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Man pleads guilty to stealing Bitcoin worth billions from dark web market Silk Road

A visitor holds a Bitcoin souvenir coin during a webinar at the main office of CryptoSterlingClub Alisa in Moscow, Russia, in August 2017. File Photo by Maxim Shipenkov/EPA-EFE
A visitor holds a Bitcoin souvenir coin during a webinar at the main office of CryptoSterlingClub Alisa in Moscow, Russia, in August 2017. File Photo by Maxim Shipenkov/EPA-EFE

Nov. 7 (UPI) -- A Georgia man who stole 50,000 Bitcoin, now worth potentially billions of dollars, from the dark web market Silk Road in September 2012 has pleaded guilty to wire fraud, the Justice Department announced Monday.

James Zhong, 32, admitted Friday to executing a scheme to steal the cryptocurrency from Silk Road, which was a black market that operated from 2011 until 2013 and used to sell illegal drugs and other illicit merchandise, the Justice Department said in a news release.

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The Justice Department valued the 50,000 Bitcoin as being worth more than $3.36 billion, but the amount is now worth just over $1 billion.

Zhong created nine accounts on Silk Road to bombard the platform with a series of transactions, without listing any items for sale, to trick its withdrawal processing system into releasing the Bitcoin into his personal accounts.

Using initial deposits of 200 to 2,000 Bitcoin, Zhong would then quickly execute a series of withdrawals in which he was able to withdraw many times more Bitcoin out of Silk Road than he had deposited.

In one example, Zhong deposited 500 Bitcoin into a Silk Road wallet and less than five seconds later, triggered five nearly simultaneous withdrawals of 500 Bitcoin in rapid succession -- resulting in a net gain of 2,000 Bitcoin.

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The Justice Department noted that after Zhong's initial theft, Bitcoin split into two cryptocurrencies -- Bitcoin and Bitcoin Cash. In the split, any Bitcoin address that had a balance received a matching balance in Bitcoin Cash.

Because Zhong had 50,000 Bitcoin, he received 50,000 in Bitcoin Cash that he then used to purchase an additional 3,500 Bitcoin.

Evidence of Zhong's actions came to light when his home in Gainesville was raided by IRS agents in November 2021, who recovered nearly 50,500 Bitcoin that were stored on computers hidden in an underground floor safe and submerged under blankets in a popcorn tin in his bathroom closet.

Federal authorities also seized an additional $661,900 in cash and 25 Casascius coins, which are a physical cryptocurrency valued at around 174 Bitcoin -- as well as silver and gold bars, which he agreed to forfeit as a part of his guilty plea.

The Justice Department has filed a motion with a related case, United States vs. Ross Ulbricht, to seize the more than 51,000 Bitcoin taken from Zhong.

Ulbricht, the founder of Silk Road, was convicted and sentenced to life in prison in 2015.

"Mr. Zhong executed a sophisticated scheme designed to steal bitcoin from the notorious Silk Road Marketplace," IRS-CI Special Agent in Charge Tyler Hatcher said in a statement.

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"Once he was successful in his heist, he attempted to hide his spoils through a series of complex transactions which he hoped would be enhanced as he hid behind the mystery of the 'darknet.'"

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