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US Attorney Announces $3.36B Cryptocurrency Seizure in Connection with Silk Road

320 points by jmsflknr 4y ago

closewith 4y ago
At the spot price at this time, 51,680.32473733 Bitcoin is worth $1,066,821,439.46 (~$1.06B) USD. Some difference from the ~$3.36B on November 9th, 2021.
- greyface- 4y ago
  And in September 2012, the time of the heist, they were worth about $500k.
- ta988 4y ago
  Most news and law enforcement will always inflate the numbers like that.
  - ISL 4y ago
    That was the value at the time of seizure, which is most-likely the correct time at which to value it. It is true that the news would probably use the larger number if BTC had gone up in price since then, but I suspect that the official statement would always quote the value at the time of seizure (perhaps with a parenthetical to highlight a greater present-day value).
    - conductr 4y ago
      > That was the value at the time of seizure, which is most-likely the correct time at which to value it. It should be marked to value at time of the crime. Value of the property is often a metric used for setting the charges/punishment and he had no idea it would appreciate the way it did. He shouldn't get penalized for it appreciating. May differ internationally but to my knowledge it works that way over most of the US.
      - dragonwriter 4y ago
        > It should be marked to value at time of the crime. Value of the property is often a metric used for setting the charges/punishment In the context of charges/punishment, when thr charges apply to specific direct proceeds, that would seem correct. In the context of reporting a seizure, the value at the time of the seizure is relevant. Those are two different things, even though they might relate to the same property at different points in time.
        conductr 4y ago
        Good point. I suppose it’s a measure of disruption.
ISL 4y ago
With a public blockchain, it seems at least technically possible to seize any funds that were used in a transaction later shown to be illegal. If you thought KYC constraints were invasive today...
- jonwachob91 4y ago
  That is probably the fastest way to kill crypto. Seizing any coins involved in illegal activity, even if it's been through numerous other owners since (and for legal purchases). Once everyone is asking if the coins they are getting are clean they'll stop acquiring coins.
  - landemva 4y ago
    Government cleans crime proceeds when they auction it off. Same for planes and cars.
    - counttheforks 4y ago
      Which government, and are there international agreements about this?
      - dopamean 4y ago
        I'd assume whichever government seized the goods.
      - landemva 4y ago
        USA federal government sold seized bitcoin years ago. https://www.reuters.com/article/us-usa-bitcoin/venture-capitalist-draper-wins-u-s-bitcoin-auction-idUSKBN0F719920140702 https://www.reuters.com/article/us-usa-bitcoin/venture-capit... And local and State government. https://www.nyc.gov/site/nypd/services/vehicles-property/police-auction.page https://www.nyc.gov/site/nypd/services/vehicles-property/pol... USA is sovereign and does not respect international agreements.
      - MerelyMortal 4y ago
jwithington 4y ago
TIL that you can get in trouble for stealing from other criminals
- toyg 4y ago
  In a honest state, with great powers, come great regulations about what you are supposed to do with such powers. Occasionally some responsibility too.
- ceejayoz 4y ago
  Why would that be surprising? You can't murder them, either.
  - notch656a 4y ago
    In some (even US) jurisdictions they call it 'mutual combat' [0] and overlook it. In some places like Washington State (not: not legal advice) one may be under the impression criminal-on-criminal combat is explicitly legal. There's also a lot of historical context (think outlaws in wild west) that suggests that those in the American West may culturally not find it surprisingly that the public would generally be OK with criminals doing themselves in. It's my understanding that in Texas it may even be possible that killing thieves is legal there in some circumstances as well. Edit: perhaps I wasn't as explicit in the part to read between the lines. The police in US are oft perceived as being more likely to 'overlook' or consider it 'mutual combat' for acts against criminals. I don't think the analysis "that has nothing to do with them being criminal" is really a fair conclusion. [0] https://torontosun.com/news/world/no-charges-in-deadly-chicago-shootout-due-to-mutual-combat https://torontosun.com/news/world/no-charges-in-deadly-chica...
    - ceejayoz 4y ago
      That has nothing to do with them being criminals, though. You and I could engage in mutual combat, if we wanted. Muhammad Ali got paid quite a bit to do it.
- duxup 4y ago
IceHegel 4y ago
Crypto without privacy (by default) is dead.
- MerelyMortal 4y ago
  I think you're getting ahead of yourself. It's not dead, yet. It's very much still alive (which is probably why you're being downvoted), because it has first-mover advantage and is easier to use. I think eventually privacy-by-default coins like Monero (XMR) will gain in popularity assuming people smarten up, so if it requires people being smart, then it may never gain in popularity, who knows.
miohtama 4y ago
The originally hack was caused by the fact that Silk Road was running PHP on MySQL without transaction isolation. Many early crypto exchanges had similar withdrawal bugs as they were running on LAMP stacks - MySQL has been notoriosly famous for having lax transaction isolation. Sometimes you could overwithdraw just by hitting refresh fast enough in a web browser. If you deal with money use PostgreSQL + SERIALIZABLE transaction isolation level to be sure. More in PostgreSQL documentation https://www.postgresql.org/docs/current/transaction-iso.html https://www.postgresql.org/docs/current/transaction-iso.html Also Zhong was 22 years old script kiddie when he hacked Silk Road. Any smart criminal would have left United States long time ago if you sit on the top of $3B stash.
- Scoundreller 4y ago
  And failed to even depend on bitcoin’s double-spend protections. He deposited and was able to withdraw those deposits within seconds: before any block was confirmed on the blockchain.
- xyzzy4747 4y ago
  As someone who very briefly poked around Silk Road at the time (just created an account), and as someone who has used PHP with the LAMP stack occasionally over the years, I am completely unsurprised. Race conditions can be pretty tricky to prevent in PHP, since the state is contained within different threads that can’t trivially communicate with each other. You need to be proficient with global state mutation such as via Redis or SQL.
  - pmontra 4y ago
    Well, the database is there to manage and defend the data if only properly instructed to do so (CHECK constraints, locking, serialization.)
