Bitcoin: More than $10 billion of criminal origin recovered by the American police who track all the participants via the central registers

James Zhong seemed to have pulled off the perfect crime. At least he thought so for a few years… In December 2012, he came across a software bug by chance while withdrawing money from his account on Silk Road, an online market place renowned for hiding criminal exchanges behind the seemingly ironclad anonymity of the dark web and online transactions blockchain. Mr. Zhong, then 22 years old and a computer science student at the University of Georgia, used this site to buy cocaine.

“I accidentally double-clicked the withdrawal button and was stunned to find that it allowed me to withdraw double the amount of bitcoins I had deposited,” he later told a crowd. federal court. After this first fraudulent withdrawal, Mr. Zhong created new accounts and thus stole in a few hours some 50,000 bitcoins worth at the time about 600,000 dollars, according to the investigation file of the federal prosecutors. A year later, federal authorities closed Silk Road on criminal grounds and seized computers containing transaction records. The latter do not immediately reveal Mr. Zhong’s scheme.

At the time, the authorities did not master the techniques allowing them to find the people and groups who were hiding behind the addresses of the wallets of the blockchain, this series of numbers and letters used to send and receive cryptocurrencies anonymously. In fact, one of the essential interests put forward by the system is precisely the confidentiality it offers to its users. For eight years, Mr. Zhong moved stolen bitcoins from one account to another in order to cover his tracks. In the meantime, the crypto-currency market has become boiling to the point of increasing the amount of its jackpot to… 3.4 billion dollars at the end of 2021! He still lives in a modest home in Athens, Georgia, and dresses in shorts and T-shirts. But he also owns a lakeside getaway house in Gainesville, Georgia, a Lamborghini sports car and a $150,000 Tesla.

In November 2021, federal agents surprise Mr. Zhong by showing up with a search warrant. They find the digital keys to his crypto fortune hidden in a safe in the basement and in a box of popcorn in the bathroom. Having found guilty of wire fraud, Mr. Zhong was sentenced to a year and a day in prison on Friday by federal court in New York. Prosecutors were asking for a prison term of less than two years Mr. Zhong’s case is one of the brightest examples of how federal authorities have pierced the veil of the transactions of the blockchain.

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In the past two years, the United States has seized more than $10 billion in digital currency in successful lawsuits that literally consist of following the money, according to the US IRS, the Internal Revenue Service (IRS). Instead of subpoenaing banks or other financial institutions, investigators can look directly at the blockchain to get a snapshot of the money trail. Government department investigators are exploiting a feature of bitcoin and many other digital currencies that every transaction is stored forever in the blockchain’s online transaction ledger for anyone to view. Since Mr. Zhong’s theft, authorities and private companies have built up the equivalent of a directory of addresses on the blockchain to help the IRS, FBI, local and state authorities investigate cyber crimes.

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When bitcoins are stolen, the criminal now finds himself “in the position of a guy who robbed a bank in the snow”, supports Matthew Price, a former investigator for the IRS who now leads investigations for the platform. Binance exchange. Although the name of the criminal may not be known at first, authorities can follow his digital tracks as well as footprints in the snow. Federal investigators thus resorted to techniques for tracing the blockchain to shut down a child pornography site, block funding for terrorist organizations and recover a whopping $3.6 billion from a New York couple accused of laundering the proceeds of the 2016 hack of the platform Bitfinex exchange, the largest financial seizure to date by the US Department of Justice. With each case, new accounts are added to the address book of the blockchain of the government. These advancements make it harder for criminals to convert their loot into cash. Once authorities release wallet addresses linked to scammers, no legitimate cryptocurrency exchange wants to do business with them for fear of legal consequences.

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