Silk Road Hacker Pleads Guilty to Stealing 50K+ Bitcoins Worth $3.36B, Faces 20 Years in Prison

by James · November 8, 2022

Silk Road Hacker Pleads Guilty to Stealing 50K+ Bitcoins Worth .36B, Faces 20 Years in Prison

On Monday, the US Department of Justice announced the seizure of 50,676 Bitcoin worth approximately $3.36 billion when law enforcement conducted the raid in November 2021. The disclosure came after James Zhong pleaded guilty to wire fraud he committed a decade ago.

The DoJ said Zhong illegally obtained more than 50,676.17 Bitcoins in 2012, which he stashed away on a single desktop computer in the basement of his home in Gainesville, Georgia. Apparently, Zhong had obtained the cryptocurrency from the now-defunct but then-thriving dark web marketplace Silk Road.

The DoJ’s press release reveals the extent to which Zhong went to conceal his crimes. The single desktop computer (typically a few inches in size) was housed in a popcorn box located in the underground bathroom.

In addition to the Bitcoin, police also recovered $661,900 in cash, 25 Casascius (physical bitcoin) coins (valued at ~174 Bitcoin), 11,116 additional Bitcoin and precious metals, including four one-ounce silver bars, three one-ounce gold-colored bars, four 10-ounce silver-colored bars, and a gold-colored coin.

For perspective, Bitcoin was valued at roughly $10 in September 2012, valuing his heist at $506,760. It was valued at $3.36 billion when it was seized in November 2021 and is currently valued at just under $1 billion.

See more: Former Apple employee admits to defrauding Cupertino and the IRS out of $18.8 million

In 2012, Silk Road became the popular online marketplace for drugs and other illegal, unethical goods, with Bitcoin as the accepted form of payment. It was shut down in 2013 while the administrator Ross Ulbricht was arrested and sentenced to two life sentences + 40 years.

When Silk Road was shut down, billions of USD worth of Bitcoin was lost. The $3.36 billion bust of Zhong clears up some of the mystery.

According to the DoJ, Zhong exploited a vulnerability in Silk Road’s payment system. “Zhong funded the fraudulent accounts with an initial deposit of between 200 and 2,000 Bitcoin. After the initial deposit, Zhong quickly made a series of withdrawals. Through his scheme to defraud, Zhong was able to withdraw many times more Bitcoin from Silk Road than he had set in in the first instance, says the DoJ explained.

“As an example, on September 19, 2012, Zhong deposited 500 Bitcoins into a Silk Road wallet. Less than five seconds after the first deposit, Zhong made five withdrawals of 500 Bitcoins in quick succession—that is, within the same second—which resulting in a net gain of 2000 Bitcoin Zhong triggered more than 140 transactions in quick succession to trick Silk Road and take home approximately 50,000 Bitcoin.

Internal Revenue Service Special Agent in Charge of Criminal Investigation Tyler Hatcher added that Zhong hoped to conceal his misdeeds through a series of complex transactions over the darknet.

The value of the bust made it the largest financial seizure by US law enforcement in November 2021 and the second largest ever, after the seizure of $3.6 billion in Bitcoin from a New York couple, Ilya Lichtenstein and Heather Morgan in February 2022, which they stole in 2016 Bitfinex crypto exchange hack.

Zhong faces a 20-year prison sentence for wire fraud.

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