    - xyzzy4747 4y ago
      True, but it’s still not trivial, unless you’ve thought of the race condition problems in advance. My guess is that instead of keeping all the withdrawal logic in a comprehensive DB transaction with good constraint checking, the code was broken up into multiple sequential PHP statements with transactions of simpler SQL (which is likely easier from a coding perspective) and with insufficient locking. This is the easier way to code it if you haven’t thought of or heard about race condition issues.
Scoundreller 4y ago
> ZHONG did not list any item or service for sale on Silk Road, nor did he buy any item or service on Silk Road > ZHONG funded the Fraud Accounts with an initial deposit of between 200 and 2,000 Bitcoin. After the initial deposit, ZHONG then quickly executed a series of withdrawals. Through his scheme to defraud, ZHONG was able to withdraw many times more Bitcoin out of Silk Road than he had deposited in the first instance. As an example, on September 19, 2012, ZHONG deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after making the initial deposit, ZHONG executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin. As another example, a different Fraud Account made a single deposit and over 50 Bitcoin withdrawals before the account ceased its activity. So Silk Road wasn’t waiting for any transaction confirmations??? And didn’t append a nonce to each withdrawal to avoid duplicates? Is this the guy that Ross wanted to kill?
- matthewaveryusa 4y ago
  I knew a guy about 10 years ago that upgraded his iphone through the apple website and AT&T website at the same time, received two phones, and never heard from either company about a double transaction. I love these kinds of hacks -- I guess it's one way to profit from hard-learned database lessons :)
  - peteradio 4y ago
    Reminds of my older brothers friend who in second grade got back in line to get his yearbook picture taken and showed up twice in the yearbook with slightly different pics.
  - nerdawson 4y ago
    When I was a kid we had vending machines for drinks in school. One morning I put 20p in and it immediately came back out. It wasn’t accepting the coin so I tried two in quick succession. Both were spat back out… but the machine registered one of them. I of course would never exploit that repeatedly for a couple free drinks and some extra change too.
ISL 4y ago
Pretty impressive that we've advanced technologically and as a society to the point where we can now store somewhere between much and all of the GDP of Belize " (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet."
- nso 4y ago
  https://en.wikipedia.org/wiki/List_of_most_expensive_paintings#:~:text=This%20is%20a%20list%20of,1500 https://en.wikipedia.org/wiki/List_of_most_expensive_paintin...).
- lern_too_spel 4y ago
  What's stored on the computer is a number that gives access to a wallet. You could also store a number that gives access to a Swiss bank account on a piece of paper in the 18th century. I wouldn't call the technology advanced.
PaulWaldman 4y ago
>Specifically, law enforcement located 50,491.06251844 Bitcoin of the approximately 53,500 Bitcoin Crime Proceeds (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet. It's interesting how the defendant tried to hide his bitcoin holdings in very low-tech ways. The utility ease of holding bitcoin is apparent with this seizure. What other asset could you hide the equivalent of $1B USD in a floor safe and a popcorn tin and without having to use a 3rd party custodian?
- ISL 4y ago
  The potential value-density of crypto is unmatched, but I'm not sure it is "easy" to store in a manner like that. If another resident of Zhong's household had discarded the popcorn tin, he could have been out $1B. It's is difficult, but not impossible (see fat-finger transactions) to do that with other asset classes.
  - duxup 4y ago
    Agreed, the risks here are pretty high. Even just some catastrophic disk failure.
  - zmaurelius 4y ago
    Holding a large amount of cryptocurrency without multiple backups spread around various geographical locations is foolish. So ultimately to store cryptocurrency securely, its never actually easy when you get down to the nuts and bolts of it.
    - ilyt 4y ago
      Steganography might've been interesting way to deal with it, make big QR code with credentials to 1M wallet and hide 1B wallet info as steganography in that picture
    - Scoundreller 4y ago
      Who said he didn’t have any other backups elsewhere? Impossible to prove he didn’t have his private keys backed up elsewhere.
deleted 4y ago
[deleted]
photochemsyn 4y ago
> " IRS-CI Special Agents are the best in the world at following the money through cyberspace or wherever our financial investigations lead us. We will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice." They might want to look into this: Many U.S. corporations use offshore tax havens and other accounting gimmicks to avoid paying as much as $90 billion a year in federal income taxes. A large loophole at the heart of U.S. tax law enables corporations to avoid paying taxes on foreign profits until they are brought home. Known as “deferral,” it provides a huge incentive to keep profits offshore as long as possible. Many corporations choose never to bring the profits home and never pay U.S. taxes on them. https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-offshore-corporate-tax-loopholes/ https://americansfortaxfairness.org/tax-fairness-briefing-bo... Yes, these tax loopholes are legal, but I bet the IRS and its world-class money trackers could, if they wanted, find quite a few outfits going well beyond what's technically legal.
- zmaurelius 4y ago
  They could, but then the IRS would have contend with an army of lawyers to claw their money back. In this case, going after a small time criminal with no connections is an easy win, so it makes sense from a resource allocation perspective for them focus on cases like this instead.
  - mschuster91 4y ago
    > They could, but then the IRS would have contend with an army of lawyers to claw their money back. Always reminds me on how Scientology managed to get charitable. tl;dr: Cause so much work for the IRS (or appear to be able to do so) and they'll back down. The tax code is like the MasterLock of laws: looks complex on the outside, keeps honest people honest but is so weak it can be exploited by anyone willing to do so.
  - vkou 4y ago
    Anyone who stole and has held on to 51,000 BTC is not exactly a small-time criminal any more. They were when the theft occurred, but this is like when you steal a cargo container full of crap, and five years later discover that both the Mona Lisa and a nuclear football is in it.
olalonde 4y ago
