South Korea is home to many famous personalities and companies including Samsung, PSY, Manhwa and more. Korea has been the at the forefront of digital technology for decades. Some of the cities in Korea are so dependent on technology that visitors from America or Europe would feel as if they have stepped into the future, and Korea has not been lagging behind in the world of digital currencies. In fact, Koreans are obsessed with cryptocurrencies to a point where earlier this year, they paid a 50 percent premium compared to America. Until recently, a huge chunk of cryptocurrency trade happened in won, second only to the US dollar. More than 10 percent of trades in Bitcoin for much of 2017 happened in won. It was ranked as the No. 1 currency for transacting Ethereum worldwide. This shows how integral Korea is for the whole ecosystem of crypto, and any small change here can affect the entire market in a big way.
Korea’s influence on the crypto-sphere
On 11 January, South Korean Justice Minister repeated his proposal for an exchange ban causing Bitcoin to drop as much as 12 percent. Afterwards, a spokesman for President Moon Jae-in clarified that the proposal was not finalized and was one among several. This gave the market some relief and bitcoin recovered some of its earlier losses. What worries South Korean officials is mainly money laundering, tax evasion, and excessive speculation. Prime Minister Lee Nak-yon has even said that cryptocurrencies might corrupt the nation’s youth. But a recent report from South Korean financial authorities about risk assessment has pointed out that compared to digital currencies like cryptocurrencies, banks are more vulnerable to illegal financial activities including terrorist financing money and laundering. Banks were not the only financial institute included in the report. In fact, they contained an assessment of security companies, insurers, mutual financing companies, and credit card companies. Europol reported recently that the use of digital currency to fund illegal operation by a terrorist is unlikely, rather they prefer traditional banking channels.
No stranger to hacking
Koreans’ love for crypto was not without its pain. This love made Korea a prime target for hacks. There is a long list of hacks the country has experienced. In 2017, Youbit, a notable exchange, was hacked resulting in the loss of bitcoins worth 73 million dollars forcing the company to file for bankruptcy in December. This year starting on June 9th, Coinrail, a popular South Korean cryptocurrency exchange announced cyber intrusion, which resulted in the loss of 40 million dollars worth of cryptocurrencies. Then on June 20th, 31 million was lost to another cyber attack, this time on Bitumb, South Korea’s largest exchange by trade volume.
There are many speculations as to why the hacks are happening. Some have even gone as far as blaming the exchanges themselves, suspecting an inside job. While others are of the opinion that the exchanges incurred huge losses by trading coins which do not belong to them and the hacking story is a cover-up. But the most serious of these allegations and the one that is highly probable is that North Korea is behind the recent string of hacks.
North Korea and their doctrine of self-reliance
North Korea is a country unlike any other. Their doctrine of self-reliance has contributed to something unique in their cyber arsenal. They have built up their cyber unit from the ground up, creating tools and tricks completely independent from the rest of the world posing a challenge to cybersecurity experts as they have little idea how to counter them, while at the same time the uniqueness of the hacks makes it easier for identification. The recent wave of sanctions from both US and UN has put pressure on North Korea’s foreign exchange reserve, and cryptocurrencies have presented them with a unique opportunity.
Since there is no central authority controlling cryptocurrencies, sanctions are useless when it comes to dealing with them. North Koreans know this and are exploiting this. Reportedly, they are making millions out of mining and other crypto trading activities. As we have seen earlier, hacking exchanges and other financial institutions were rampant. But with increased security of such institutions, direct hacks are becoming harder. This has forced the North Koreans to shift their mode of operation. First, they targeted the staff of exchanges, and now they are targeting individual users with weak security. The users are sent an email with a file attached which is infected. Once the user opens the file, their computer is taken over. North Koreans are reportedly targeting wealthy South Koreans with large holdings in crypto to get quick money.
How worrying is this?
What happens in Korea matters a lot when it comes to the crypto ecosystem. Any ripple that happens in the Korean sphere is assured to create huge waves in other markets. But this presents an opportunity, as both users and institutions will be forced to take up more security measures helping to make the whole ecosystem more mature and ready for mainstream adoption.