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Ten-year hunt leads to 50,000 stolen Bitcoin stored in popcorn can and underground vault

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The Justice Department has announced it has seized approximately 50,676 Bitcoin that a 32-year-old from Georgia fraudulently obtained from The Silk Road — a dark web site once dubbed “the Amazon of drugs” — in 2012. his large cache of Bitcoin a few years ago, James Zhong pleaded guilty to the crime on Friday after authorities found the Bitcoin stored in an underground vault and on a “single-board computer” hidden in a popcorn can in a bathroom cabinet, according to a press release of the DOJ.

The government seized the Bitcoin on November 9, 2021, saying it was worth more than $3.36 billion at the time. Since then, the value has fallen rapidly; it is now worth just over $1 billion. According to the press release, it is the second-largest government financial repossession ever, alone with the $3.6 billion in stolen Bitcoin it seized earlier this year in a case reportedly involving TikToker / rapper / Forbes employee Razzlekhan and her husband. (It’s worth noting that, in absolute terms, that seizure involved significantly more Bitcoin: nearly 95,000).

The underground vault where researchers found Bitcoin wallets, cash, physical Bitcoin and what appeared to be gold and silver bars.
Image: Ministry of Justice

An IRS investigator in charge of the case calls Zhong’s heist “a sophisticated plan” and says he carried out “a series of complex transactions” to hide the ill-gotten Bitcoin. In September 2012, according to the DOJ, he registered nine fake accounts on The Silk Road, a Tor site designed to let people buy and sell drugs, weapons, hacking tools and other illegal goods and services over the Internet. Zhong would then deposit anywhere from 200 to 2,000 Bitcoin into the account (at the time, the cryptocurrency was worth around $10-12 per coin) and then send several withdrawal requests – sometimes up to five in one second. According to the DOJ, this exploit tricked the site into returning what it initially deposited multiple times.

Doing this about 140 times emptied The Silk Road’s treasury — the site kept up to 50,000 Bitcoin on hand at one point, according to a document submitted by an IRS investigator. Zhong’s take rose in 2017 when everyone who owned the cryptocurrency was also given an equivalent amount of another currency called Bitcoin Cash after the latter split from the main blockchain to become its own entity. The DOJ says Zhong subsequently traded his 50,000 Bitcoin Cash for 3,500 regular Bitcoin, replenishing his collection.

While the DOJ doesn’t go into detail about how it tracked down the stolen Bitcoin, part of what caught Zhong was a phone call he made to police in 2019, according to prototypes. The report says he reported a break-in, listing “a lot of bitcoin” among the items taken. Obviously, the robbers missed a lot of things, even though the IRS didn’t.

Earlier this year, Zhong’s counsel also gave about 860 additional Bitcoin to the government, bringing it closer to its goal of raising as much of the money Silk Road founder Ross Ulbricht made from the platform — hence the somewhat ironic situation. in which Zhong is being prosecuted for committing wire fraud against a criminal entity. According to the DOJ, he could face up to 20 years in prison and will be sentenced on February 22, 2023.

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