Crypto Theft: How States Use Crypto
Currency is the lifeblood of an economy, acting as a universally accepted medium of exchange that transforms simple trust into tangible trade. The introduction of cryptocurrency has challenged that trust, especially for western institutions. A few years ago, I read a book called Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie and Jacob Silverman. The book is great at explaining what happened, but if you enjoy watching documentaries, you can watch “Everyone is Lying to You for Money” The book and film illustrates the rise of cryptocurrency and some of the early issues, such as the fall of the bank Celsius and bankruptcy of FTX. Early investors in Bitcoin and other cryptocurrencies lost their life savings, but many of those same people are still true believers that having a digital currency is the future. They still have trust but what happens when rogue actors are able to steal their money when there is little regulation
Before money moved online, a bank robber would walk into a bank and steal physical financial assets. Money and valuables from lock deposit boxes would be handed over by bank employees as their lives were threatened with violence. In the United States, a guarantee from the Federal Deposit Insurance Corporation (FDIC) that if anything happened to your assets in a bank, they are insured up to a certain amount. Other countries have similar systems and the European Union is developing the European Deposit Insurance Scheme (EDIS) to uniformly insure euro assets. An insurance system like these are not set up for cryptocurrency. It is meant to be decentralised and provide anonymity from traditional financial systems. That is the true appeal for so many people who have been let down by the current system, but it also provides a safe haven anywhere from local criminal activity to state-level sanction evasion. This brings us to the unprecedented attack on Binance that occurred last month.
The world’s largest cryptocurrency exchange Binance was hacked after an employee met with the attackers in fake job interviews to trick a software engineer at the company into installing malicious code. The Financial Times discovered that
“It was not a single isolated breach or a simple phishing incident. The attackers combined a range of techniques, including . . . fake recruitment interviews, malicious software downloads” and other methods, said Binance.
The group called TraderTraitor is blamed for this attack of moving $6.3bn out of Finance wallets in under thirty minutes. The trading exchange was able to freeze half of the crypto assets with the assistance of other blockchain partners. Law enforcement has determined that the hackers are affiliated with Democratic People's Republic of Korea (DPRK), or more commonly referred to as North Korea.
The Hermit State has been under international sanctions for years and their need for hard currency to fund their nuclear program leaves them with little options. Other countries that are heavily sanctioned, like Iran and Russia, have exports that other nations need. Energy products like oil and gas are essential for any state economy and for those states who are willing to ignore sanctions, both countries are able to export their goods. North Korea does not have that option, but cryptocurrency is vital for any country that are sanctioned. To pay for the products, the buyer and seller need to avoid traditional financial systems to avoid repercussions. For Russia, moving funds through crypto serves as a workaround. Iran uses this method to distribute support to proxy networks like Hezbollah and the Houthis. Since North Korea does not have a product to sell or have a large scale operation of proxies, their options are limited to stealing crypto. CoinDesk outlines that the state sponsored hacking use tactics that are “commonly associated with intelligence agencies than criminal hackers: months-long relationship building, fabricated identities and supply chain infiltration.” The Binance hack illustrates how effective their system is working. They have been able to cover the losses from the hack but smaller and more obscure exchanges do not have that luxury. A strong security system is in place for exchanges and the blockchain functions well, yet human error remains possible, as shown here. The key question is how to secure a decentralized system, particularly when governance or control over the digital network is effectively absent. Cryptocurrency presents a compelling concept that is in its early development toward potential importance, but the lack of protections in a system handling large wealth calls for both concern and oversight.
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