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The reveal by the US Attorney’s Office comes after James Zhong, the man responsible for receiving the 50,676 in September 2012, pled guilty to one count of wire fraud on Friday. Ten years ago, one Bitcoin was worth roughly $10.
This goes down as the second-largest Bitcoin seizure in the DOJ’s history—bested only by the seizure of 94,000 Bitcoin stolen in the 2016 Bitfinex hack. At the time those coins were reclaimed, they were worth about $3.6 billion.
Zhong’s alleged crime could land him a maximum of 20 years in prison.
“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” said U.S. Attorney for the Southern District of New York Damian Williams. The attorney said law enforcement located the funds using “cryptocurrency tracing” and “good old-fashioned police work.”
Zhong allegedly used a trading scheme in September 2012 to defraud Silk Road of its Bitcoin without listing or buying any real items from its marketplace. The black market was frequently used to trade illegal drugs and other illicit goods before its founder, Ross Ulbricht, was sentenced to life in prison in 2015.
By quickly triggering over 140 back-to-back transactions, Zhong tricked Silk Road’s withdrawal processing system into releasing 50,000 coins into his multiple accounts, all while maintaining anonymity, the DOJ claims.
Five years later, Zhong also allegedly received an equal amount of Bitcoin Cash (BCH)—a hard-forked version of Bitcoin designed for greater scalability—just by virtue of holding his previously stolen Bitcoin. He later sold that BCH at an overseas cryptocurrency exchange for an additional 3,500 Bitcoin, according to the DOJ’s statement.
“Once he was successful in his heist, he attempted to hide his spoils through a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the ‘darknet’,” IRS-CI Special Agent in Charge Tyler Hatcher said.
Though Bitcoin addresses are technically pseudonymous, every transfer is recorded on its publicly available blockchain. As such, intelligence agencies can trace the source of such coins using sophisticated techniques.