In response to an IRS-CI affidavit detailing Zhong’s theft of the 50,000-plus bitcoins from the Silk Street, he seems to have discovered a vulnerability in that dark-web market that in 2012 allowed him to in some way pull extra cash out of accounts he created there than he had deposited. The affidavit describes how he registered a succession of accounts on the positioning with names like “thetormentor” and “dubba,” deposited a sum of cash into the Bitcoin wallets for every account, after which made repeated withdrawals of your entire sums held there inside a single second to multiply his cash a number of instances over. This apparently exploited a bug within the Silk Street that allowed these rapid-fire withdrawals with out first confirming that the requested cash nonetheless existed in a consumer’s account. “On this vogue, [Zhong], utilizing every of the fraud accounts, moved not less than roughly 50,000 Bitcoin out of Silk Street in just some days,” reads the affidavit, which was signed by IRS-CI particular agent Trevor McAleenan.
Over the 9 years that adopted, Zhong seems to have left that large windfall nearly totally unspent—maybe for worry that cashing it out into conventional foreign money would appeal to the eye of regulation enforcement. However even that epic restraint seems to have been in useless, as IRS-CI investigators nonetheless traced Zhong’s cash to his accounts on an unnamed cryptocurrency change, which revealed his id. Zhong’s case carefully mirrors the story of the earlier Silk Road hacker, referred to in courtroom paperwork solely as Particular person X, who equally exploited a vulnerability within the Silk Street to take practically 70,000 bitcoins from the positioning and maintain them for greater than seven years. However, maybe because of the vagaries of negotiations over large cryptocurrency fortunes, no costs towards Particular person X have been publicly revealed. Zhong, in contrast, now faces a wire fraud conviction that carries as a lot as 20 years in jail.
The Silk Street was torn down by an enormous regulation enforcement operation in late 2013, resulting in the arrest of Ross Ulbricht, the positioning’s creator, who was sentenced to life in jail and ordered to pay $183 million in restitution. In yet one more weird twist, nevertheless, a portion of the seized 70,000 bitcoins taken from the Silk Street by Particular person X had been applied toward Ulbricht’s debt, paying it off in full in change for his settlement to not lay any declare to the remaining cash.
Utilizing bitcoins stolen from the Silk Street to repay the restitution of that website’s creator could seem to be a wierd flip of occasions. However in an period when IRS-CI cryptocurrency seizures commonly pours billions of {dollars} into the US Treasury, there appears to be a lot to go round.
