The Greatest Theft On The Darknet: The $3 Billion Silk Road Heist

The Mystery Of The 50,000 Stolen Bitcoins Is Solved!

By PanteraPublished about a year ago • 5 min read

Silk Road was the first darknet black market that used Bitcoin for payments.

The notorious and now seized drug market allowed Bitcoin to begin the adoption race as an online digital currency as internet users saw the recognized advantages of a payment system without anyone in control.

Silk Road facilitated drug trade for thousands of vendors and buyers using Bitcoin cryptocurrency.

Privacy, however, was never a Bitcoin feature, a fact many did not apprehend in the early years.

Thus, old crimes, such as Bitcoin thefts or exchange hacks from people that remain anonymous, with blockchain analysis can now lead to discoveries.

Such is the case of the Silk Road Heist, with the thief getting away for ten years with more than 50,000 stolen Bitcoins, living a lavish lifestyle all this time.

The Greatest Theft On The Dark Web

The Department of Justice (DOJ) specified James Zhong of Georgia State as the culprit, whom police arrested in November 2021. James Zhong since then relinquished control of over 50,000 BTC to the US authorities along with cash and shares in real-estate companies he possessed.

James Zhong did not use complicated hacks to steal Bitcoins from Silk Road and possessed no hacking skills.

He proceeded with the theft by exploiting a frontend bug, which he apparently discovered by accident.

How The Culprit Stole 50,000BTC From Silk Road:

It is possible that James Zhong accidentally discovered the bug in Silk Road’s Bitcoin withdrawal service, and afterward repeated the exploit (approximately) 140 times more to extract over 50,000 BTC from Silk Road.

In September 2012, when James Zhong executed the heist, the price of Bitcoin was worth $10 (approximate calculation)

After discovering the bug, Zhong generated multiple addresses in the marketplace (at least nine) and continued by funding each with different amounts of Bitcoins (200–2000BTC).

He proceeded by using the withdrawal feature in rapid succession multiple times with each account. This action resulted in withdrawing an excess amount of Bitcoin from the website.

In a matter of days, James Zhong had withdrawn over 50,000 BTC, amounting to ~$500,000 at the time of the theft. However, the culprit did not sell the stolen Bitcoin since 2012 but merged all his addresses into two and held most of the Bitcoins for ten years.

At the time of his arrest in 2021, the market valuation of James Zhong’s Bitcoins was $3 Billion!

In August 2017, the Bitcoin Network forked, and as a result, the owners of Bitcoin-BTC now also had an equal balance in Bitcoin-BCH (Bitcoin Cash).

The culprit moved his Bitcoin Cash to an address belonging to an unspecified by the records cryptocurrency exchange and traded his 50,000 Bitcoin-BCH for another 3,500 Bitcoin-BTC.

How Police Traced The Culprit

According to reports, police suspected Zhong as early as 2019 (seven years after the theft) when he called his local department to report a burglary.

During his testimony, Zhong mentioned “a lot of Bitcoin was stolen” from his house, together with many personal items. This mention of Bitcoin triggered the police to begin an investigation.

Following a lengthy process of blockchain analysis forensics, police tracked the Bitcoin back to the Silk Road Heist addresses.

In 2021, a search warrant was issued, and on November 9th, 2021, police arrested Zhong after discovering a box hidden in a floor safe containing Zhong’s private keys and other items such as Casascius (physical) Bitcoins.

Besides the 50,000 BTC that police moved to another wallet, Zhong also provided over 1500 BTC to authorities in the following months of his arrest.

Zhong pleaded guilty to the charges of wire fraud, and he is expected to face a sentence of up to 20 years in his trial in February 2023. (DOJ Announcement)

Zhong’s Background With The Bitcoin Community — Social Media Exposing A Lavish Lifestyle

All this time, Zhong maintained an account on Bitcoin’s forum bitcointalk, under the alias “Loaded”.

In 2017, as the Bitcoin community was moving towards a split, Zhong placed a bet against prominent community members Roger Ver and Jihan Wu and sided with the Bitcoin Core team (small blockers).

In his social media account on Facebook (which is now taken down by the site), Zhong exposed a lavish lifestyle:

The lavish lifestyle of the culprit (blurred)

Conclusion

The UTXO model of Bitcoin leaves room for maneuvering to obfuscate transactions, especially with the use of mixing and tumbler services.

Manual tracking is difficult, but blockchain analysis firms developed systems that can monitor transactions to the source and override many obfuscating mechanisms.

It seems Zhong made a dreadful mistake by informing the police of his Bitcoin address since the police traced him back to the Silk Road incident and eventually arrested him.

By the end of 2017, James Zhong possessed 53,500 BTC, out of which 51,351.89 BTC remained at his addresses until 2021.

Currently, these Bitcoins are in US authorities’ possession, which hold approximately 210,000 BTC in total.

References:

U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud, US Department of Justice

Lead Image by Matryx on Pixabay

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