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US Announces Historic Seizure Worth $3.36 Billion

Online fraud has been plaguing crypto since the very start of the previous decade. But not all crimes on the dark web go unnoticed, and there are instances where justice prevails. 

This was clear after the US Attorney announced a historic seizure of cryptocurrencies worth $3.36 billion. The seizure was connected to the infamous Silk Road dark web fraud from 2011 to 2013. 

Fast forward to 2022, and the officials seem to be progressing fast. As per the latest events, the US Attorney made one of the most anticipated announcements earlier this week. As per their claim, severe motions are in action to bring the Silk Road accused to light. 

What were the announcements? How might it affect the current market conditions? Continue reading as we explore such aspects in detail in our weblog. 

The Announcement In Detail

United States Attorney for the Southern District of New York, Damian William, along with the Special Agent in charge of the Internal Revenue Service, Criminal Investigation, Los Angeles Field Office, Tyler Hatcher, made a much-anticipated announcement on Tuesday. 

They announced that James Zhong, one of the prime accused in the Silk Road fraud case, pled guilty to committing wire fraud in September 2012. The announcement further read that Zhong obtained more than 50000 Bitcoins from the Silk Road dark web marketplace. He finally pled guilty on the 4th of November, before the United States District Judge Paul G. Gardephe.                

Following this, on 9th November 2021, a judicially approved search warrant was issued for Zhong’s house in Gainesville, Georgia. Following the search, the law enforcement team recovered more than 50000 Bitcoin worth about $3.36 billion making it the largest crypto seizure in the history of the US. 

The Government will now move on to forfeiting the seized Bitcoins along with Zhong’s real estate, 80% holding in RE&D Investmentsd LLC, cash worth $661,900, and other metals recovered from the residence.  

James Zhong’s Role In Executing The Fraud?

Thanks to the transparency of the US legal system, the public has access to the entire scheme Zhong deployed to carry out fraudulent activity. As many might already know, the Silk Road was an online black market commonly known as the darknet. 

The market was operational from 2011 to 2013, when many used it to execute different unlawful activities. Many drug dealers and unlawful vendors leveraged the potential of blockchain technology to distribute illegal goods and services along with many illegal drugs. 

They then used the Silk Road market to launder all the funds without coming under the authorities’ radar. But this ended with the prosecution of Ross Ulbricht, the founder of Silk Road, in 2015. 

Zhong Has Been Into Frauds For Over A Decade

Zhong has long been in the world of scams and fraud. In September 2012, Zhong successfully executed a scheme to defraud Silk Road for its property and money. He created nine Silk Road fraud accounts while ensuring his identity remained hidden. 

He then quickly triggered more than 140 transactions, tricking the Silk Road’s withdrawal processing system. This way, he released more than 50000 Bitcoins from a payment system based on Bitcoin and transferred the same to his account. He finally attempted to keep his identity hidden by transferring the asset to several addresses, preventing detection. 

But the noteworthy detail here is that Zhong did not list any item for sale or service on the marketplace during the same period. Zhong then created a string of fraudulent accounts on the Silk Road with minimal details.   

How Things Overturned For Silk Road

Initially, Zhong funded these fraudulent accounts with an initial deposit ranging between 20 to 2000 Bitcoins. Following these deposits, he quickly withdrew funds through several withdrawals from different addresses. He then used this scheme to withdraw funds repeatedly and even more, than he had deposited in the first place.

Here’s an example of breaking things down for you. In one of those many instances, on the 19th of September 2012, Zhong deposited 500 Bitcoin in a specific Silk Road wallet. Then, five minutes after the deposit, he executed five withdrawals of 500 Bitcoins in just a second. 

This allowed Zhong to get a net gain of 2000 Bitcoins on the spot. Zhong quickly moved his Bitcoins from Silk Road and consolidated them into two valuable amounts. 

But things were only getting better for Zhong, with the individual receiving 50000 Bitcoin Cash for the Bitcoins he previously acquired using unlawful means. This was primarily since August 2017 when Bitcoin went through with a hard fork splitting the crypto into the conventional Bitcoin and Bitcoin Cash (BCH). Following this split, Zhong got 50000 BCH tokens on top of the 50000 BTC tokens he obtained earlier.      

Zhong then quickly exchanged these BCH holdings into BTC through foreign exchange, giving him an additional 3500 Bitcoin tokens. Consequently, Zhong now had 53500 Bitcoins, the total of the crime proceeds.  

What Does This Entire Ordeal Mean For The Crypto Industry Today?

The simple answer to this question would be ‘not much.’ There is no denying that United States law enforcement did a commendable job in successfully arresting the culprit. But that does not mean that the prosecution of Zhong marks the end of fraud in the crypto world. 

Following the Silk Road incident, the crypto industry has experienced unprecedented growth, giving hackers even more opportunities to carry out fraudulent activities.          

Of course, stakeholders in the industry are taking many advanced and modern measures to counter these things. But hackers seem to be a step ahead, as always. This became evident when Binance, the largest crypto exchange in terms of trading volume, lost $570 million through a hack. 

According to Binance, the hackers could do so due to a bug in the smart contract system allowing them to exploit a cross-chain bridge called the BSC Token Hub. Consequently, the hackers successfully withdrew BNB tokens, the native currency of Binance. 

But this is not an isolated incident as Ronin Network, a decentralized finance platform, lost over $600 million due to some vulnerabilities in March 2022. This was primarily due to the compromise of the private keys that serve as unique passwords for protecting crypto funds in a wallet.    

How Have These Events Impacted The Crypto Market?

The fraud on such a massive scale has been unsettling for the crypto market. However, volatility aside, it’s these frauds and executions that affect the positivity of the market. Reports suggest the crypto market lost funds worth $1.9 billion due to the hacking of services in July 2022. 

This amount grew from $1.2 billion during the same period a year back in 2021. This shows that there is still a lot of room for improvement, and the crypto community needs to work together and determine countermeasures to mitigate such losses that can cause a lasting detrimental impact on the crypto market.  

However, with matters finally settling, we might soon witness positivity in the market.

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