> Specifically, law enforcement located 50,491.06251844 Bitcoin of the approximately 53,500 Bitcoin Crime Proceeds (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet Weird that he went through all this trouble to physically hide the wallets but did not use encryption...
- ur-whale 4y ago
  My thoughts exactly.
- sidewndr46 4y ago
  Almost like the details released don't match up with reality.
- m4jor 4y ago
  Seems like it was stored on a hardware wallet like a ledger or trezor. He most likely voluntarily gave them the passwords and access as he turned himself in as well as turned over additional bitcoin.
- kube-system 4y ago
  The article does not say he didn't.
nrmitchi 4y ago
I may get slammed for this, but I don’t understand the resources that apparently went into tracking down some kid who stole from an illegal marketplace a decade again. This feels way less like “pursing justice” and more like trying to track down everything the just I’ve department can seize and auction off. If Bitcoin hadn’t drastically increased in value since the original event, would this have ever been tracked down? I cant even count the number of much more consumer-impacting crypto-related frauds, crimes, and hacks from the last 3 years that would be more deserving of justice department attention, rather than focusing resources and attention on a double withdrawal bug from an illegal marketplace from a decade ago.
- adam_arthur 4y ago
  I agree, we should let crypto scams of all kinds proliferate and flourish. Just kidding, haha. I agree that many more recent events have been more impactful, and hopefully they’re pursuing those too. I mean the sheer numbers of ICOs with somewhat notable people involved purely to make a quick buck would be a good place to start
- xyzzy4747 4y ago
  It’s probably because he accumulated billions of dollars of property that weren’t taxed, and illegally on top of that (although they were worth much less at the time). It kind of sucks for him that he had to forfeit the Bitcoin and not just the dollar amount he stole at the time. I am sure if it was the other way around, and Bitcoin went to $0, they would take the historical dollar amount he stole instead.
  - nrmitchi 4y ago
    I could completely see an argument for tax evasion, that is a crime where the technical victim is the government (and thus, citizenry), not where the victim is an illegal operation that no longer exists. However, he isn’t being charged with a tax crime. He’s being charged with “wire fraud” for double withdrawing from Silk Road.
    - 4y ago
TheSoftwareGuy 4y ago
Interestingly, in this case Silk Road is the Victim, not the accused.
- donclark 4y ago
  If that is truly the case, could the 'Silk Road' drop the charges?
kylestlb 4y ago
The linked affidavit has more of the interesting details. Looks like the agent worked with the guy's ISP and a well-known crypto exchange to do some old fashioned IP tracing.
- frontman1988 4y ago
  The guy didn't even use VPN? That's pretty amusing for a billionare thief.
  - kylestlb 4y ago
    Had a static ip address for a few years, lol
    - Scoundreller 4y ago
      Claimed to have lots of VPNs too. Lotta crypto brokers look down on VPNs for obvious reasons. But they seemed to have gotten their wallets mixed up and that gave away their identity on of one of the early 10k Bitcoin wallets.
hamiltonians 4y ago
how did they link it to his home address. did he try to cash them out using real ID?
- rideontime 4y ago
  The answer can be found here: https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction https://www.justice.gov/usao-sdny/pr/us-attorney-announces-h...
gzer0 4y ago
> Nearly five years after ZHONG’s fraud, in August 2017, solely by virtue of ZHONG’s possession of the 50,000 Bitcoin that he unlawfully obtained from Silk Road, ZHONG received a matching amount of a related cryptocurrency — 50,000 Bitcoin Cash (“BCH Crime Proceeds”) — on top of the 50,000 Bitcoin. And presumably, this is how he was caught. He hid his identity really well. The withdrawal of BCH eventually led to his downfall.
- paulpauper 4y ago
  What are you basing this on? It could have been any other possibility
- Scoundreller 4y ago
  It didn’t, not officially anyway. The feds pinned him on what appears to a mixup by the accused between his “unclean” and “clean” wallet wallets when dealing with a crypto broker with an IP that pointed to his house for several years. Starts around 22 here: https://www.justice.gov/usao-sdny/press-release/file/1549821/download https://www.justice.gov/usao-sdny/press-release/file/1549821...
latchkey 4y ago
11.1160005300044 is a very odd looking number, I wonder if it is encoded as something. 11, 116, 53, 44
- mrb 4y ago
  Indeed, it's not possible to seize "11.1160005300044" bitcoins as all bitcoin amounts (outside of the lightning network) are represented with a maximum of 8 decimals. Most likely, it's just a floating-point imprecision from the fed's calculations. For example a lot of software will calculate "20.1 - 20.0 = 0.10000000000000142"
mensetmanusman 4y ago
The US could crash BTC by trying to sell all of this now.
- latchkey 4y ago
  No. There isn't enough liquidity in the market to even sell that amount. They also do these things over the counter, in auctions, which wouldn't have an effect on market pricing at all.
  - mensetmanusman 4y ago
    “ There isn't enough liquidity in the market to even sell that amount. “ That’s exactly my point ;) If they overwhelm liquidity, the price can collapse because they can always underbid those trying to sell.
    - latchkey 4y ago
      Except, that isn't what happens, so it makes your statement incorrect. The US could also overwhelm [insert any free market] by simply executing eminent domain and/or printing enough money.
  - three_seagrass 4y ago
    The lack of liquidity is what would push the price down, since demand is higher at lower prices.
    - latchkey 4y ago
      Yes, that is generally how markets work. However there is no central exchange for bitcoin, nor is there enough liquidity in any single exchange. So, the seller would need to open accounts in multiple exchanges and sell in all of them. Sure, bringing down one exchange could have consequences for price, but it wouldn't cover this large of an amount of BTC. Plus, half the exchanges with enough liquidity to even begin with, aren't even allowed to be used in the US. Again, that's not how the US govt works with these things anyway (OTC auctions), so it is all a moot point.
sigmar 4y ago
>various metals also seized from ZHONG’s home. Anyone know what this refers to? Gold seized? or maybe metal plates with cold wallet keys taken from the safe?
- greyface- 4y ago
  From the affidavit (https://www.justice.gov/usao-sdny/press-release/file/1549821/download#page=20 https://www.justice.gov/usao-sdny/press-release/file/1549821...): > The metal items consisted of four one-ounce silver-colored bars, three one-ounce gold-colored bars, four 10-ounce silver-colored bars, and one gold-colored coin, all seized from Individual-1’s home on November 9, 2021.
