impeding its ability to fund nuclear weapons and missile programs.

In response, North Korea delved into various illicit activities, including coal trading, where ships engaged in covert ship-to-ship transfers to sidestep sanctions with potential involvement from China and Russia. Illegal methods such as smuggling also played a role, with North Korea utilizing its embassies to sell prohibited goods such as weapons, drugs and gold. The embassies operated with the objective of meeting annual foreign currency quotas set by Pyongyang, contributing to the regime’s financial sustenance.

Despite engaging in diverse schemes, North Korea’s revenue from these activities remained limited, prompting a shift of focus toward cryptocurrency. In 2017, the country’s hackers initiated cybercrimes by deploying the Wannacry virus, a large-scale attack affecting various entities, including hospitals and government agencies. While the attack’s effectiveness was curtailed by a kill switch and uncertainty regarding file decryption, North Korea received approximately 51 Bitcoins in ransom payments.

However, realizing the potential for substantial earnings, North Korea intensified its efforts by targeting cryptocurrency exchanges. These platforms, lacking regulatory oversight and often having inadequate security, became vulnerable targets for hackers. In 2022, North Korea’s hacking operations accounted for half of all cryptocurrency theft globally, amassing a staggering $1.65 billion, surpassing earnings from ransomware and other exports combined.

This influx of funds emboldened Supreme Leader Kim Jong-un, who celebrated by conducting an unprecedented number of missile launch tests. Speculation now suggests that North Korea may be selling weapons to Russia, further diversifying its revenue streams. Despite the growing threat, there is currently no comprehensive plan in place to counter North Korea’s cybercrimes. Cryptocurrency exchanges remain susceptible to exploitation, posing a continued risk of financing nuclear weapons and other illicit activities.

The growing threat of hackers allegedly backed by the North Korean government is a concern to crypto exchanges and other industry businesses such as Riot Blockchain Inc. (NASDAQ: RIOT). Vigilance is recommended because no one can predict what crypto firms will be targeted next.

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