The crypto market has been battered this year, with nearly $2 trillion wiped from its value since its peak.
Jonathan Raa | Nurphoto | Getty Images
The US Department of Justice announced on Monday that it seized approximately $3.36 billion in bitcoins stolen in an unannounced 2021 raid on the residence of James Zhong.
Zhong pleaded guilty on Friday to one count of wire fraud, which carries a maximum sentence of 20 years in prison.
U.S. authorities seized about 50,676 bitcoins, then valued at more than $3.36 billion, from Zhong during a search of his home in Gainesville, Georgia on Nov. 9, 2021, the DOJ said. This is the DOJ’s second-largest financial seizure to date, following its seizure of $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of crypto exchange Bitfinex, announced by the DOJ in February.
Authorities say Zhong stole bitcoins from the illegal Silk Road Market, a dark web forum where drugs and other illicit goods were bought and sold with cryptocurrency. Silk Road was launched in 2011, but the Federal Bureau of Investigation shut it down in 2013. Its founder, Ross William Ulbricht, is currently serving a life sentence.
“For nearly a decade, the whereabouts of this huge missing piece of Bitcoin has exploded into a $3.3 billion+ mystery,” U.S. Attorney Damian Williams said in a press release.
According to the Southern District of New York, Zhong took advantage of market vulnerabilities to execute the hack.
Special Agent in Charge Tyler Hatcher of the Internal Revenue Service – Criminal Investigation said Zhong used a “sophisticated scheme” to steal the Silk Road bitcoin. According to the press release, in September 2012, Zhong created nine fraudulent accounts on Silk Road, each funding between 200 and 2,000 bitcoins. He then triggered over 140 transactions in quick succession, which tricked the market’s withdrawal processing system into releasing around 50,000 bitcoins into his accounts. Zhong then transferred the bitcoin to a variety of wallet addresses under his control.
Public records show that Zhong was the chairman and CEO of a self-created company, JZ Capital LLC, which he registered in Georgia in 2014. According to his LinkedIn profile, his work there focused on “investments and venture capital”.
His profile also states that he was a “great early investor in bitcoin with an in-depth knowledge of its inner workings” and that he had software development experience in computer programming languages.
Zhong’s social media profiles include photos of him on yachts, in front of airplanes and at high-level football matches.
But these types of hacking didn’t end with the demise of the Silk Road. Crypto platforms continue to be vulnerable to criminals.
In October 2022, Binance, the world’s largest crypto exchange by trading volume, suffered a $570 million hack. The company said a bug in a smart contract allowed hackers to exploit a cross-chain bridge, BSC Token Hub. As a result, hackers removed the platform’s native cryptocurrency, called BNB tokens.
In March 2022, another hacker discovered vulnerabilities in the decentralized finance platform Ronin Network and grabbed over $600 million – the biggest hack to date. Private keys, which serve as passwords to protect cryptocurrency funds in wallets, have been compromised.
According to a report by Chainalysis, $1.9 billion worth of cryptocurrency had been stolen in service hacks through July 2022, compared to just under $1.2 billion at the same time in 2021.