The U.S. Department of Justice announced on November 7, 2022 the seizure of $3.36 billion worth of Bitcoin in relation to a Silk Road investigation dating back to 2012. 32 year old Georgia resident James Zhong exploited the darknet marketplace’s withdrawal system for 50,000 BTC in September 2012, with the heist worth approximately $600,000 at the time. This seizure of almost the entire sum of Bitcoin stolen (now worth many multiples more than it was in 2012), along with dozens of other indictments and seizures related to crypto crime in 2022, is further proof of the increased efforts by law enforcement agencies to investigate criminal security incidents in the world of blockchain technology.
2022 has seen a record number of indictments, seizures, and sentences related to cryptocurrency crime. In this latest case, publicly disclosed on November 7, 2022, the U.S. Department of Justice (DOJ) announced a historic cryptocurrency seizure of $3.36 billion cryptocurrency from the accused James Zhong. The DOJ executed a search warrant at Zhong’s Georgia residence in November of 2021, where they found a blanket-covered underground safe containing a popcorn tin housing a single-board computer which held around 50,000 Bitcoin. This physical seizure demonstrates how digital evidence can vary with crypto cases and how law enforcement is pursuing efforts to acquire new means of evidence in their efforts to investigate crypto crime. As tracing techniques and software become more sophisticated, cold cases are likely to be retargeted.
The Silk Road was a dark web internet marketplace that operated from 2011 to 2013, which was used by drug traffickers and other unlawful vendors to sell, buy illicit goods and launder the funds that passed through. The founder of the Silk Road, Ross Ulbricht, is serving a life sentence for a variety of convictions related to his role in the marketplace.
Zhong pleaded guilty to one count of wire fraud and is awaiting sentencing, with a maximum possible term of 20 years. The charge related to his creation in 2012 of nine Silk Road accounts which he then used to trigger over 140 transactions in rapid succession, tricking Silk Road’s withdrawal-processing system into releasing approximately 50,000 Bitcoin from its payment system.
This seizure represents the second largest cryptocurrency seizure in the United States. In February of this year, the DOJ arrested two individuals who allegedly conspired to launder billions of dollars stolen from Bitfinex in 2016. In this case, the authorities seized $3.6 billion in cryptocurrency.
Blockchains are permanent and immutable. Regardless of the time elapsed from the initial fraudulent event, law enforcement can utilize purpose-built tracing tools in combination with traditional investigative techniques to trace the proceeds of crypto-crime.
As crypto users continue operating in a space that is undergoing regulation changes and seeing increased law enforcement involvement, it is more important than ever to understand how these criminal events transpire and how to prioritize security in order to mitigate the risk of future incidents.
CertiK's mission is to secure the Web3 world by raising the standard of security and transparency across the entire industry. Through our comprehensive suite of security products – which includes pre-deployment smart contract code auditing, continuous post-deployment monitoring with Skynet, a secure KYC process for project founders, and user-focused tools such as the Security Leaderboard and Skytrace – CertiK creates detailed assessments that help projects and crypto users better identify potential security issues. Security in Web3 is increasingly important in light of increased malicious activity in crypto, which has drained billions of dollars of value from platforms and users this year alone.