US punishes Blender.io for helping North Korea launder millions in stolen Axie crypto

Illustration by Alex Castro / The Verge

The US Treasury Department announced on Friday that it was cutting the Bitcoin mixer off from the US financial system. The service, which lets people obfuscate the record usually kept by the blockchain, was used by North Korea to support its malicious cyber activities and money-laundering of stolen virtual currency, according to the department.

According to the Treasury, the Lazarus hacking group laundered 20.5 million dollars worth of the cryptocurrencies it stole from the game Axie Infinity. The entire proceeds of the hack, which the Treasury linked to Lazarus and North Korea in April, were estimated to be worth around $625 million at the time, though a few million dollars worth of funds have been recovered. According to the Treasury, North Korea uses hackers to generate revenue for its weapons of mass destruction and missile programs.

This is the first time the Treasury has imposed sanctions against a virtual currency mixer. Last year, it issued its first sanction against an exchange. The funds that were stolen from the Axie Infinity's Ronin network were originally in ether andUSDC, and at some point, there had been a tool that could work with both. Tornado Cash is a service that is meant to make it harder to track transactions.

The US Treasury claims that Blender laundered money for organizations like Sodinokibi. It won't be able to access any of its funds that were stored in the US, and can't do transactions with American companies or citizens.

Image: US Department of the Treasury

The mixers work by pooling together deposited funds. It can be difficult to use stolen funds without using services that are recorded on the blockchain. The hackers will get clean coins back if the coins are stolen. The person who ends up with the stolen coins can point to the mixer and say that he didn't take them out of the wallet himself.

Governments can sanction wallet that are affiliated with hacking groups, and researchers can track stolen coins. Criminals have to make sure that their ill-gotten money isn't traced if they want to convert it to cars.

The Treasury points out that there are perfectly legal uses for this kind of service, and that people could use them to gain some semblance of privacy. Firms will have to be very careful about who takes and loses their money with the department keeping a close eye on it.