US Department of Justice announces historical BTC seizure (Silk Road related)

[DdmrDdmr]

The DOJ is now formally the custodian of a massive BTC seizure, totalling around 51.351 BTCs, which were previously in the hands of James Zhong. The largest chunk was apprehended around a year ago, but Zhong has made a couple of subsequent deliveries to the DOJ, possibly to try to have a better outcome in the sentence.

The DOJ’s release notice states in their headline having seized an equivalent of 3,36 billon $ in crypto, though it was countervalued around a year ago, and today it’s probably closer to 1,05 billion $ or such.

The story is interesting to read. It seems that Zhong obtained the massive amount of BTCs by cheating Silk Road, committing wire fraud in the process. Zhong did not actually buy or sell from the accounts he created on Silk Road, but he did manage to scam the site through them.

How did he do it? Well, in a pretty absurd manner: generating over 140 withdraws TXs to retrieve BTCs he’d previously credited on his accounts in bursts of rapid sequences. The below notice provides an example where by Zhong deposited 500 BTCs, and less than 5 seconds later, managed to make 5 consecutive withdrawals against that deposit for the total amount, all five withdrawal TXs executed in under a second. All in all, this loophole allowed him to withdraw 2500 BTCs from a 500 BTC deposit. Rinse and repeat until you manage to scam the site from over 51K BTCs.

At the time of the depicted events, BTC was around 10$ to 12$. That means that the amount defrauded back then was not insignificant, and already in the range of around hald a million dollars (give or take – we don’t know exactly how much was his to begin with).

A decade later, he has pleaded guilty to wire fraud, and should have a sentence by February 2023 (max. 20 years it seems).

I wonder what the DOJ is going to do with the BTCs though. In prior instances they’ve been auctioned, though that is yet something to be seen in this case (I doubt that they’ll end-up forming part of the Silk Road compensation plans, even as a late additions, simply because they are really two separate cases).


See: https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction

Note: '.' thousands separator ',' decimal separator

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[buwaytress]

Need to remind myself some countries use the full stop point not as a decimal but as a thousands separator haha.

Surprised I'd never heard of this particular story, for such a large amount of BTC (yes, it's a drop in the ocean but it's still a relatively crazy amount to hold for an individual).

Not so technical so I don't get it, was the loophole Silk Road's? They weren't processing from wallets but manually?

[LeGaulois]

In legal terms (to me), the bitcoins belong to Silk Road since it has been extracted from there. To be fair both cases should be tied but of course, they won't return the bitcoins to Ulbricht  

Usually, the government makes an auction, I don't think it will be different in this case. It's then redistributed to different agencies or used to reimburse victims of fraud. The victim here won't receive a penny.

[DdmrDdmr]

Need to remind myself some countries use the full stop point not as a decimal but as a thousands separator haha.

Yep, that’s always a mess. In fact, I mixed both wrongly in the OP, since I wrote it first in Spanish and then thought about changing it here to US format, leading to a separator cockup (now fixed).

Not so technical so I don't get it, was the loophole Silk Road's? They weren't processing from wallets but manually?

I was giving it a thought, and came to a similar hypothesis to this guy:

The $3B Bitcoin seize today was originally caused by the fact that Silk Road run #MySQL database without atomic (SERIALIZABLE) SQL transaction, allowing double withdrawals.

See: https://twitter.com/moo9000/status/1589631175693594624

It’s more or less what I had in mind. Since the withdrawal speed was referenced (i.e. 5 DB TXs in 1 second in the example provided in the OP), there must have been an error handling the database TX, or rather, the lack off, leading to a non-atomic db update of various lines of code that should have been encapsulated in a TX. I also thought the code might have been doing dirty reads (another option) in order to reduce lock time, which could read data in an incomplete state.

