US Authorities Found Hacker Who Stole 50,000 Bitcoins from Silk Road in 2012

The US Department of Justice announced the conviction of 32-year-old James Zhong, a hacker who stole 50,000 bitcoins from the famous dark web marketplace Silk Road ten years ago.

Law enforcement officers seized $3.36 billion in bitcoins that were stolen from Silk Road, but at the current rate, this cryptocurrency is worth about $1 billion.

Let me remind you that the Silk Road was closed by the authorities back in 2013. Until that moment, the trading platform offered its users a variety of illegal goods and services, ranging from drugs and malware to contract killings. The head of Silk Road, Ross Ulbricht, was arrested and sentenced in 2015 to a double life sentence, which he is currently serving in the United States.

Zhong reportedly pleaded guilty to money laundering and wire fraud. The fact is that in September 2012, he created nine accounts on Silk Road, to which he made deposits ranging from 200 to 2000 bitcoins. Zhong then initiated over 140 fast transactions to trick Silk Road’s withdrawal processing system into transferring about 50,000 bitcoin to his accounts.

For example, on September 19, 2012, Zhong deposited 500 bitcoins into the Silk Road wallet. In less than five seconds after making the initial deposit, he made five withdrawals of 500 bitcoins in a row — that is, within one second — resulting in a net profit of 2,000 bitcoins.investigators say.

This deception of the system netted Zhong “approximately 51,680.32473733 bitcoins”, and at the time of the confiscation last year, this cryptocurrency was valued at approximately $3.6 billion (as already mentioned above, its value is now about a billion). Interestingly, at the exchange rate of a decade ago, this scam brought Zhong only $650,000.

After the attack, Zhong moved the extracted funds to different wallets, trying to hide their trail. In 2017, after a hard fork and the appearance of Bitcoin Cash and Bitcoin SV, the hacker had about 50,000 Bitcoin Cash in his hands, which he converted into 3,500 bitcoins, bringing the total amount to 53,500 bitcoins.

At the same time, law enforcement officers emphasize that Zhong never bought or sold anything on Silk Road, he only stole funds.

Finally, last November, federal agents ransacked the home of then-suspect Zhong and seized more than 50,000 bitcoins, which were stored in a safe under the floor, as well as on a “single board computer” that was “hidden in blankets, in a bank from under the popcorn stored in the bathroom cabinet.

During the same search, agents found $661,900 in cash, 25 Casascius coins (physical bitcoin) with an approximate value of 174 bitcoins, another 11.1160005300044 bitcoins, as well as four 1-ounce silver bars, three 1-ounce gold bars, four silver bars 10 ounces and one gold coin.

Such scale makes this confiscation the second largest in history. Law enforcement officers seized more only from a married couple from New York, who is accused of laundering funds stolen in 2016 from the Bitfinex cryptocurrency exchange. Let me remind you that in that case we are talking about 3.6 billion dollars.

In addition to the above, Zhong lost all property, including investments in real estate and “additional digital assets” not directly related to criminal proceedings.

The Ministry of Justice also reports that Zhong voluntarily handed over 825.4 bitcoins to the authorities in March 2022, and another 35.5 bitcoins in May 2022.

Zhong will be sentenced on February 22, 2023. On the current charges, he faces up to 20 years in prison

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Daniel Zimmermann

Daniel Zimmermann has been writing on security and malware subjects for many years and has been working in the security industry for over 10 years. Daniel was educated at the Saarland University in Saarbrücken, Germany and currently lives in New York.

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