Silk Road Hacker Busted: Uncovering Jimmy Zhong's 50,000 Bitcoin Heist

When the FBI shut down the Silk Road marketplace in October of 2013, they seized approximately 170,000 Bitcoinsfrom its founder Ross Ulbricht. However, the total commissions earned by Silk Road was believed to be about 614,000 Bitcoins. So, what happened to rest? Ross Ulbricht is on record saying that the vast majority of these proceeds were reinvested back into the Silk Road, but there has always been suspicions that some of these Bitcoins remained in circulation. Fast forward to November 7^th, 2022, when the U.S. Justice Department revealed they executed a search warrant at the home of James Zhong, uncovering a stash of more than 50,000 Bitcoinswhich he had stolen from Silk Road nearly 10 years prior. These Bitcoins had a value of $3.38 billion dollars at the time they were seized, making it the largest amount of illicit funds ever recovered by law enforcement in terms of dollars. In this video I’m going to take you through the story of James Zhong, covering everything from his humble beginnings as a student at the University of Georgia, the 50,000 Bitcoin heist of Silk Road, his subsequent billionaire lifestyle, and ultimately the mistakes he made which led to him facing jailtime and the seizure of his ill-gotten gains.

The earliest piece of information that we have about James Zhong, is that he began studying at the University of Georgia in 2008 and he was a huge fan of their football team the Georgia Bulldogs. Upon learning of his arrest, a former classmate of James described him as being “relatively smart, but insufferable and arrogant. He was one of those people who just never had their sh*t together and expected people to cater to his ineptitude”. In May of 2011, while still at university, James founded his first company called Bulldog Computer services. Clearly he was a tech savvy person and he would go on to discover Bitcoin later that year as evidenced by his creation of the BitcoinTalk profile mb300sd. We know this is him because the username is identical to that on his now private Twitter profile. James was very active on these forums, contributing some code for interacting with the Mt Gox API, playing games on Bitcoin gambling sites and speculating with other users on the direction of price. In a September 6^th 2011 post, he revealed that at the time he had purchased 6 BTC at $12 and made an additional 4 BTC through mining, little did he know that his stack of Bitcoins would soon grow much, much larger.

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According to documents filed in the United States District Court of Southern New York, it was on September 19^th, 2012, that James Zhong, aged 22, began exploiting a vulnerability in Silk Road’s infrastructure that allowed him to steal Bitcoin from the marketplace. What he discovered was that by depositing an amount of BTC to his Silk Road account and then quickly executing a series of withdrawals for that same amount, the payment processing system would be tricked into withdrawing many times more BTC than had been deposited. For example, James began by depositing 500 BTC to his Silk Road deposit address and less than 5 seconds later he executed 5 withdrawals of 500 BTC each, which resulted in a net gain of 2,000 BTC. While the heist was in progress, James made a commenton a Bitcoin Talk thread speculating about an address belonging to Silk Road. He said he had been studying Silk Road’s built-in mixing service and discovered that they held about 50,000 BTC in their hot wallet. Over a few days and using 9 different accounts, James Zhong would repeat the exploit he discovered until he had completely drained the Silk Road’s hot wallet. These Bitcoins were then run through some coin mixers before being consolidated into 2 addresses, one containing 40,000 BTC and another with 10,000 BTC.

Following the heist, James Zhong appears to have begun a new kind of lifestyle. One that involved a lot of drinkingand partying with his lady friends. Unfortunately his Twitter profile has been set to private, but the pictures posted by his friends clearly show that, with his new found wealth, James was on cloud 9. In April 2013, he even treated himself to a new car; a Mercedes 300SD of which the model number is his Bitcoin Talk and Twitter username. It was around this time that James also purchased a house, located at 139 Ruth Street in Athens, Georgia. You can see the Mercedes 300SD parked in the driveway, Georgia Bulldogs signage on the house, as well as a boat in the backyard which was mentioned by his classmate on the earlier Reddit post. In January 2014, James started property development firm JZ Capital, of which there is sparce information available. It is unknown whether this business was a legitimate operation or just a front to account for all his money.

