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The US Cracked a $3.4 Billion Crypto Heist - and Bitcoin's Anonymity (wsj.com) 59

Federal authorities are making arrests and seizing funds with the help of new tools to identify criminals through cryptocurrency transactions. From a report: James Zhong appeared to have pulled off the perfect crime. In December 2012, he stumbled upon a software bug while withdrawing money from his account on Silk Road, an online marketplace used to hide criminal dealings behind the seemingly bulletproof anonymity of blockchain transactions and the dark web. Mr. Zhong, a 22-year-old University of Georgia computer-science student at the time, used the site to buy cocaine. "I accidentally double-clicked the withdraw button and was shocked to discover that it resulted in allowing me to withdraw double the amount of bitcoin I had deposited," he later said in federal court. After the first fraudulent withdrawal, Mr. Zhong created new accounts and with a few hours of work stole 50,000 bitcoins worth around $600,000, court papers from federal prosecutors show.

Federal officials closed Silk Road a year later on criminal grounds and seized computers that held its transaction records. The records didn't reveal Mr. Zhong's caper at first. Authorities hadn't yet mastered how to track people and groups hidden behind blockchain wallet addresses, the series of letters and numbers used to anonymously send and receive cryptocurrency. One elemental feature of the system was the privacy it gave users. Mr. Zhong moved the stolen bitcoins from one account to another for eight years to cover his tracks. By late 2021, the red-hot crypto market had raised the value of his trove to $3.4 billion. In November 2021, federal agents surprised Mr. Zhong with a search warrant and found the digital keys to his crypto fortune hidden in a basement floor safe and a popcorn tin in the bathroom. Mr. Zhong, who pleaded guilty to wire fraud, is scheduled to be sentenced Friday in New York federal court, where prosecutors are seeking a prison sentence of less than two years.

Mr. Zhong's case is one of the highest-profile examples of how federal authorities have pierced the veil of blockchain transactions. Private and government investigators can now identify wallet addresses associated with terrorists, drug traffickers, money launderers and cybercriminals, all of which were supposed to be anonymous. Law-enforcement agencies, working with cryptocurrency exchanges and blockchain-analytics companies, have compiled data gleaned from earlier investigations, including the Silk Road case, to map the flow of cryptocurrency transactions across criminal networks worldwide. In the past two years, the U.S. has seized more than $10 billion worth of digital currency through successful prosecutions, according to the Internal Revenue Service -- in essence, by following the money. Instead of subpoenas to banks or other financial institutions, investigators can look to the blockchain for an instant snapshot of the money trail.

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The US Cracked a $3.4 Billion Crypto Heist - and Bitcoin's Anonymity

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  • Pseudo-anonymous. (Score:5, Informative)

    by Ostracus ( 1354233 ) on Thursday April 13, 2023 @04:07PM (#63447542) Journal
  • Gee, I wonder what will happen to the $3.4 billion in bitcoin? No doubt where the US Justice Department's prosecutorial priorities are.
    • Greed was the downfall. Again.

      He should have converted it real money in a bank account in the Bahamas then disappeared to lead a life of cocaine and hookers.

      Now he's looking at two years of violence before being thrown out on the street with nothing but a criminal record to his name.

      How do people not understand this simple concept?

    • They will simply auction it off. That's what they've done previously

  • by TheBlackMan ( 1458563 ) on Thursday April 13, 2023 @04:52PM (#63447692)

    - Bitcoin was never anonymous, it was pseudonymous. As long as you are only a pseudonym, they cannot find you. But the moment you make a mistake and link your pseudonym to your real identity, your anonymity is over
    - There are other money-like coins that have more anonymity than BTC, like Bitcoin Cash which has Cash Fusion and Monero which has black-box anonymity
    - Due to high fees, it became unfeasible to have any pseudonimity on BTC blockchain, since about 2015. This is the reason another project was branched off and forked, called Bitcoin Cash, which is basically Bitcoin but working like BTC did in 2015 and has significantly better fungibility, anonymity and money-like values due to low fees which enables mixing

    Author of the article has some reading to do I guess.
    • Nobody in their right mind treats BTC as anonymous these days.

    • Please elaborate on the 2015 changes, and what makes block chain not anonymous beyond the need for signatures to stop the double spend? (Assuming all signatures are with single use private keys.)

  • Private and government investigators can now identify wallet addresses associated with terrorists, drug traffickers, money launderers and cybercriminals, all of which were supposed to be anonymous.

