Watch: North Korea’s Crypto Activity Is Dangerously Underappreciated – The Crypto Mile

North Korea’s exploitation of cryptocurrency back channels to evade sanctions is a growing threat that has not been fully understood.

The U.S. Office of Foreign Assets Control, OFAC, sanctioned Tornado Cash on Aug. 8 over concerns that the “mixing” platform could aid North Korean hackers.

But the illicit funds flowing through Tornado Cash are just the tip of the iceberg, and Pyongyang’s exploitation of cryptocurrency mixers to help proliferate its lethal arsenal is growing.

According to blockchain analysis, North Korea managed to seize around $1 billion worth of cryptocurrency from 2021 to March 2022 alone.

Pyongyang is the biggest state-sponsored cyber threat to the traditional global financial order and to the developing cryptocurrency industry.

In this week’s The Crypto Mile, we’re joined by King Mallory, the director of the RAND Corporation’s Center for Global Risk and Security, to talk about how rogue states are using crypto to violate sanctions.

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Mallory explained how North Korea once used crypto to launder hundreds of millions of dollars in stolen funds.

He said: “The use of Tornado Cash is far from the first case.”

“At the moment, very little can stop North Korea from using other crypto platforms that allow anonymous transfers and don’t enforce ‘know your customer’ rules to facilitate its import flows. and export.

“However, as we have discussed before, I expect governments to increasingly crack down on these providers.

“Furthermore, I expect governments to prohibit transactions with providers in jurisdictions that refuse to clamp down on crypto platforms that allow anonymous transfers.”

US and European government agencies are now adapting their ability to fight open-source crypto-code that allows pariah states to evade sanctions.

This decision by OFAC sets a precedent that sets the crypto industry back with nervous pause.

The story continues

Recent developments have led the cryptocurrency ecosystem to find itself at a crossroads; whether to defend the anonymity and privacy provided by the creative algorithms of its brightest developers or acquiesce to the heavy-handed tactics of government agencies.

Mallory warned that the window of opportunity for the crypto industry to self-regulate is closing and that major resources may soon be directed by the international community to crush crypto channels that evade sanctions.

Speaking on this week’s The Crypto Mile, he said: “Tornado’s cash indictment is an indication that the window for the international crypto market to self-regulate if it ever does, closes.

“I anticipate that governments will increasingly step in to prosecute and shut down crypto operators who continue to allow anonymous transfers.”

One of the Tornado Cash developers has just been arrested, and this so-called “war on code” could jeopardize any decentralized application or even major crypto networks like Ethereum, through guilt by association.

Crypto-clampdown resources set to skyrocket

The director of the Center for Global Risk and Security at the RAND Corporation pointed out that it is only part of the crypto ecosystem that allows such anonymous exchanges of funds, such as Tornado Cash, and that he expects that governments are increasingly cracking down on these providers. .

He said: “Cryptography of this type allows sanctions evaders to circumvent the formal financial system and the relatively effective controls that are in place to prevent abuse of that system.”

Mallory estimated that the current share of resources to stop cryptocurrency lanes for sanction evasion is currently around 5%.

But, he expects that share to grow as sanctions violators increasingly embrace crypto channels for their illicit funding routes.

He said: “As the amount of money laundered via crypto continues to run into the billions, I expect that share to grow rapidly, possibly reaching as high as 25% within ten years. years, if the abuse of cryptography continues unchecked.”

Tornado Cash

Tornado Cash is a transaction privacy tool that works by mixing users’ crypto into a common pool before sending it to its intended destination. This way it completely obscures who sent what to whom, and is contrary to what makes a publicly distributed ledger, or blockchain, that all exchanges are visible and cannot be corrupted.

Tornado Cash is not a traditional company, but an open source software project based on the Ethereum blockchain.

It is managed in a decentralized way by people, usually anonymous, through servers scattered around the earth.

Tornado Cash is managed by a decentralized autonomous organization, or DAO, which makes it difficult to capture a direct owner and seize intellectual property, as the algorithms behind the platform are open source. In 2020, the Tornado Cash team wrote a blog post that said, “Tornado.cash now lives largely by the precepts that code is law.

“No one can modify smart contracts and the protocol is decentralized and unstoppable, as long as Ethereum is not modified or deleted.”

This of course brings the world’s second-largest crypto-blockchain by market capitalization into the fray and the decision to sanction the code, and those who interact with it could have far-reaching consequences for the “smart contract” network. co-founded by Vitalik Buterin. .

A fork in the road

The battle lines are being drawn, and the entire cryptocurrency ecosystem that caught its breath when Satoshi Nakomoto launched the bitcoin network in 2009 is at a crossroads. One path could lead to mass adoption by submitting to regulatory restrictions and overseeing centralized authority. But, this compromise is anathema to many in the industry.

The other path leads to increased antagonism from the powers that be through a multitude of loopholes where government agencies always find themselves playing catch-up. But this decision could prevent the crypto from maturing and reaching its goal of mass adoption.

In this way, the only hope for bitcoin (BTC-USD), ethereum (ETH-USD) and the plethora of other cryptocurrencies is the large-scale collapse of the legacy systems of finance, commerce and commerce. of governance, and the rise of a new order where the green shoot of a decentralized world sprouts from the ashes of its ancestor.

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