  - londons_explore 4y ago
    > silver-colored So they weren't actual silver... So they were probably just novelty display pieces? And even if they were real metals, the total dollar value of that lot isn't very high.
    - Scoundreller 4y ago
      Or they didn’t bother sending it away for analysis, since it’s such a tiny aspect of the case financially.
    - jeremyjh 4y ago
      My guess is they were precious metals, but the agent's report immediately after the seizure doesn't presume to know that; they just report what they can observe, and they may have them analyzed/valued later.
evilos 4y ago
This guy had 3 billion dollars in stolen crypto and didn't flee the country? Insane.
- cecilpl2 4y ago
  No, he had $500k in stolen crypto. This was 2012.
  - deleted 4y ago
    [deleted]
- frontman1988 4y ago
  Not only that, he didn't even use much of it for the past 10 years. Atleast he didn't have to work after college though : https://www.linkedin.com/in/jimmy-zhong-01678025 https://www.linkedin.com/in/jimmy-zhong-01678025
  - m4jor 4y ago
    >Large early bitcoin investor with extensive knowledge of its inner workings. An interesting way to put it.
skizm 4y ago
When cryptocurrency assets are seized, do they transfer everything all to a separate wallet, which is then held in custody? If there are copies of the "seized" assets, they can just be moved to a new wallet and then the only thing seized was some hard drives, right?
- 323 4y ago
  Yes, they move them immediately. This was detailed in previous seize operations like this. 2013: > The FBI official pointed me towards this Bitcoin address, which received transfers of close to 144,000 in just the last 24 hours. "They finished moving them at 3am this morning," said the official. https://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-says-its-seized-20-million-in-bitcoins-from-ross-ulbricht-alleged-owner-of-silk-road/ https://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-sa...
  - Scoundreller 4y ago
    That’s what they should do. The quadrigacx (Canadian crypto exchange) bankruptcy trustee didn’t move the little they found into a wallet they controlled. Lucky for them, it seems like nobody else had/acted on having the private keys.
dagaci 4y ago
The question is will the USA government refund what was stolen to the victim "Silk Road"? (https://www.investopedia.com/terms/s/silk-road.asp https://www.investopedia.com/terms/s/silk-road.asp) Is there a protocol for this kind of event?
Maursault 4y ago
> JAMES ZHONG pled guilty to committing wire fraud in September 2012 ... ZHONG pled guilty on Friday, November 4, 2022, ... > U.S. Attorney Damian Williams said: “James Zhong committed wire fraud over a decade ago...." The statute of limitations for mail fraud and wire fraud prosecutions is five years (18 U.S.C. § 3282), except for mail and wire fraud schemes that affect a financial institution, in which case the statute is ten years (18 U.S.C. § 3293).[1] Lawyers please explain. Also, who was the victim here, and who reported the crime? [1] https://www.justice.gov/archives/jm/criminal-resource-manual-968-defenses-statute-limitations https://www.justice.gov/archives/jm/criminal-resource-manual...
- yakak 4y ago
  I don't think bitcoin was even a recognized currency until 2014.. It is utter madness that someone can make a game today and you can be tried for winning on players technical errors a decade after the IRS decides if it is a serious speculative game. It's like back in the first MOOGs where people wanted to arrest in game thieves. Talk about killing your industry.
  - qeternity 4y ago
    Bitcoin has been classified as a commodity, not a currency, so I’m not sure what you’re talking about. I’m not sure why you’re downplaying this. If I maliciously exploited a video game for serious financial gain today, there’s a good chance that will be a crime.
  - wmf 4y ago
    In 2013 FinCEN and the IRS declared that Bitcoin was always property so you can't make some kind of "it's just a game" argument.
    - chelical 4y ago
      In 2013. He pled guilty to wire fraud in 2012. Can FinCEN/IRS retroactively determine something (like tradable skins in a game) is property and prosecute people over it?
SevenNation 4y ago
> This seizure was then the largest cryptocurrency seizure in the history of the U.S. Department of Justice and today remains the Department’s second largest financial seizure ever. If past history is any guide, the proceeds will be auctioned, making DOJ the largest government-sponsored bitcoin dealer in the world.
- lolc 4y ago
  Interestingly, this will increase the supply of Bitcoin. Because more will be in circulation, having been cleared by the U.S. government. Who wouldn't want those squeaky clean coins!
keepquestioning 4y ago
This guy is fucked, how long will he be in jail?
- Scoundreller 4y ago
  > ZHONG, 32, of Gainesville, Georgia, and Athens, Georgia, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. > The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. ZHONG is scheduled to be sentenced by Judge Gardephe on February 22, 2023, at 3:00 p.m. To be determined!
  - keepquestioning 4y ago
    Why is there no jury of peers? I do not understand legal system in America.
    - bgentry 4y ago
      There’s no jury if you plead guilty. He didn’t have to be convicted because he admitted to the crime as part of a plea bargain.
    - notch656a 4y ago
      Prosecutors in US conspire to deprive defendants of their rights by creating a 'plea bargain' system where federal defendants almost always plead guilty in exchange for not being 'taxed' with often multiples of the bargained number of years in jail for daring to exercise their right to trial, where they will be crushed by an asymmetric system of the massiveness of the US government verse whatever meager amount they have to spend on an attorney and expert witnesses.
jimcavel888 4y ago
kepler1 4y ago
I'm curious, what kind of endgame was he planning, if any? How do you launder and benefit from even any of the coins, if you know you're a wanted man and everyone is watching to see where the coin pops up?
bluelightning2k 4y ago
Genuine question: what happens to the BTC? If they liquidate - couldn't that cause the price to go to near zero?
- Nevermark 4y ago
  They would likely sell the BTC with an off-market auction. Given the amount, they might auction if off in segments. Whoever is responsible for selling a government asset is likely responsible for getting a good price. So a BTC dump, in addition to harming the markets, would be a violation of that duty. https://www.fool.com/investing/2022/01/14/the-us-government-and-bitcoin-auctions-heres-what/ https://www.fool.com/investing/2022/01/14/the-us-government-...
i_like_apis 4y ago
Aside from ultimately getting caught, this Zhong guy seems pretty smart.

