US Authorities Identify Hacker Who Stole 50,000 Bitcoins from Silk Road in 2012
The US Department of Justice has announced the conviction of 32-year-old James Zhong, a hacker who stole 50,000 bitcoins from the infamous darknet marketplace Silk Road ten years ago. Law enforcement seized $3.36 billion worth of bitcoins that had been stolen from Silk Road, although at current exchange rates, the cryptocurrency is valued at about $1 billion.
Silk Road was shut down by authorities in 2013. Before its closure, the marketplace offered users a wide range of illegal goods and services, from drugs and malware to contract killings. Silk Road’s founder, Ross Ulbricht, was arrested and in 2015 was sentenced to double life imprisonment, which he is currently serving in the US.
How the Hack Was Carried Out
Zhong pleaded guilty to money laundering and wire fraud. In September 2012, he created nine accounts on Silk Road, depositing between 200 and 2,000 bitcoins into each. He then initiated over 140 rapid transactions to exploit Silk Road’s withdrawal processing system, transferring about 50,000 bitcoins to his own accounts.
“For example, on September 19, 2012, Zhong deposited 500 bitcoins into a Silk Road wallet,” investigators explained. “Less than five seconds after making the initial deposit, he executed five consecutive withdrawals of 500 bitcoins each—within a single second—resulting in a net gain of 2,000 bitcoins.”
This manipulation netted Zhong approximately 51,680.32 bitcoins. At the time of the seizure last year, this cryptocurrency was valued at about $3.6 billion (now worth around $1 billion). Interestingly, at the exchange rate ten years ago, the scheme would have netted Zhong only $650,000.
After the Theft
After the attack, Zhong moved the stolen funds across various wallets to hide their trail. In 2017, following the hard fork that created Bitcoin Cash and Bitcoin SV, Zhong ended up with about 50,000 Bitcoin Cash, which he converted into 3,500 bitcoins, bringing his total to 53,500 bitcoins.
Authorities emphasized that Zhong never bought or sold anything on Silk Road; he only stole funds.
Seizure and Investigation
In November of last year, federal agents searched Zhong’s home and seized over 50,000 bitcoins, which were stored in a safe under the floor and on a “single-board computer” hidden in blankets inside a popcorn tin in a bathroom closet.
During the same search, agents also found $661,900 in cash, 25 Casascius coins (physical bitcoins) worth about 174 bitcoins, another 11.116 bitcoins, four 1-ounce silver bars, three 1-ounce gold bars, four 10-ounce silver bars, and one gold coin.
One of the Largest Cryptocurrency Seizures
This seizure is the second largest in history. The only larger confiscation was from a New York couple accused of laundering funds stolen from the Bitfinex cryptocurrency exchange in 2016, totaling $3.6 billion.
In addition to the assets listed above, Zhong lost all his property, including real estate investments and “additional digital assets” not directly related to the criminal case.
The Department of Justice also reported that in March 2022, Zhong voluntarily surrendered 825.4 bitcoins to authorities, and in May 2022, another 35.5 bitcoins.
Zhong is scheduled to be sentenced on February 22, 2023. He faces up to 20 years in prison on the current charges.