50,491 BTC "In" a Popcorn Box: The Incredible Story of the Silk Road Booty Now Held by the US Authorities.
James Zhong faces up to 20 years in prison.
This could be the beginning of a Hollywood movie, but it's a true story. The largest Bitcoin haul ever seized by U.S. authorities was on a computer hidden in a popcorn box under a pile of towels in a bathroom closet.
Recovered by U.S. police a year ago, the computer contained the keys to 50,491 BTC or $3.36 billion at the time. The U.S. police also discovered some gold and silver bars, as well as 25 casascius, ersatz Bitcoin in the form of physical coins (valued at 174 BTC), rarities whose value is skyrocketing since there are only 28,000 of them in existence because their production has stopped.
This record loot, recovered by the American justice system in November 2011, is now worth only one billion dollars because Bitcoin has plunged by 70% over the last 12 months.
This money came from the Silk Road platform, the first large drug supermarket of the darknet, whose currency was Bitcoin and which saw the transit of 9.9 million BTC in two years (2011- 2013)!
This success had attracted James Zhong, who just pleaded guilty to wire fraud. He was not one of the sellers of the site. In September 2012, he opened an account there, as do all users wishing to obtain all kinds of drugs. But unlike the latter, he had found a scheme to withdraw more BTC than he had deposited, using a technique that relies on speed and is reminiscent of high-frequency trading.
An example: on September 19, 2012, he deposits 500 BTC in his wallet on Silk Road, and 5 seconds later, he manages to make 5 withdrawals of 500 BTC in a single second, allowing him to pocket 2,000 “free” Bitcoin.
No doubt thanks to an ultra-fast and sophisticated algorithm, James Zhong was able to exploit a loophole in the site's payment system, catching it off guard in its consolidation of customer positions. Repeated many times, this method will allow him to make a profit of more than 50,000 BTC in 5 days, an average of 10,000 per day.
To escape the authorities' tracking, James Zhong will then resort to the mixers to cover his tracks. But it's impossible not to make a mistake in nearly a decade, and federal and IRS sleuths eventually found his trail.
Silk Road reigned supreme on the darknet until its closure in October 2013. Bitcoin was then worth $130, 150 times less than it is today (between $17K and $18K). That year, half of the transactions on Bitcoin were for illegal activities, which contributed to its sulfurous image as a “narcotic currency” with the authorities.
The 2015 life sentence of its founder Ross Ulbricht, then only 31, did not put an end to online drug supermarkets. At its peak, his platform offered not only drugs but also fake documents, hacking software, and even the services of hitmen.
By taking 8% to 15% commission on 1.5 million transactions, its founder Ross Ulbricht had amassed a fortune, but the courts had also ordered him to pay back 183 million dollars. The seizure of 50,676 BTC from the pirate will serve to purge this debt, according to the agreement he had concluded with the justice.
Ross Ulbricht probably collaborated with the justice to help her arrest James Zhong. Illicit activities (scams, darknet ...) financed with cryptos and Bitcoin have declined over time. Significant in absolute value ($8 billion) in the first seven months of 2022, they represent only 0.2% of the flows on Bitcoin and cryptocurrencies globally, according to Chainalysis.
The U.S. dollar and fiat currencies thus remain by far the favorite tools of crooks and criminals who take advantage of the opacity of the current banking system and the inherent corruption of the humans involved in it. Problems that Bitcoin is helping to fix.
To conclude regarding James Zhong, he is scheduled to hear his sentence on February 22, 2023, with the maximum potential penalty for wire fraud being 20 years in prison.
Some reading
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