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Sunday, May 19, 2024

Student Exploits Silk Road Bug to Steal $600K in Bitcoin

A 22-year-old computer science student at the University of Georgia named Mr. Zhong discovered a software bug in December 2012 while withdrawing money from his Silk Road account, an online marketplace that utilized the anonymity of blockchain transactions and the dark web to conceal criminal activities. Mr. Zhong, who had used the site to purchase cocaine, was surprised to find out that he had double the amount of bitcoin he deposited after accidentally double-clicking the withdraw button. According to federal court documents, he went on to steal 50,000 bitcoins worth approximately $600,000 by creating new accounts and working for a few hours.

After a year, federal officials shut down Silk Road on criminal grounds and seized computers that held its transaction records. Initially, Mr. Zhong’s caper was not revealed in the records since authorities hadn’t yet mastered the ability to track individuals and groups hidden behind blockchain wallet addresses. The anonymity provided to users by the system was one of its fundamental features.

For eight years, Mr. Zhong covertly moved stolen bitcoins from one account to another, covering his tracks until the red-hot crypto market boosted the value of his loot to $3.4 billion by late 2021. Despite his fortune, he maintained a modest lifestyle in Athens, GA, wearing shorts and T-shirts, but owned a lake house in Gainesville, a Lamborghini, and a Tesla valued at $150,000.

Also Read: CEO Predicts BTC Price Breaks Above $30,000 New Highs in 2 Years

In November of that year, federal agents raided his residence and discovered the digital keys to his crypto fortune hidden in a basement floor safe and a popcorn tin in the bathroom. Mr. Zhong pleaded guilty to wire fraud and is awaiting sentencing, with prosecutors seeking a prison term of under two years.

This case is one of the many high-profile examples of how law enforcement agencies have penetrated the veil of blockchain transactions. Investigators can now identify wallet addresses linked to terrorists, drug traffickers, money launderers, and cyber criminals, despite the supposed anonymity of such transactions.

Using data collected from prior investigations, including the Silk Road case, private and government investigators have created a global map of cryptocurrency transactions across criminal networks with the help of cryptocurrency exchanges and blockchain analytics firms. In the last two years, the IRS reports seizing over $10 billion in digital currency through successful prosecutions by following the money trail, which is immediately accessible through the blockchain, rather than issuing subpoenas to banks or other financial institutions.

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