Silk Road: the biggest Bitcoin seizure

Yesterday, the US Attorney General officially announcea massive seizure of Bitcoin.

It involves more than 50,676 BTC seized from James Zhongwho pleaded guilty to illegally obtaining it from Silk Road in 2012.

Bitcoin: The Silk Road Case

Silk Road was a dark web marketplace launched in 2011 that was shut down in 2013 by the FBI. For the crimes committed, Ross Ulbricht was sentenced to life in prison on seven charges by the United States Federal Court in Manhattan, without the possibility of parole.

This was simply a platform where sales could take place, but among them illegal ones took place. In particular, it was used by a number of drug dealers to distribute illegal drugs to many buyers, and to launder the funds thus obtained.

However, Zhong did not sell illegal drugs, but defrauded the platform by managing to launder a lot of money.

The Silk Road Scam

In September 2012, he created a series of accounts on Silk Road to hide his identity. With these accounts, he generated over 140 transactions in quick succession to get Silk Road’s withdrawal processing system to release around 50,000 Bitcoin to his accounts. After redeeming them, he transferred them to different ones Bitcoin addresses to prevent detection, hiding his identity and obfuscating the origin of these BTC.

While conducting this fraud, Zhong did not sell any products or services on Silk Road, nor did he make any purchases. He only generated transactions for the sole purpose of getting the platform to send him BTC.

He first deposited a total amount of between 200 and 2000 BTC, then quickly made a series of withdrawals. In this way, he was able to withdraw far more BTC than he had deposited.

The prosecutor’s statement says that on September 19, 2012, for example, he deposited 500 BTC into a wallet on Silk Road, and less than five seconds later made five withdrawals, also of 500 BTC each, in rapid succession within a single second. In this way, he received 2500 BTC, with a net profit of 2000 BTC.

The seizure of Silk Road Bitcoin

Although the prosecutor’s statement was made public yesterday, the seizure actually took place one year ago, on November 9, 2021.

The 50,676 BTC seized at the time was worth approx 3.36 billion dollarsmaking it the largest cryptocurrency seizure ever by the US Department of Justice, and the second largest ever.

To date, their value has fallen to just over $1 billion.

It is perhaps no coincidence that from the day after the seizure, the price of Bitcoin began to fall, and the price reached on November 9, 2021 ($69,000) remains the highest to date.

Even though the seizure happened a year ago, and it was heard about shortly afterwards, yesterday’s statement nevertheless reports something new. Namely, the fact that Zhong pleaded guilty on November 4, 2022, before US District Judge Paul G. Gardephe.

What will happen to these BTC?

Now that Zhong has pleaded guilty, the trial against him that began years ago will end.

At that point, the United States will be free to dispose of the seized funds, and it is possible that they will auction them off.

It has happened many times before that the US Department of Justice has auctioned off seized BTC. The most famous case is that of Tim Draper, who in June 2014 managed to buy 30,000 BTC seized by the US government and then auctioned them off. He invested 19 million dollars and this investment gave him back 3000% during the peak of December 2017.

Currently, the US government, i.e. the Department of Justice, has filed a petition to have these funds confiscated, but it does not appear to have done so yet. So it is not known when they can be put up for auction.