Why DPRK Started Bitcoin Mining Business?
According to the 12-page report released by Recorded Future, North Korea has started mining Bitcoin. Xiao Lei, a famous financial analyst, disclosed the logic behind the regime’s behavior. Such operation backed by a sovereign country may have mixed impacts on the cryptocurrency community.
Before that day, there had been virtually no activity to Bitcoin-related sites or nodes, or utilizing Bitcoin-specific ports or protocols. Beginning on May 17, that activity increased exponentially, from nothing to hundreds per day. The timing of this mining is important because it began very soon after the May WannaCry ransomware attacks, which the NSA has attributed to North Korea’s intelligence service, the Reconnaissance General Bureau (RGB), as an attempt to raise funds for the Kim regime.
Bitcoin mining could be the new portal for DPRK authority to lay hands on the precious foreign exchange, Xiao Lei said. He introduced the background of foreign exchange problem of North Korea.
Due to the long-term sanctions imposed by the United States and other countries, North Korea has been in serious shortage of foreign exchange. Meanwhile the development of nuclear weapons and various types of military projects required imported material. Kim’s regime attaches great importance to the control of foreign exchange. The execution of senior official, Zhang Chengze, is believed to be involved with the control of DPRK’s “foreign exchange”.
Kim Jong-un and Zhang Chengze had been fighting over control of foreign exchange projects, which is one of the important reasons for Zhang Chengze’s execution. In North Korea, whoever controls the foreign exchange also dominates in the field of diplomacy, finance and military industry. Also The assassination of Kim Jong-nam in Malaysia is said to be connected with the operation of North Korea’s “foreign exchange”.
There aren’t many options for North Korea to get access to foreign exchange. In addition to the coal exports to China, there are four other channels.
1. Lease of embassy property
2. Overseas DPRK restaurants, which are located in Russia, China and other places
3. Labor export
However, due to the sanctions imposed by the United Nations Security Council in March last year after, North Korea suffered heavy loss of foreign exchange earnings at about 200 million USD, which is equivalent to 7.4% of North Korea’s total exports (2.7 billion USD in 2015). The four channels to earn foreign exchange are seriously affected.
North Korea will do anything in order to obtain foreign exchange. Back in 2005, Chinese media reported publicly that the DPRK “government-owned” drug manufacturer and drug traffickers sold drugs to northeast China and other places for foreign exchange. In 2011, one cover story of Phoenix Weekly was called “Northeast China compromised by drugs from DPRK “. It’s reported that North Korea has been growing and manufacturing drugs in large scale since the 1990s. There is plenty of evidence that drugs from North Korea, especially methamphetamine, are flooding in the three northeast provinces of China.
At the end of 2014, the British “Guardian” reported that North Korea even increased export of food to china despite the fact that the country was under long-term food relief.It has become even harder to obtain foreign exchange from trading with China due to the deterioration of bilateral relations with China caused by nuclear test. It’s quite reasonable that Bitcoin presents itself as options for the DPRK authorities.
On 12 May, the outbreak of WannaCry infected thousands of computers with the bitcoin ransomware. And 5 days later, North Korea started Bitcoin mining operation on a large scale.
Some analysts believe that North Korea began to mine bitcoin in order to cover up the asset obtained through extortion. This analysis has some truth it DPRK doesn’t really care about the source of Bitcoin given its drug-dealing record.
Anyway North Korea started mining Bitcoin. So far 16.48 million BTC have been mined and about 4.51 million will be mined in the future. If DPRK take 5% of the hashrate, or 220,000 BTC, it values at 600 million USD at the current price of 2,800 USD. It is too tempting for DPRK to resist. Therefore DPRK’s bitcoin mining business is well supported by the timing and the logic.
North Korea’s mining business is a double-edged sword to the bitcon community. As a sovereign state, North Korea has to resort to a decentralized and encrypted asset when it was sanctioned globally. It’s yet another proof of Bitcoin’s acceptance and security. Also such behavior will inspire other countries or organizations to participate in the mining of Bitcoin, which will result in rise of mining difficulty and the scarcity. On the other hand, if North Korea can use Bitcoin to break through economic sanctions, it will catch the attention from countries like the United States. International coordination on regulating Bitcoin may also be on the agenda. International organizations like the United Nations, the World Bank, IMF may begin to discuss international supervision of Bitcoin.
In short, DPRK’s Bitcoin mining operation is a milestone event.