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In response to an IRS-CI affidavit detailing Zhong’s theft of the 50,000-plus bitcoins from the Silk Highway, he seems to have discovered a vulnerability in that darkish internet market that in 2012 allowed him to someway 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 the complete sums held there inside a single second to multiply his cash a number of instances over. This apparently exploited a bug within the Silk Highway that allowed these rapid-fire withdrawals with out first confirming that the requested cash nonetheless existed in a consumer’s account. “On this style, [Zhong], utilizing every of the Fraud Accounts, moved a minimum of roughly 50,000 Bitcoin out of Silk Highway 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 huge windfall virtually totally unspent—maybe for concern that cashing it out into conventional foreign money would appeal to the eye of legislation 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 intently mirrors the story of the sooner Silk Highway hacker, referred to in courtroom paperwork solely as Particular person X, who equally exploited a vulnerability within the Silk Highway to take almost 70,000 bitcoins from the positioning and maintain them for greater than seven years. However, maybe because of the vagaries of negotiations over huge cryptocurrency fortunes, no fees 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 Highway was torn down by an enormous legislation 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 one more weird twist, nevertheless, a portion of the seized 70,000 bitcoins taken from the Silk Highway by Particular person X had been utilized in direction of 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 Highway to repay the restitution of that website’s creator might look like a wierd flip of occasions. However in an period when IRS-CI cryptocurrency seizures repeatedly pours billions of {dollars} into the U.S. Treasury, there appears to be loads to go round.
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