Bitcoin May Be North Korea’s Solution to Financial Isolation
Recent reports published by FireEye and Recorded Future discuss North Korea’s interest in Bitcoin and cryptocurrencies, especially in light of increased sanctions and financial isolation.
Recent reports published by FireEye and Recorded Future discuss North Korea’s interest in Bitcoin and cryptocurrencies. Based on the global political setup, the issues between North Korea and the United States and the resulting sanctions on the former, it appears likely that North Korea may look towards cryptocurrency as a way out.
Chances are that North Korea will host the "cryptocurrency boom," which was expected from China. The rising global tensions have forced North Korea to seek new means to achieve its economic and military objectives. After several cyber-attacks against South Korean cryptocoin exchanges, it is likely that North Korea regards Bitcoin as a hedging method against geopolitical shocks or even a means of dodging sanctions.
The country has limited access to oil due to sanctions and zero proved reserves, but South Korea estimates that the North holds rare earth metals worth trillions of dollars. These include iron ore, zinc, copper, graphite, gold, silver, magnesite, as well as coal and silver – with an estimated worth of about $9.7 trillion. Oil is also believed to be present, although DPRK needs money and equipment for drilling operations.
Background: More Sanctions Against North Korea
North Korea’s increased militant mood reduces chances for the restoration of the country's mining sector. As North Korea used a more aggressive rhetoric, the United Nations (UN) began to impose bans on metal export. After their weapon tests, the United Nations Security Council has also increased restrictions by introducing new bans on exports of coal, iron and iron ore, while China soon followed suit.
As of today, North Korea has extremely limited access to imports or exports of almost all commodities.
Many countries imposed even tougher financial sanctions on North Korea as global pressure intensified. Japan and China suspended all operations in the country, and on Tuesday, September 26, the United States imposed sanctions aimed at North Korean financial institutions acting as representatives of the country's banks in Russia, China, Libya and the United Arab Emirates.
Therefore, it is not surprising that Kim Jong-un seeks an alternative solution to the situation, which, as it seems, will become cryptocurrencies.
North Korea’s Cryptocurrency-Related Antecedents
The regime of Kim Jong-un is surely not alien to the reality of cryptocoins. In the period between 2013 and 2015, the country hacked the South Korean Bitcoin exchanges, extracting about 100 million won (about $90,000) each month. It is believed the country was also affiliated with the Lazarus Group, which was reportedly behind the “WannaCry” attacks which resulted in more than 200,000 computers hacked in 150 countries.
Thus, with harsher sanctions and increased pressure, North Korea may have found a use for its technical resources – Bitcoin mining.
Shifting To Bitcoin – The Move Spotted by Recorded Future
Recorded Future, a research company supported by Google Ventures and In-Q-Tel (funded by the CIA), has published a report on North Korean Internet activity, observing that Bitcoin mining was started on May 17. The report was the subject of a CNBC news post.
Priscilla Moriuchi, the Director of Strategic Threat Development at Recorded Future, said: "We weren't able to determine the volumes, like how many bitcoin they can generate per certain time period. We could just see activity." She added: "First [hypothesis] is that the activity is sponsored by the state, as a way to generate funds for the regime. The second hypothesis is that it's an individual user, among this small sliver of leaders and their families who have access to the internet."
Moriuchi noted that one could assume a connection with high-ranking officials of the Kim Jong-un regime. Because of the limited access to the Internet in North Korea and especially the lack of expensive equipment necessary to achieve this, it is likely that the government played a significant role in the mining process analyzed by Recorded Future and In-Q-Tel.
It Seems That China May have a Dog in the Hunt
The largest trading partner of North Korea and the real leader in the Bitcoin market, China, may also have a role in this story.
Jonathan Mohan, the founder of Bitcoin NYC meetup said,
"It wouldn't surprise me if, perhaps, hypothetically, North Korea were to have pre-existing business relationships in China that wouldn't mind purchasing Bitcoin from them, and then just disseminating it to the Chinese market as you would with any other Bitcoin."
"By using these technologies, North Korea is not so vulnerable to sanctions, which can increase the power of the Bitcoin itself,"
said a former CIA analyst on the fight against terrorism.
Given the geopolitical situation, we will closely monitor the course of events.