It seems that a movement to create a national cryptocurrency is gaining momentum in Asia. Following China, the North Korean authorities announced their readiness to issue digital money and even indicated the availability of all required resources — both technical and human — to implement this task.
Will the government of the most isolated country in the world go further than its Asian neighbor, or is this just another attempt to scare the United States? Among the reasons for issuing a North Korean digital coin, experts name the circumvention of Western sanctions, money laundering, speculation and even the manufacturing of weapons of mass destruction.
All for cryptocurrencies?
In recent years, North Korea has become very interested in creating its own cryptocurrency and has a sufficient level of competence to move forward with this plan, as Alejandro Cao de Benos, a Special Delegate of the Committee for Cultural Relations with Foreign Countries for the Democratic People’s Republic of Korea, said.
According to Cao de Benos, local experts are now studying various digital assets in order to determine which of them the value of the future cryptocurrency should be tied to. He also said that there were no plans for it to be backed by the North Korean won and that it will be “more like Bitcoin or other cryptocurrencies.”
But that’s not all. On Sept. 10, Cao de Benos tweeted that the North Korean authorities have allowed citizens to own cryptocurrencies, and local developers “are designing crypto wallets and other related apps right now.”
It was also reported that other countries have helped North Korea in the technical implementation of its initiative. In particular, Cao de Benos referred to several foreign companies that have already signed contracts with the DPRK authorities for the development of blockchain systems for education, health care and finance sectors.
Although he didn’t provide any names, the Korea Development Bank (KDB) had pointed to the IT firm Joseon Expo a year earlier. The company allegedly created a platform for the exchange of cryptocurrencies between interested parties on the order of the North Korean authorities.
Despite bold statements by Cao de Benos, at the official level, the DPRK has so far refused to recognize or refute information about the intention of the country’s administration to issue a national cryptocurrency.
Why North Korea may need its own cryptocurrency?
According to Kayla Izenman, a research analyst at the Center for Financial Crime and Security, the country has the necessary experience and resources to launch its own cryptocurrency. As for the reasons behind the initiative, experts tend to mostly come up with negative scenarios — from bypassing the international sanctions and money laundering to speculation and financing the weapons of mass destruction.
Bypassing U.S. sanctions?
According to many media outlets and Cao de Benos himself, Pyongyang needs digital assets to circumvent international sanctions. With its own cryptocurrency, the DPRK may be able to break away from the international financial system dependency. In an interview with Cointelegraph, Cao de Benos noted two other advantages of cryptocurrencies — transaction speed and convenience — as an additional argument in favor of the initiative.
Analysts believe that for Pyongyang, digital money is a new way to circumvent sanctions because they are “harder to trace, can be laundered many times, and are independent of government regulation.” This means that the DPRK may have the opportunity to trade with many countries around the world.
Sean King, vice president of the Park Strategies consultancy in New York, pointed out the “sanctions-proof” nature of cryptocurrencies, while Steven Kim, a researcher at the Jeju Peace Institute in South Korea, said:
“The cryptocurrency is the ideal form of money for North Korea because it can be moved quickly and anonymously across borders and can be used to buy goods and services online or converted to hard currency.”
While evading U.S. sanctions is the key factor behind the North Korea’s crypto initiative, Jason Tucker-Feltham, founder of blockchain security firm London Crypto Services, suggested to Cointelegraph that U.S. sanctions “have led the country to pursue alternative means of value transfer,” but this may not be the only benefit of digital assets noticed by North Korea. He went on:
“Economies and central banks for which no US sanctions are in place (e.g. the IMF) have expressed interest in developing their own crypto-assets, meaning that the benefits in utilising DLT extends far beyond bypassing traditional payment mechanisms.”
Cryptocurrencies allow for independence, which makes it almost impossible for the U.S. financial regulators to trace or control such forms of money. It’s therefore possible to transact cryptocurrencies on unregulated cryptocurrency exchanges that don’t force users to pass Anti-Money Laundering (AML) procedures. This makes it easier for hackers to freely and anonymously exchange their digital assets.
Related: North Korea and Crypto: Is the Regime Responsible for Major Hacks?
Moreover, it’s the U.S. authorities that forced North Korea to use cryptocurrencies, as suggested by Jose Pagliery, a CNN investigative reporter, who said, “The UN and the international community have locked them out of banks so whereas they used to hack into the SWIFT system in banks.”
Some experts claim North Korean hackers need and allegedly already use more transparent cryptocurrencies than Bitcoin (BTC) to bypass the sanctions. Izenman named Monero (XMR) and ZCash (ZEC) in particular:
“Cryptocurrency especially if you’re using such coins as Monero or ZCash that are privacy coins that aren’t as transparent as Bitcoin can be used and traded. And they don’t need to go through the fiat system, they don’t need to touch the dollar, they don’t need to touch a bank.”
Being a country with a fairly low GDP ($28 billion compared to South Korea’s $1.54 trillion), North Korea has long been looking for and applying various ways to raise foreign capital. And cryptocurrencies are no exception.
It is being widely reported about how the DPRK uses several methods to obtain digital coins — from mining farms and masternodes to cryptojacking and participation in new, promising projects. Specifically, North Korea began mining Bitcoin in May 2017, which coincided with the rise of Bitcoin. Steven Kim, a researcher at the Jeju Peace Institute in South Korea, said, “If there is a way to exploit cryptocurrencies for financial gain, the DPRK will figure it out and move aggressively to do so”
Many analysts noted cryptocurrency’s liquidity as a decisive factor in Pyongyang’s interest in accumulating and creating digital assets, including CNN’s Richard Quest:
“There’s also reason for them to hack into the mining of Bitcoins and steal those Bitcoins as well because the price has been skyrocketing. […] This is quite liquid. They can cash those Bitcoins out on the market and get dollars.”
Recently, financial crimes and AML experts Lourdes Miranda and Ross Delston released a detailed explanation of how the DPRK can use cryptocurrency for money laundering, which was later removed, however, from the website. In response to the question whether North Korea could create its own blockchain for manipulating crypto transactions domestically, they both answered, yes.
Also read: A Clear Path for Ethereum