320 points by jmsflknr 4y ago

At the spot price at this time, 51,680.32473733 Bitcoin is worth $1,066,821,439.46 (~$1.06B) USD. Some difference from the ~$3.36B on November 9th, 2021.

greyface- 4y ago
And in September 2012, the time of the heist, they were worth about $500k.
ta988 4y ago
Most news and law enforcement will always inflate the numbers like that.
- ISL 4y ago
  That was the value at the time of seizure, which is most-likely the correct time at which to value it. It is true that the news would probably use the larger number if BTC had gone up in price since then, but I suspect that the official statement would always quote the value at the time of seizure (perhaps with a parenthetical to highlight a greater present-day value).
  - conductr 4y ago
    > That was the value at the time of seizure, which is most-likely the correct time at which to value it. It should be marked to value at time of the crime. Value of the property is often a metric used for setting the charges/punishment and he had no idea it would appreciate the way it did. He shouldn't get penalized for it appreciating. May differ internationally but to my knowledge it works that way over most of the US.
    - dragonwriter 4y ago
      > It should be marked to value at time of the crime. Value of the property is often a metric used for setting the charges/punishment In the context of charges/punishment, when thr charges apply to specific direct proceeds, that would seem correct. In the context of reporting a seizure, the value at the time of the seizure is relevant. Those are two different things, even though they might relate to the same property at different points in time.
      - conductr 4y ago
        Good point. I suppose it’s a measure of disruption.

ISL 4y ago

With a public blockchain, it seems at least technically possible to seize any funds that were used in a transaction later shown to be illegal. If you thought KYC constraints were invasive today...

jonwachob91 4y ago
That is probably the fastest way to kill crypto. Seizing any coins involved in illegal activity, even if it's been through numerous other owners since (and for legal purchases). Once everyone is asking if the coins they are getting are clean they'll stop acquiring coins.
- landemva 4y ago
  Government cleans crime proceeds when they auction it off. Same for planes and cars.
  - counttheforks 4y ago
    Which government, and are there international agreements about this?
    - dopamean 4y ago
      I'd assume whichever government seized the goods.
    - landemva 4y ago
      USA federal government sold seized bitcoin years ago. https://www.reuters.com/article/us-usa-bitcoin/venture-capitalist-draper-wins-u-s-bitcoin-auction-idUSKBN0F719920140702 https://www.reuters.com/article/us-usa-bitcoin/venture-capit... And local and State government. https://www.nyc.gov/site/nypd/services/vehicles-property/police-auction.page https://www.nyc.gov/site/nypd/services/vehicles-property/pol... USA is sovereign and does not respect international agreements.
    - MerelyMortal 4y ago

jwithington 4y ago

TIL that you can get in trouble for stealing from other criminals

toyg 4y ago
In a honest state, with great powers, come great regulations about what you are supposed to do with such powers. Occasionally some responsibility too.
ceejayoz 4y ago
Why would that be surprising? You can't murder them, either.
- notch656a 4y ago
  In some (even US) jurisdictions they call it 'mutual combat' [0] and overlook it. In some places like Washington State (not: not legal advice) one may be under the impression criminal-on-criminal combat is explicitly legal. There's also a lot of historical context (think outlaws in wild west) that suggests that those in the American West may culturally not find it surprisingly that the public would generally be OK with criminals doing themselves in. It's my understanding that in Texas it may even be possible that killing thieves is legal there in some circumstances as well. Edit: perhaps I wasn't as explicit in the part to read between the lines. The police in US are oft perceived as being more likely to 'overlook' or consider it 'mutual combat' for acts against criminals. I don't think the analysis "that has nothing to do with them being criminal" is really a fair conclusion. [0] https://torontosun.com/news/world/no-charges-in-deadly-chicago-shootout-due-to-mutual-combat https://torontosun.com/news/world/no-charges-in-deadly-chica...
  - ceejayoz 4y ago
    That has nothing to do with them being criminals, though. You and I could engage in mutual combat, if we wanted. Muhammad Ali got paid quite a bit to do it.
duxup 4y ago

IceHegel 4y ago

Crypto without privacy (by default) is dead.

MerelyMortal 4y ago
I think you're getting ahead of yourself. It's not dead, yet. It's very much still alive (which is probably why you're being downvoted), because it has first-mover advantage and is easier to use. I think eventually privacy-by-default coins like Monero (XMR) will gain in popularity assuming people smarten up, so if it requires people being smart, then it may never gain in popularity, who knows.

miohtama 4y ago

The originally hack was caused by the fact that Silk Road was running PHP on MySQL without transaction isolation. Many early crypto exchanges had similar withdrawal bugs as they were running on LAMP stacks - MySQL has been notoriosly famous for having lax transaction isolation. Sometimes you could overwithdraw just by hitting refresh fast enough in a web browser. If you deal with money use PostgreSQL + SERIALIZABLE transaction isolation level to be sure. More in PostgreSQL documentation https://www.postgresql.org/docs/current/transaction-iso.html https://www.postgresql.org/docs/current/transaction-iso.html Also Zhong was 22 years old script kiddie when he hacked Silk Road. Any smart criminal would have left United States long time ago if you sit on the top of $3B stash.

Scoundreller 4y ago
And failed to even depend on bitcoin’s double-spend protections. He deposited and was able to withdraw those deposits within seconds: before any block was confirmed on the blockchain.
xyzzy4747 4y ago
As someone who very briefly poked around Silk Road at the time (just created an account), and as someone who has used PHP with the LAMP stack occasionally over the years, I am completely unsurprised. Race conditions can be pretty tricky to prevent in PHP, since the state is contained within different threads that can’t trivially communicate with each other. You need to be proficient with global state mutation such as via Redis or SQL.
- pmontra 4y ago
  Well, the database is there to manage and defend the data if only properly instructed to do so (CHECK constraints, locking, serialization.)
  - xyzzy4747 4y ago
    True, but it’s still not trivial, unless you’ve thought of the race condition problems in advance. My guess is that instead of keeping all the withdrawal logic in a comprehensive DB transaction with good constraint checking, the code was broken up into multiple sequential PHP statements with transactions of simpler SQL (which is likely easier from a coding perspective) and with insufficient locking. This is the easier way to code it if you haven’t thought of or heard about race condition issues.

