Police body camera footage shows the Silk Road hacker opening a laptop with thousands of Bitcoins (BTC) on it in front of federal investigators, without realizing he was incriminating himself.
James Zhong was charged by the US government last year with stealing more than 50,000 BTC from the illegal online marketplace Silk Road in 2012.
In 2019, after his house was broken into, Zhong called the police to inform them, despite mountains of incriminating evidence lying around his house. Zhong revealed over the phone that he was a Bitcoin investor, putting him on researchers’ radar.
At the same time, the IRS Criminal Investigation unit was painstakingly trying to solve the 2013 Silk Road hack, analyzing details of the paper trail in the chain.
Ultimately, a researcher from the blockchain analytics firm Chainalysis, who was hired by the government, noticed that an address associated with the Silk Road hacker accidentally performed a know-your-customer (KYC) routine with a crypto exchange, revealing Zhong’s name and house. address months after his 911 call.
With the help of Shaun MaGruder, CEO of a cyber intelligence firm BlockTrace, the IRS created a plan to enter Zhong’s home and talk to him under the auspices of investigating the burglary he had previously reported.
Once inside, Zhong made the grave mistake of telling investigators that he was a “Bitcoin OG” and that he had 1,500 BTC on one laptop, which he then showed to investigators on camera.
Says MaGruder of BlockTrace,
“And lo and behold, he had $60 or $70 million in Bitcoins right next to us…”
It was also revealed that Zhong was one of the early contributors to Bitcoin’s development, routinely posting advice and suggestions on online forums on how to improve the Bitcoin protocol.
Investigators returned the next day, still under the pretense of helping him, but instead executed a search warrant.
Using a dog trained to find computer hardware, the agents found the wallets containing the addresses of the 50,000 BTC, once worth more than $3 billion, in a vault buried in concrete beneath Zhong’s basement floor.
Zhong was sentenced to a year and a day in prison for his role in the Silk Road hacking incident.
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Shutterstock/Konstantin Faraktinov