During this period, James would also enjoy flexing his Bitcoin holdings on the Bitcoin Talk forum under a new account called “Loaded”. He used this account to LARP as a millionaire broker and asset manager, singing from the address that held 40,000 BTC to convince other users on the forum. Loaded regularly talked to himself through the mb300sd account and there is overlap with the known activities of James Zhong. For example, on January 17^th this girl tweeted “one week from today we’ll be on our way to Miami”, tagging James. Then on January 29^th, Loaded mentions that he is still hungover from his trip to Miami. The pictures confirm that he was on a boat with some ladies, and it was lit. Loaded would go on to claim that at one point he was managing over 200,000 BTC for his clients, and that he regularly flew into China on a private jet loaded with US Dollars to buy Bitcoin OTC. But then, over the years, the account became less active and Loaded would only chime in very rarely to let people know that he was either hammered or doing some charlie. But perhaps Loaded’s most notable post was his last, in March 2017, near the height of the block size wars. At this time Bitcoiners were preparing for a chain split between Bitcoin Core and Bitcoin Unlimited, which would have resulted in all BTC holders receiving an equivalent amount of a new coin called BTU. Loaded proposed to Roger Ver, a supporter of Bitcoin Unlimited’s BTU, that they did a 1 to 1 trade where Loaded would receive Roger’s BTC and Roger would receive Loaded’s BTU. Loaded said he was willing to trade at least 60,000 BTC, but possibly up to 130,000 BTC. Roger Ver responded, agreeing to the offer. But after reaching out to Loaded, Roger never heard back and Loaded went AWOL. The reason for Loaded’s disappearance is unknown, but perhaps it has something to do with the fact that some people worked out his coins originated from the Silk Road’s hot wallet and he got spooked. When the hard fork with Bitcoin Cash occurred in August 2017, James Zhong deposited the 50,000 Bitcoin Cash he received to an overseas exchange and converted them to BTC, resulting in the addition of 3,500 BTC to his stack.

After this we know very little about what James got up to before he made some very simple mistakes that resulted in his arrest and him losing billions of dollars’ worth of Bitcoin. It all started in March of 2019, when James reported to authorities that his home on Ruth St was burglarized. While he was out of town, the culprit smashed a rear window on his house to gain access and was then able to steal a briefcase containing $400,000 in cash and a USB stick which probably contained Bitcoins, although Zhong did not admit to this in the police report. He told police that he felt the person who committed the theft knew him, as the briefcase was hidden behind an air vent. Following the theft, James would move to nearby Gainesville. The stolen money was never recovered, however due to the amount of cash in question it had reportedly raised a red flag with the IRS. Investigators with the IRS then learned that a crypto exchange account belonging to James Zhong had interacted with Bitcoin addresses in a way which linked his identity to the Silk Road coins. In September 2019, James deposited 118 BTC to an exchange where he must have been KYC’d. As part of the transaction a small amount BTC from the UTXO was sent to a change address in his wallet. Later, on November 24^th 2020, James split the 10,000 BTC from Silk Road into amounts of 1,000 BTC, each in separate addresses. One of these transactions included the change from his 2019 exchange deposit as an input, thus linking him to the Silk Road Bitcoins and proving that he had control over those addresses. Upon determining that, the IRS Investigators had all they needed to execute a search warrant at Zhongs address.

The raid occurred on November 9^th, 2021 and inside the property investigators found 50,491 BTC, $661,900 in cash, 25 Cassacius coins with a cumulative value of 174 BTC, and a small amount of gold and silver bullion. Most of this was hidden in a safe built into the floor, but some of the Bitcoins were stored on a Raspberry Pi computer found under blankets in a bathroom closet. Later, in 2022, Zhong surrendered further BTC holdings bringing the cumulative amount of BTC seized to 51,351.89. In U.S. dollars this was equivalent to $3,388,017,011.90. Incredibly, throughout multiple bear and bull cycles, the original 50,000 BTC was still fully intact, with a bit extra on top. In the end, it was ironic that despite James Zhong’s attempts to obfuscate the origin of his funds, he was defeated by something so simple. Zhong, who has pled guilty to charges of wire fraud for unlawfully obtaining the Bitcoins from the Silk Road, is facing a maximum of 20 years in prison and is due to be sentenced on February 22^nd, 2023.

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