Scoundreller 4y ago

> ZHONG did not list any item or service for sale on Silk Road, nor did he buy any item or service on Silk Road > ZHONG funded the Fraud Accounts with an initial deposit of between 200 and 2,000 Bitcoin. After the initial deposit, ZHONG then quickly executed a series of withdrawals. Through his scheme to defraud, ZHONG was able to withdraw many times more Bitcoin out of Silk Road than he had deposited in the first instance. As an example, on September 19, 2012, ZHONG deposited 500 Bitcoin into a Silk Road wallet. Less than five seconds after making the initial deposit, ZHONG executed five withdrawals of 500 Bitcoin in rapid succession — i.e., within the same second — resulting in a net gain of 2,000 Bitcoin. As another example, a different Fraud Account made a single deposit and over 50 Bitcoin withdrawals before the account ceased its activity. So Silk Road wasn’t waiting for any transaction confirmations??? And didn’t append a nonce to each withdrawal to avoid duplicates? Is this the guy that Ross wanted to kill?

matthewaveryusa 4y ago
I knew a guy about 10 years ago that upgraded his iphone through the apple website and AT&T website at the same time, received two phones, and never heard from either company about a double transaction. I love these kinds of hacks -- I guess it's one way to profit from hard-learned database lessons :)
- peteradio 4y ago
  Reminds of my older brothers friend who in second grade got back in line to get his yearbook picture taken and showed up twice in the yearbook with slightly different pics.
- nerdawson 4y ago
  When I was a kid we had vending machines for drinks in school. One morning I put 20p in and it immediately came back out. It wasn’t accepting the coin so I tried two in quick succession. Both were spat back out… but the machine registered one of them. I of course would never exploit that repeatedly for a couple free drinks and some extra change too.

ISL 4y ago

Pretty impressive that we've advanced technologically and as a society to the point where we can now store somewhere between much and all of the GDP of Belize " (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet."

nso 4y ago
https://en.wikipedia.org/wiki/List_of_most_expensive_paintings#:~:text=This%20is%20a%20list%20of,1500 https://en.wikipedia.org/wiki/List_of_most_expensive_paintin...).
lern_too_spel 4y ago
What's stored on the computer is a number that gives access to a wallet. You could also store a number that gives access to a Swiss bank account on a piece of paper in the 18th century. I wouldn't call the technology advanced.

PaulWaldman 4y ago

>Specifically, law enforcement located 50,491.06251844 Bitcoin of the approximately 53,500 Bitcoin Crime Proceeds (a) in an underground floor safe; and (b) on a single-board computer that was submerged under blankets in a popcorn tin stored in a bathroom closet. It's interesting how the defendant tried to hide his bitcoin holdings in very low-tech ways. The utility ease of holding bitcoin is apparent with this seizure. What other asset could you hide the equivalent of $1B USD in a floor safe and a popcorn tin and without having to use a 3rd party custodian?

ISL 4y ago
The potential value-density of crypto is unmatched, but I'm not sure it is "easy" to store in a manner like that. If another resident of Zhong's household had discarded the popcorn tin, he could have been out $1B. It's is difficult, but not impossible (see fat-finger transactions) to do that with other asset classes.
- duxup 4y ago
  Agreed, the risks here are pretty high. Even just some catastrophic disk failure.
- zmaurelius 4y ago
  Holding a large amount of cryptocurrency without multiple backups spread around various geographical locations is foolish. So ultimately to store cryptocurrency securely, its never actually easy when you get down to the nuts and bolts of it.
  - ilyt 4y ago
    Steganography might've been interesting way to deal with it, make big QR code with credentials to 1M wallet and hide 1B wallet info as steganography in that picture
  - Scoundreller 4y ago
    Who said he didn’t have any other backups elsewhere? Impossible to prove he didn’t have his private keys backed up elsewhere.

deleted 4y ago

[deleted]

photochemsyn 4y ago

> " IRS-CI Special Agents are the best in the world at following the money through cyberspace or wherever our financial investigations lead us. We will continue to work with our partners at the US Attorney’s Office to track down these criminals and bring them to justice." They might want to look into this: Many U.S. corporations use offshore tax havens and other accounting gimmicks to avoid paying as much as $90 billion a year in federal income taxes. A large loophole at the heart of U.S. tax law enables corporations to avoid paying taxes on foreign profits until they are brought home. Known as “deferral,” it provides a huge incentive to keep profits offshore as long as possible. Many corporations choose never to bring the profits home and never pay U.S. taxes on them. https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-offshore-corporate-tax-loopholes/ https://americansfortaxfairness.org/tax-fairness-briefing-bo... Yes, these tax loopholes are legal, but I bet the IRS and its world-class money trackers could, if they wanted, find quite a few outfits going well beyond what's technically legal.

zmaurelius 4y ago
They could, but then the IRS would have contend with an army of lawyers to claw their money back. In this case, going after a small time criminal with no connections is an easy win, so it makes sense from a resource allocation perspective for them focus on cases like this instead.
- mschuster91 4y ago
  > They could, but then the IRS would have contend with an army of lawyers to claw their money back. Always reminds me on how Scientology managed to get charitable. tl;dr: Cause so much work for the IRS (or appear to be able to do so) and they'll back down. The tax code is like the MasterLock of laws: looks complex on the outside, keeps honest people honest but is so weak it can be exploited by anyone willing to do so.
- vkou 4y ago
  Anyone who stole and has held on to 51,000 BTC is not exactly a small-time criminal any more. They were when the theft occurred, but this is like when you steal a cargo container full of crap, and five years later discover that both the Mona Lisa and a nuclear football is in it.

