Man Who Stole BRL 7.5 Billion Bitcoin Has Been Sentenced In US

  • James Zhong was only 22 years old when he stole more than 50,000 bitcoins from Silk Road in 2012;
  • At that date, the amount was worth R$1.2 million, but today it is valued at R$7.5 billion;
  • Despite being one of the largest arrests in the US, Zhong will only serve 1 year and 1 day in prison.

Platforms that worked like Bitcoin were not safe at all in the early days of cryptocurrency. A good example of this was the method used by James Zhong to steal more than 50,000 bitcoins from Silk Road, a market where various illegal products could be found.

Basically, the government says Zhong deposited 500 bitcoins on the site, but managed to withdraw five times the same amount while taking advantage of double withdrawal failures.

That is, the American deposited 500 bitcoins, but withdrew 2,500, effortlessly earning 2,000 BTC. Realizing his attack had worked, the 22-year-old emptied Silk Road’s wallets in 2012.

Since Bitcoin was trading for just $12 at the time — and the dollar was worth BRL 2 — Zhong got BRL 1.2 million worth of Bitcoin. However, the American did not sell his cryptocurrencies and became a billionaire in the years that followed.

On the date of the attachment, November 9, 2021, the amount was estimated at BRL 17 billion. It was the largest U.S. confiscation to date, surpassed in subsequent months by the arrests of Ilya Lichtenstein and Heather Morgan.

In addition to the values, the place where this fortune also received attention: in a popcorn can. The US has also seized silver and gold, physical Bitcoin coins and cash.

bitcoin popcorn can
Popcorn can where authorities found hardware containing about 50,000 bitcoins. Source: DOJ.
can of popcorn with bitcoins
Hardware was wrapped in a blanket in the popcorn can. Source: DOJ.
can of popcorn with bitcoins
Hardware in the popcorn can, worth BRL 7.5 billion worth of Bitcoin. Source: DOJ.

James Zhong flaunted his wealth on social media

Via Bitcointalk, a forum created by Satoshi Nakamoto, Jamez Zhong bragged about his stolen fortune. In his signature, the American described himself as one “Bitcoin Multimillionaire”.

Jamez Zhong on Bitcointalk
Profile of James Zhong on Bitcointalk, where he identified himself as “Loaded”. In the spotlight, the American described himself as a “Bitcoin multimillionaire”.

“I own address 1BqcwhKevdBKeos72b8E32Swjrp4iDVnjP with 40,000 coins”Zhong wrote in 2012 while introducing himself to other members.

Later in 2017, Bitcoin went through a major ideological war over what the block sizes should be. Zhong then used his stolen coins to pin down Roger Ver, owner of the Bitcoin.com website, and Jihan Wu, founder of Bitmain. The two were strong supporters of Bitcoin Cash (BCH), which was then called Bitcoin Unlimited (BTU).

“Roger Ver, let’s make a deal. At least 60,000 (bitcoins), my BTU for your BTC”Zhong wrote in 2017. “The offer is also open to Jihan Wu.”

Apparently, no one accepted Zhong’s offer. However, the American quickly sold all his BCH after receiving them and turned them into 3,500 BTC.

James Zhong Arrested, Bitcoins Seized, Convicted

It remains unclear whether the above reports played a role in the investigation that led to James Zhong’s arrest. Another hypothesis that was raised was the use of brokers, after all, the traces of bitcoin transactions are eternal.

Speaking to the Protos portal, U.S. Lieutenant Shaun Barnett revealed that in 2019, Zhong called the police to report the theft, reported the loss of “too many bitcoins”.

That is, perhaps Zhong was confident that he would never be arrested for his crime as seven years had passed, but his call to the police may have prompted the investigation that led to his arrest.

In a note published this Friday (14), the US government revealed that James Zhong was sentenced to a year and a day in prison for stealing more than 50,000 bitcoins.

Since Zhong could have received a maximum sentence of 20 years, the sentence was light. The reason for this may be related to his cooperation with the authorities.

“From March 2022 or thereabouts, Zhong began voluntarily handing over additional bitcoins that he had access to. In total, Zhong voluntarily handed over another 1,004.14621836 bitcoins.”

After all, in addition to seizing 80% of the company RE&D Investments, US$661,900 in cash, various silver and gold bars, 25 physical bitcoin coins and 50,491 bitcoins found in a popcorn can, Zhong also supplied, on his own account, several bitcoin batches, under which:

  • 825,38833159 bitcoins on March 25, 2022;
  • 35.4470080 bitcoins on May 25, 2022;
  • 23.7112850 bitcoins on April 27, 2022;
  • 115.02532155 bitcoins on April 28, 2022;
  • 4.57427222 bitcoins on June 8, 2022.
James Zhong's vault
James Zhong’s vault, containing cash, gold and silver, and physical Bitcoin coins. Source: DOJ.
cash and gold and silver by James Zhong
Police found more than half a million in cash, plus gold and silver in James Zhong’s house. Source: DOJ.
physical bitcoin coins from James Zhong
Physical Bitcoin coins from the Casascius collection, considered the rarest and most valuable, were also seized. Source: DOJ.

On-chain data indicates that James Zhong was the 15th largest Bitcoin holder in the world with his 50,000 bitcoins, but all indications are that he is now at zero.

The US government has already started liquidating the 50,000 bitcoins that belonged to Zhong

In a document published last month, the US government confirmed the sale of 9,861 BTC (R$ ~1.5 billion). The note also stated that another 41,490 BTC linked to Zhong would be sold in four lots, but only after the release of the penalty, which happened this Friday (14).

That is, now the US is free to deposit this R$6.25 billion. However, Bitcoin continues to rise, fearless of this selling pressure.

Finally, James Zhong’s short sentence may also spark discussions about the arrest of Ross Ulbricht, founder of Silk Road, who faces life in prison. While they are different crimes, it is possible that the recovery of this 50,000+ BTC linked to Silk Road will somehow be used by Ulbricht’s defense.

Source: Live Coins

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