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How a Silk Road Fraudster Lost $3.4 Billion in Bitcoin?
A new twist has emerged in the Silk Road saga involving a massive cryptocurrency heist a hidden stash of Bitcoin and a historic seizure by the US government.
Silk Road was an online platform for buying and selling drugs weapons hacking tools and other illicit goods and services using Bitcoin. Ross Ulbricht created the website in 2011 under the pseudonym “Dread Pirate Roberts”. Over a million registered users and an estimated $1.2 billion in revenue were the website’s achievements at its height.
The FBI arrested Ulbricht in 2013 and confiscated his laptop and 175,000 Bitcoins worth about $28 million then. Various charges such as drug trafficking money laundering and conspiracy to commit murder led to his guilty verdict. Life imprisonment without parole is his sentence.
Ulbricht did not have exclusive access to Silk Road’s Bitcoin. In 2012 a hacker named James Zhong exploited a vulnerability in the site’s transaction system and stole over 53,000 Bitcoins from its escrow account. Zhong a computer science graduate and property developer from Georgia created fake accounts on Silk Road and triggered hundreds of transactions in rapid succession to trick the site into releasing Bitcoin into his accounts. He then transferred the stolen coins to other wallets under his control.
Zhong's crime went unnoticed for almost 10 years during which time he amassed a fortune from his real estate investments and his Bitcoin holdings. By November 2021 when law enforcement raided his house in Gainesville Georgia Zhong's stash of Bitcoin was worth over $3.36 billion making it the largest cryptocurrency seizure in the history of the US Department of Justice and the second largest financial seizure ever.
How did the authorities find Zhong and his hidden treasure? A press release by the US Attorney’s Office for the Southern District of New York stated that it was a blend of “advanced cryptocurrency tracing and conventional police work”. The investigators used blockchain analysis tools to track down the origin and destination of the missing Bitcoins from Silk Road. They also followed Zhong’s trail of lavish spending and suspicious transactions that raised red flags with financial institutions.
Zhong had taken extreme measures to conceal his Bitcoin. He stored most of his coins in an underground safe and a single-board computer hidden inside a popcorn tin under a pile of blankets in his bathroom closet. He also used complex encryption techniques and multiple passwords to protect his wallets.
Zhong’s efforts were not enough to evade justice. He was arrested on November 9 2021 and pleaded guilty to wire fraud on November 4 2022. He agreed to forfeit his entire stash of Bitcoin as well as his 80% interest in a Memphis-based company with substantial real estate holdings $661,900 in cash seized from his home and various metals also seized from his home.
Zhong risks spending up to 20 years in prison for his crime. February 15 2023 is his sentencing date. He and some others were caught due to the continuous investigation into Silk Road and its friends by the US Attorney’s Office for the Southern District of New York and its allies.
Zhong’s Bitcoin theft and its consequences warn anyone who thinks they can commit cybercrime on the dark web without repercussions. US Attorney Damian Williams said: “No matter how well hidden the money is, we will keep following it.”
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