olalonde 4y ago

ur-whale 4y ago
My thoughts exactly.
sidewndr46 4y ago
Almost like the details released don't match up with reality.
m4jor 4y ago
Seems like it was stored on a hardware wallet like a ledger or trezor. He most likely voluntarily gave them the passwords and access as he turned himself in as well as turned over additional bitcoin.
kube-system 4y ago
The article does not say he didn't.

nrmitchi 4y ago

I may get slammed for this, but I don’t understand the resources that apparently went into tracking down some kid who stole from an illegal marketplace a decade again. This feels way less like “pursing justice” and more like trying to track down everything the just I’ve department can seize and auction off. If Bitcoin hadn’t drastically increased in value since the original event, would this have ever been tracked down? I cant even count the number of much more consumer-impacting crypto-related frauds, crimes, and hacks from the last 3 years that would be more deserving of justice department attention, rather than focusing resources and attention on a double withdrawal bug from an illegal marketplace from a decade ago.

adam_arthur 4y ago
I agree, we should let crypto scams of all kinds proliferate and flourish. Just kidding, haha. I agree that many more recent events have been more impactful, and hopefully they’re pursuing those too. I mean the sheer numbers of ICOs with somewhat notable people involved purely to make a quick buck would be a good place to start
xyzzy4747 4y ago
It’s probably because he accumulated billions of dollars of property that weren’t taxed, and illegally on top of that (although they were worth much less at the time). It kind of sucks for him that he had to forfeit the Bitcoin and not just the dollar amount he stole at the time. I am sure if it was the other way around, and Bitcoin went to $0, they would take the historical dollar amount he stole instead.
- nrmitchi 4y ago
  I could completely see an argument for tax evasion, that is a crime where the technical victim is the government (and thus, citizenry), not where the victim is an illegal operation that no longer exists. However, he isn’t being charged with a tax crime. He’s being charged with “wire fraud” for double withdrawing from Silk Road.
  - 4y ago

TheSoftwareGuy 4y ago

Interestingly, in this case Silk Road is the Victim, not the accused.

donclark 4y ago
If that is truly the case, could the 'Silk Road' drop the charges?

kylestlb 4y ago

The linked affidavit has more of the interesting details. Looks like the agent worked with the guy's ISP and a well-known crypto exchange to do some old fashioned IP tracing.

frontman1988 4y ago
The guy didn't even use VPN? That's pretty amusing for a billionare thief.
- kylestlb 4y ago
  Had a static ip address for a few years, lol
  - Scoundreller 4y ago
    Claimed to have lots of VPNs too. Lotta crypto brokers look down on VPNs for obvious reasons. But they seemed to have gotten their wallets mixed up and that gave away their identity on of one of the early 10k Bitcoin wallets.

hamiltonians 4y ago

how did they link it to his home address. did he try to cash them out using real ID?

rideontime 4y ago
The answer can be found here: https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction https://www.justice.gov/usao-sdny/pr/us-attorney-announces-h...

gzer0 4y ago

> Nearly five years after ZHONG’s fraud, in August 2017, solely by virtue of ZHONG’s possession of the 50,000 Bitcoin that he unlawfully obtained from Silk Road, ZHONG received a matching amount of a related cryptocurrency — 50,000 Bitcoin Cash (“BCH Crime Proceeds”) — on top of the 50,000 Bitcoin. And presumably, this is how he was caught. He hid his identity really well. The withdrawal of BCH eventually led to his downfall.

paulpauper 4y ago
What are you basing this on? It could have been any other possibility
Scoundreller 4y ago
It didn’t, not officially anyway. The feds pinned him on what appears to a mixup by the accused between his “unclean” and “clean” wallet wallets when dealing with a crypto broker with an IP that pointed to his house for several years. Starts around 22 here: https://www.justice.gov/usao-sdny/press-release/file/1549821/download https://www.justice.gov/usao-sdny/press-release/file/1549821...

latchkey 4y ago

11.1160005300044 is a very odd looking number, I wonder if it is encoded as something. 11, 116, 53, 44

mrb 4y ago
Indeed, it's not possible to seize "11.1160005300044" bitcoins as all bitcoin amounts (outside of the lightning network) are represented with a maximum of 8 decimals. Most likely, it's just a floating-point imprecision from the fed's calculations. For example a lot of software will calculate "20.1 - 20.0 = 0.10000000000000142"

mensetmanusman 4y ago

The US could crash BTC by trying to sell all of this now.

latchkey 4y ago
No. There isn't enough liquidity in the market to even sell that amount. They also do these things over the counter, in auctions, which wouldn't have an effect on market pricing at all.
- mensetmanusman 4y ago
  “ There isn't enough liquidity in the market to even sell that amount. “ That’s exactly my point ;) If they overwhelm liquidity, the price can collapse because they can always underbid those trying to sell.
  - latchkey 4y ago
    Except, that isn't what happens, so it makes your statement incorrect. The US could also overwhelm [insert any free market] by simply executing eminent domain and/or printing enough money.
- three_seagrass 4y ago
  The lack of liquidity is what would push the price down, since demand is higher at lower prices.
  - latchkey 4y ago
    Yes, that is generally how markets work. However there is no central exchange for bitcoin, nor is there enough liquidity in any single exchange. So, the seller would need to open accounts in multiple exchanges and sell in all of them. Sure, bringing down one exchange could have consequences for price, but it wouldn't cover this large of an amount of BTC. Plus, half the exchanges with enough liquidity to even begin with, aren't even allowed to be used in the US. Again, that's not how the US govt works with these things anyway (OTC auctions), so it is all a moot point.

sigmar 4y ago

>various metals also seized from ZHONG’s home. Anyone know what this refers to? Gold seized? or maybe metal plates with cold wallet keys taken from the safe?

greyface- 4y ago
From the affidavit (https://www.justice.gov/usao-sdny/press-release/file/1549821/download#page=20 https://www.justice.gov/usao-sdny/press-release/file/1549821...): > The metal items consisted of four one-ounce silver-colored bars, three one-ounce gold-colored bars, four 10-ounce silver-colored bars, and one gold-colored coin, all seized from Individual-1’s home on November 9, 2021.
- londons_explore 4y ago
  > silver-colored So they weren't actual silver... So they were probably just novelty display pieces? And even if they were real metals, the total dollar value of that lot isn't very high.
  - Scoundreller 4y ago
    Or they didn’t bother sending it away for analysis, since it’s such a tiny aspect of the case financially.
  - jeremyjh 4y ago
    My guess is they were precious metals, but the agent's report immediately after the seizure doesn't presume to know that; they just report what they can observe, and they may have them analyzed/valued later.

