Nearly $3.4 billion in Bitcoin (BTC) has been recovered after being stolen from Silk Road, a dark web marketplace, via wire fraud.
Billions in Bitcoin recovered and the culprit identified
In early November 2022, around 50,680 BTC were recovered from a Georgia man’s home by the US Department of Justice. This was worth $3.36 billion at the time of the theft (at the end of 2021), but was still worth a billion dollars at the time of the culprit’s arrest. James Zhong, the criminal behind this monumental crime, pleaded guilty on November 4.
In a search of Zhong’s home, police found a number of other valuable items, including three one-ounce gold bars, 25 Casascius (physical Bitcoin) coins and over $660,000 in cash.
The FBI has since shut down Silk Road on the dark web, which had only been in operation for about two years previously. It took more than nine years after the Silk Road ended for Zhong to be identified as the perpetrator of this gigantic theft.
In an official US Department of Justice release, it was stated that the government “seeks to forfeit, in total: approximately 51,680.32473733 Bitcoin; ZHONG’s 80% stake in RE&D Investments, LLC, a Memphis-based company with substantial real estate holdings; $661,900 in cash seized from ZHONG’s home; and various metals were also seized from ZHONG’s home.”
Along with this, Zhong had to hand over 1004 BTC that he had not disappeared. Today this amounts to almost 20 million dollars. In this wire fraud case, Zhong could face up to 20 years in prison.
This event marks the second largest seizure of stolen cryptocurrency by the US government, ranking very close to the $3.6 billion recovery in 2016 following the massive Bitfinex hack.
Zhong exploited a Silk Road flaw in theft
In the theft of 50,680 Bitcoin, Zhong exploited a withdrawal processing flaw, which allowed him to withdraw far more Bitcoin than he had originally deposited.
In the aforementioned release, the US Department of Justice provided an example of Zhong’s illegal withdrawals. It was written that “Zhong deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after the first deposit, Zhong made five withdrawals of 500 Bitcoin in quick succession — i.ewithin the same second – resulting in a net gain of 2,000 Bitcoin.” In all, Zhong executed 140 quick transactions to steal 51,680 BTC.
Zhong also acquired huge amounts of Bitcoin Cash
Zhong also profited from this crime five years after the fact, via Bitcoin and the Bitcoin Cash hard fork. In 2017, this split in the Bitcoin blockchain gave way to a new blockchain, known as Bitcoin Cash, with the native cryptocurrency BCH.
In this fork, equal amounts of BCH were given to those who had BTC funds. Because Zhong held the 50,680 stolen Bitcoins, he was able to obtain another 50,680 in BCH, which he then converted to BTC.
Cryptocrime is nowhere near done for
As the crypto industry grows in prevalence, the execution of crypto-crimes continues to grow, namely those targeting Bitcoin holdings. We are likely to see more major crypto-crimes take place in the future, be it on exchanges, wallet providers or other related platforms.
