Skip links

U.S. unmasks hacker who stole 50,000 bitcoins from Silk Road



The U.S. Department of Justice has announced today the conviction of James Zhong, a mysterious hacker who stole 50,000 bitcoins from the ‘Silk Road’ dark net marketplace.

Zhong pled guilty to money laundering crimes on Friday, November 4, for exploiting a “withdrawal processing flaw” that allowed him to withdraw many times more Bitcoin than he deposited on the dark web marketplace.

The DoJ announcement also provides more details about the seizure of 51,351.9 Bitcoin, valued at over $3.3 billion at the time of the action, that occurred in November 2021. 

James Zhong used to be a member of the notorious dark net marketplace ‘Silk Road,’ a now-defunct illicit goods market that operated between 2011 and 2013, having over 100,000 members.

As the defendant confessed, in September 2012, he stole 50,000 bitcoin from Silk Road by exploiting a flaw in the market’s transaction system.

Zhong funded nine different accounts with an initial deposit of 200 to 2,000 bitcoin and then triggered 140 withdrawal transactions in rapid succession.

The hacker exploited a lag in the market’s transaction system allowing someone to withdraw their own escrow multiple times.

This way, Zhong tricked the system into releasing 50,000 bitcoin, which he then moved to various wallets to obscure the money trace.

In 2017, after Bitcoin split into Bitcoin Cash and Bitcoin SV, Zhong received 50,000 Bitcoin cash. The Bitcoin Cash was converted into 3,500 Bitcoins, bringing Zhong’s total to 53,500 Bitcoin linked to Silk Road.

“For almost ten years, the whereabouts of this massive chunk of missing Bitcoin had ballooned into an over $3.3 billion mystery,” commented U.S. Attorney Damian Williams.

“Thanks to state-of-the-art cryptocurrency tracing and good old-fashioned police work, law enforcement located and recovered this impressive cache of crime proceeds.”

Today’s Department of Justice announcement explains that the seizure occurred on November 9, 2021, when law enforcement authorities holding a search warrant located the following on Zhong’s residence:

50,491 Bitcoin hidden in an underground floor safe and on a single-board computer submerged under blankets in a popcorn tin inside a bathroom closet.
11.12 Bitcoin
$661,900 in cash
25 Casascius coins (physical Bitcoin) valued at 174 Bitcoin
Four 1-ounce silver bars
Four 10-ounce silver bars
Three 1-ounce gold bars
One gold coin

In addition to the above, the cybercriminal also forfeited all property, including investments in real estate and additional digital assets not linked to the criminal proceedings.

In March 2022, Zhong voluntarily surrendered an additional 825.4 Bitcoins to the authorities, and in May 2022, he gave up another 35.5 Bitcoin.

Zhong is scheduled to hear his sentence on February 22, 2023, with the maximum potential penalty for wire fraud being 20 years in prison.

Adblock test (Why?)