evilos 4y ago

This guy had 3 billion dollars in stolen crypto and didn't flee the country? Insane.

cecilpl2 4y ago
No, he had $500k in stolen crypto. This was 2012.
- deleted 4y ago
  [deleted]
frontman1988 4y ago
Not only that, he didn't even use much of it for the past 10 years. Atleast he didn't have to work after college though : https://www.linkedin.com/in/jimmy-zhong-01678025 https://www.linkedin.com/in/jimmy-zhong-01678025
- m4jor 4y ago
  >Large early bitcoin investor with extensive knowledge of its inner workings. An interesting way to put it.

skizm 4y ago

When cryptocurrency assets are seized, do they transfer everything all to a separate wallet, which is then held in custody? If there are copies of the "seized" assets, they can just be moved to a new wallet and then the only thing seized was some hard drives, right?

323 4y ago
Yes, they move them immediately. This was detailed in previous seize operations like this. 2013: > The FBI official pointed me towards this Bitcoin address, which received transfers of close to 144,000 in just the last 24 hours. "They finished moving them at 3am this morning," said the official. https://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-says-its-seized-20-million-in-bitcoins-from-ross-ulbricht-alleged-owner-of-silk-road/ https://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-sa...
- Scoundreller 4y ago
  That’s what they should do. The quadrigacx (Canadian crypto exchange) bankruptcy trustee didn’t move the little they found into a wallet they controlled. Lucky for them, it seems like nobody else had/acted on having the private keys.

dagaci 4y ago

The question is will the USA government refund what was stolen to the victim "Silk Road"? (https://www.investopedia.com/terms/s/silk-road.asp https://www.investopedia.com/terms/s/silk-road.asp) Is there a protocol for this kind of event?

Maursault 4y ago

> JAMES ZHONG pled guilty to committing wire fraud in September 2012 ... ZHONG pled guilty on Friday, November 4, 2022, ... > U.S. Attorney Damian Williams said: “James Zhong committed wire fraud over a decade ago...." The statute of limitations for mail fraud and wire fraud prosecutions is five years (18 U.S.C. § 3282), except for mail and wire fraud schemes that affect a financial institution, in which case the statute is ten years (18 U.S.C. § 3293).[1] Lawyers please explain. Also, who was the victim here, and who reported the crime? [1] https://www.justice.gov/archives/jm/criminal-resource-manual-968-defenses-statute-limitations https://www.justice.gov/archives/jm/criminal-resource-manual...

yakak 4y ago
I don't think bitcoin was even a recognized currency until 2014.. It is utter madness that someone can make a game today and you can be tried for winning on players technical errors a decade after the IRS decides if it is a serious speculative game. It's like back in the first MOOGs where people wanted to arrest in game thieves. Talk about killing your industry.
- qeternity 4y ago
  Bitcoin has been classified as a commodity, not a currency, so I’m not sure what you’re talking about. I’m not sure why you’re downplaying this. If I maliciously exploited a video game for serious financial gain today, there’s a good chance that will be a crime.
- wmf 4y ago
  In 2013 FinCEN and the IRS declared that Bitcoin was always property so you can't make some kind of "it's just a game" argument.
  - chelical 4y ago
    In 2013. He pled guilty to wire fraud in 2012. Can FinCEN/IRS retroactively determine something (like tradable skins in a game) is property and prosecute people over it?

SevenNation 4y ago

> This seizure was then the largest cryptocurrency seizure in the history of the U.S. Department of Justice and today remains the Department’s second largest financial seizure ever. If past history is any guide, the proceeds will be auctioned, making DOJ the largest government-sponsored bitcoin dealer in the world.

lolc 4y ago
Interestingly, this will increase the supply of Bitcoin. Because more will be in circulation, having been cleared by the U.S. government. Who wouldn't want those squeaky clean coins!

keepquestioning 4y ago

This guy is fucked, how long will he be in jail?

Scoundreller 4y ago
> ZHONG, 32, of Gainesville, Georgia, and Athens, Georgia, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. > The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. ZHONG is scheduled to be sentenced by Judge Gardephe on February 22, 2023, at 3:00 p.m. To be determined!
- keepquestioning 4y ago
  Why is there no jury of peers? I do not understand legal system in America.
  - bgentry 4y ago
    There’s no jury if you plead guilty. He didn’t have to be convicted because he admitted to the crime as part of a plea bargain.
  - notch656a 4y ago
    Prosecutors in US conspire to deprive defendants of their rights by creating a 'plea bargain' system where federal defendants almost always plead guilty in exchange for not being 'taxed' with often multiples of the bargained number of years in jail for daring to exercise their right to trial, where they will be crushed by an asymmetric system of the massiveness of the US government verse whatever meager amount they have to spend on an attorney and expert witnesses.

jimcavel888 4y ago

kepler1 4y ago

I'm curious, what kind of endgame was he planning, if any? How do you launder and benefit from even any of the coins, if you know you're a wanted man and everyone is watching to see where the coin pops up?

bluelightning2k 4y ago

Genuine question: what happens to the BTC? If they liquidate - couldn't that cause the price to go to near zero?

Nevermark 4y ago
They would likely sell the BTC with an off-market auction. Given the amount, they might auction if off in segments. Whoever is responsible for selling a government asset is likely responsible for getting a good price. So a BTC dump, in addition to harming the markets, would be a violation of that duty. https://www.fool.com/investing/2022/01/14/the-us-government-and-bitcoin-auctions-heres-what/ https://www.fool.com/investing/2022/01/14/the-us-government-...

i_like_apis 4y ago

Aside from ultimately getting caught, this Zhong guy seems pretty smart.