MySQL did have TXs at the time, so assuming that was the RDBMS used, it’s a programming error or a lack of expertise in DBs.

i.e.
If I were to execute (pseudocode for illustration purposes):

Code:

IF Customer.balance>= 500 BTC THEN
BEGIN
  Send 500 BTC from MySilkRoadWallet.address to Customer.address
  Customer.balance= Customer.balance – 500 BTC
END
ELSE
  Show error "Insufficient balance"
END

The two lines of pseudocode enclosed in the begin/end structure are not atomic, since they are not enclosed within a TX (begin transaction/end transaction). One could, perhaps, trigger the code multiple times (from different petitions) and get multiple sends executed before the first balance update takes place, leading to multiple 500 BTC sends.

It’s also possible that the actual Send BTC may have been a call to some function in the code that was relatively slow, and non DB related, thus not being able to conform part of a DB TX strictly speaking.

[DaveF]

The wheels of justice move slowly but they will eventually run you over.
Always wondered what would happen in a case like this, if the total opposite happened. If instead of BTC it was some token that became worthless but before everything else came crashing down.
Would governments and enforcement spend the time and effort going after someone who stole $500000 that is now worth $1 or would they just let it slide.

Due to the Silk Road relationship I can see them going after it no matter what, but who knows.

-Dave

[hugeblack]

In previous cases, these coins were sold before the budget was passed for the new year, so they may be sold within the next two months or wait for the next budget, and most auctions are not controlled by the offer or the price of bitcoin, but is this decision final and has passed all the litigation?

[Upgrade00]

Would governments and enforcement spend the time and effort going after someone who stole $500000 that is now worth $1 or would they just let it slide.

Due to the Silk Road relationship I can see them going after it no matter what, but who knows.

Could depend on how far gone investigations were before the token imploded and lost value. If it was a the tail end, it's worth seeing to the end, when you consider that the scammer could be involved in other possible scams which have not been reported. But earlier in the investigation doesn't seem to be worth it. The focus could also shit to some shady deals going on in the token which caused such a drop in value.
All these would not matter, if there's evidence that the scammer converted to some other asset when the token had value. Cause now, they could have, half a million of stolen funds in BTC or USD.

[Eclipse33]

They also seized 25 Casascius physical bitcoins, total BTC value of 174BTC.

[owlcatz]

They also seized 25 Casascius physical bitcoins, total BTC value of 174BTC.

Not sure, isn't that like ~151 right there?



https://www.bbc.com/news/technology-63547765

Edit - hope noone here was unlucky enough to do any business with him...

[Eclipse33]

They also seized 25 Casascius physical bitcoins, total BTC value of 174BTC.

Not sure, isn't that like ~151 right there?



https://www.bbc.com/news/technology-63547765

Edit - hope noone here was unlucky enough to do any business with him...

Owl, this is a freaking haul. This dude was in early early.

"On November 9, 2021, pursuant to a judicially authorized premises search warrant (the “Search”), IRS-CI agents recovered approximately 50,491.06251844 Bitcoin of the Crime Proceeds from ZHONG’s Gainesville, Georgia, house.  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.  In addition, law enforcement recovered $661,900 in cash, 25 Casascius coins (physical bitcoin) with an approximate value of 174 Bitcoin, 11.1160005300044 additional Bitcoin, and four one-ounce silver-colored bars, three one-ounce gold-colored bars, four 10-ounce silver-colored bars, and one gold-colored coin."

https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction

[owlcatz]

Owl, this is a freaking haul. This dude was in early early.

Not sure. Maybe he did buy direct from mike...

Will be interesting to see how the gov't auctions these off as well lol..

[Eclipse33]

Owl, this is a freaking haul. This dude was in early early.

Not sure. Maybe he did buy direct from mike...

Will be interesting to see how the gov't auctions these off as well lol..

Maybe Mopar can put together a group buy for one.