    Satoshi may or may not have been a US intelligence agency, but the idea that Bitcoin was ever anonymous had to have been an intentional psyop. That strange belief was kept alive far longer than it should have survived after the earliest busts started.

    • It's the "can't happen to ME" syndrome...

    • The btc paper says:

      The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the "tape", is made public, but without telling who the parties were.

      Definition of public may not include cops. The example is clear, random people can't know who is trading on stock exchange, feds or the exchange owners can.

    • See also TOR.

      Cops have been steadily arresting pedos using TOR for a long time now. Combination of traffic analysis and compromised hosts deploying torbrowser zero days I assume.

  • by Arethan ( 223197 ) on Thursday April 13, 2023 @05:21PM (#63447752) Journal

    https://www.federalcharges.com... [federalcharges.com]

    According to US Code 18 Section 3282, the statute of limitations for the majority of crimes is five years.

    This is not one of the excluded charges.

    Crime committed in Dec 2012. It is now well into 2023. Go fuck yourself with a screwdriver. I hope he uses his money for literally anything he wants -- he earned it.

    • Keyword, "majority of crimes"

      He's charged with wire fraud. IN certain situations, the statute of limitation is 10 years.

      The first instance of the crime was in December 2012, but his activities continued into 2013.

      Finally, federal statute of limitations were extended for at least 76 days due to COVID.

      So early 2013, plus 10 years is early 2023, plus another 3 months and... welp! Too bad, so sad.
      =Smidge=

    • by Jeremi ( 14640 )

      I hope he uses his money for literally anything he wants -- he earned it.

      This is a usage of the word "earned" that I haven't heard before. Is ripping off your drug dealer considered honest labor now?

  • That is just one more of the lies used to push it.

    • Bitcoin 101: "Immutable ledger recording every transaction since the beginning".

      If at any point past, present, or future your identity is linked to a transaction, that can be traced through the ledger to see everything you ever did. ...So yes, just another of the many lies the cult pushes.

      • by gweihir ( 88907 )

        Indeed. You would think that having the full transaction history available to everybody is a big red flag. But apparently for many people that is already too complex to understand.

  • by sapgau ( 413511 ) on Thursday April 13, 2023 @05:40PM (#63447800) Journal
    My impression was that Bitcoin, to remain anonymous, you need to trade it online for other goods and services. The moment you want to cash in on your Bitcoins you end up at an exchange where they get to know something about you in order to give you cash.

    And what this article shows is that the government can weigh in on these exchanges to get information about transactions and identities.
    • No it in anonymous until you use it at all, for example if you buy from amazon (if amazon takes bitcoin) and amazon knows your name/address then the government can get that information. Or use it at local bar, they get the time and go get video footage and narrow it down a lot, do it 2 or 3 times assuming bitcoin use is popular they will have you. If you are just trading bitcoin you are probably fine as.

      • by PPH ( 736903 )

        for example if you buy from amazon (if amazon takes bitcoin) and amazon knows your name/address

        It's called a "dead drop". Of course if you have contraband delivered to your home address, the jig is up.

        Many years ago, I lived in an apartment building with a bunch of mailboxes out front. It wasn't very long before I realized that they had more mailboxes than apartments. And some people I didn't recognize as tenants would drive up, pick up some mail and leave.

  • Wait, so the DOJ is prosecuting for this guy hacking Silk Road? Long after the activity and when the Silk Road owners didn't go after the hacker. Seems kinda odd.
    • by caseih ( 160668 )

      Yeah I was just thinking that. So this guy steals money from other crooks, where it likely was laundered from ill-gotten gains. And charged with fraud? Not something to do with money laundering or possession of stolen merchandise? Interesting.

    • That's because the US was owner and operator of Silk Road the whole time.
  • by imunfair ( 877689 ) on Thursday April 13, 2023 @07:16PM (#63448082) Homepage

    prosecutors are seeking a prison sentence of less than two years.

    The light sentence is just a formality to justify shaking the dude down for $3.4 billion. Quite the heist, and perfectly legal if they can get a conviction.

  • Anonymous web anything is a total impossibility given the rise of camera presence and connection monitoring. Just as arms will always defeat armor, so will governments defeat anonymity. Itâ(TM)s just a matter of relative value.

  • These posts are usually drowning in "bitcoin is anonymous" comments. Pretty hilarious to watch all you flip your narrative so quickly when the headline cuts straight to how incorrect you all were all these years.

    Dear reader, search the /. archives before you waste your votes

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