North Korea Launders Funds on Railgun

Railgun, a privacy-focused cryptocurrency tool, is in the spotlight following both praise from Ethereum co-founder Vitalik Buterin and its use by North Korean hackers. 

The state-sponsored North Korean hacking collective – Lazarus Group uses Railgun to launder stolen funds.

Is Railgun a Double-Edged Sword?

Eliptic’s January 2023 report reveals that the Lazarus Group switched to using Railgun after the US Treasury imposed sanctions against Tornado Cash. This move was in response to their preferred money-laundering tool being targeted.

The group had used Tornado Cash to obfuscate their theft of over $100 million from the Harmony Horizon Bridge in June 2022.

Now, the FBI has confirmed that the Lazarus Group used Railgun to launder over $60 million worth of Ethereum from that same theft.

Read more: Top 7 Tornado Cash Alternatives in 2024

The Lazarus Group’s exploitation of Railgun, seen as a key alternative to Tornado Cash, highlights the ongoing battle between individual privacy and preventing criminal activity within the crypto sector. This incident adds a compelling data point to the broader debate about blockchain regulation, anonymity protocols, and the risks they pose to the financial system.

Furthermore, Elliptic’s investigation traced the movement of the stolen Horizon Bridge funds. Despite attempts to obscure their origin, the hackers’ heavy reliance on Railgun rendered their mixing attempts less effective. Elliptic explains this using an insightful analogy:

“Imagine if you threw five pennies into a jar full of 100 pennies, it would be extremely difficult for someone to determine which pennies were yours. However, if you threw 70 pennies into a jar with only 30 other pennies in it, then there would be a higher chance of linking those 70 specific pennies back to you. Mixers work in a similar way: when the anonymity set – or volume of other funds in the mixer is low – it makes the mixer less effective at concealing disproportionately large funds transfers.”

Railgun recently garnered attention after Vitalik Buterin, Ethereum’s co-founder, reported using the platform. Yesterday, Buterin transferred 100 ETH (approximately $325,000) to Railgun.

The transaction follows a pattern of smaller transfers to Railgun over the past six months. Buterin’s action demonstrates his ongoing interaction with the platform.

Read more: 4 Best Bitcoin Mixers and Tumblers in 2024

“Privacy is normal. Railgun uses the privacy pools protocol, which makes it much harder for bad actors to join the pool without compromising users’ privacy,” Buterin stated.

Buterin’s endorsement of Railgun comes as privacy tools face increased scrutiny from regulators globally. Last week, the US Treasury Deputy Secretary highlighted malign actors’ potential misuse of privacy-enhancing technologies. In response, major exchanges like Binance and OKX have begun delisting such assets, aligning with tighter regulatory frameworks.