[bitcasino]

They also seized 25 Casascius physical bitcoins, total BTC value of 174BTC.

and they also seized $661,900 in United States currency

[Eclipse33]

They also seized 25 Casascius physical bitcoins, total BTC value of 174BTC.

and they also seized $661,900 in United States currency

*Federal reserve notes*

[DapanasFruit]

I am just wondering if there is no specific law on the federal and state level that demands where the proceeds of scams and frauds can be going to...am just hoping the money can be spend for the benefits of the people and not eventually on the pockets of the few in the halls of power. Now, for sure, this story is a big reminder that at the end it will be the government that can be the declared winner against people who are committing crime financial or otherwise.

[Lucius]

These people are not clear to me at all, because you were capable enough to steal all those BTC, but you were so stupid that you kept them in your house all those years and did nothing to secure yourself a more than pleasant future somewhere far from any US agencies. Now, instead of a comfortable life on some paradise island, the man is waiting for 20 years in prison, where he will share a smelly cell with some fat guy who will call him Bitcoin Jenny

[mrdavis]

These people are not clear to me at all, because you were capable enough to steal all those BTC, but you were so stupid that you kept them in your house all those years and did nothing to secure yourself a more than pleasant future somewhere far from any US agencies. Now, instead of a comfortable life on some paradise island, the man is waiting for 20 years in prison, where he will share a smelly cell with some fat guy who will call him Bitcoin Jenny

The raid and seizure of his hardware was on November 9 and the bitcoin didn't move until March 25 after he gave them passphrases. Just a variation on the wrench attack.

[Flexystar]

How did he do it? Well, in a pretty absurd manner: generating over 140 withdraws TXs to retrieve BTCs he’d previously credited on his accounts in bursts of rapid sequences. The below notice provides an example where by Zhong deposited 500 BTCs, and less than 5 seconds later, managed to make 5 consecutive withdrawals against that deposit for the total amount, all five withdrawal TXs executed in under a second. All in all, this loophole allowed him to withdraw 2500 BTCs from a 500 BTC deposit. Rinse and repeat until you manage to scam the site from over 51K BTCs.

How about it? Someone randomly gets talent to hack the financial systems in a under 5 seconds and manage to showcase the loopholes in the system. However, the guy lacks talent to approach the system owners and propose them "White Hat Hacking" and get paid clean cheat money for doing so. I don't understand why there are always criminals out there who has great minds, skills which are required by Top Management and can get paid any number BUT they always have to end up in the criminal activities. Thats ridiculous.

A decade later, he has pleaded guilty to wire fraud, and should have a sentence by February 2023 (max. 20 years it seems).

Imagine that much spent as White Hat Hacker? He could have retired with handsome bank balance, respect, and sweet end deal with his life. Wasted!

I wonder what the DOJ is going to do with the BTCs though. In prior instances they’ve been auctioned, though that is yet something to be seen in this case (I doubt that they’ll end-up forming part of the Silk Road compensation plans, even as a late additions, simply because they are really two separate cases).

But it's clear case that the money was scammed and Silk Road was the prime target. I think as per the ownership data those bitcoins/money should be returned to them.

Imagine Silk Road got scammed for million dollars and now they receive billion dollars in return for waiting decade.

Good motivation for HODLERS. 

[malevolent]

Those bitcoins are now worth less than $900M.

Quick summary how he ended up getting caught for those who hadn't bothered to skim through all the docs: https://nitter.net/FractalEncrypt/status/1590004529789272064#m

Didn't know he was someone I recognize now.

[owlcatz]

Those bitcoins are now worth less than $900M.

Quick summary how he ended up getting caught for those who hadn't bothered to skim through all the docs: https://nitter.net/FractalEncrypt/status/1590004529789272064#m

Didn't know he was someone I recognize now.

Damn what an idiot he was ... had to brag etc... Also you can trace the btc to the final addy here - https://blockchair.com/bitcoin/address/bc1qmxjefnuy06v345v6vhwpwt05dztztmx4g3y7wp

probably owned by the govt...