Where would you hide $3.4 billion worth of Bitcoin? For James Zhong, the ideal spot was to store it on a computer — with its circuitry exposed — placed in a used Cheetos popcorn tin hidden in a bathroom closet under a pile of blankets.
Zhong, now 32, was sentenced to a year in federal prison last month for a hack that took place almost 11 years ago. His victim? Ross Ulbricht, the proprietor of the Silk Road dark web drug marketplace where Bitcoin found its first significant use case, as an underground currency. Today, Ulbricht is himself serving two life sentences plus 40 years for his part in operating the illegal marketplace, but darknet markets continue to flourish.
Somewhat ironically, billionaire Zhong was caught due to a transfer of just $1,000 worth of BTC to an address he’d used previously.
Lifestyle of a crypto billionaire
How much is $3.4 billion? One could build another Burj Khalifa — the world’s tallest tower, located in Dubai ($1.5 billion) — and make the winning bid on Leonardo da Vinci’s “Salvator Mundi” — the most expensive painting ever sold ($450 million) — and still have over a billion left over to purchase a sports team, yacht and fleet of private jets. It’s almost beyond comprehension.
But Zhong lived in the American city of Gainesville, Georgia, where around $1 million is enough to purchase the luxurious four-bedroom lakefront property he called home. According to some sources, gaining attention from women was among the key motivations of Zhong — who is autistic and was reportedly bullied in school. Court documents hint at his lavish lifestyle:
“Indeed, in the 51 months before law enforcement’s overt search of Zhong’s residences, Zhong dissipated approximately $16 million of crime proceeds, spending lavishly on real estate investments, luxury products, travel, hotels, nightclubs, and other expenses.”
If his online posts are anything to go by, Zhong can also be said to have been something of a party animal, using cocaine on weekends and bragging about being drunk while keeping an eye on the markets. Perhaps this comes with the territory of stealing billions from a drug kingpin.
All this was presumably financed with the roughly 2,900 BTC that the government did not recover from his theft. Zhong stole 50,000 BTC and converted his free Bitcoin Cash into another 3,500 BTC. However, only 50,591 BTC was seized.
Silk Road
Where did all this begin? Possibly with a Bitcointalk user named Teppy, who in June 2010 made a post titled “A Heroin Store” outlining “a thought experiment about how a heroin store might operate, accepting Bitcoins, and ending drug prohibition in the process.” The post connected Bitcoin to libertarianism and suggested that this would enable the new currency to become “truly disruptive.”
It was a cutting-edge concept. “Pizza Day,” which saw Bitcoin exchanged for real-world goods for the first time — a pair of pizzas for 10,000 BTC — had happened just three weeks prior.
Eight months later, in February 2011, Silk Road opened for business in the hidden back alleys of the web. “To access the Tor dark web, users need to download special software,” explains Ethan Lou, an occasional Magazine contributor and the author of Once a Bitcoin Miner. He speaks from experience. Tor, he notes, has many legitimate uses for those who value privacy, including leaking information to the press.
“It’s pretty easy if you have some basic tech know-how. Once you get in, you see that it looks like the internet from the 1990s.”
Sellers could list their items for sale on Silk Road, and the website would hold funds in escrow until items were received by the buyer, who could rate the item and seller. Often, administrators would adjudicate disputes. In months, the site grew to host over 10,000 listings of controlled substances, eventually processing around 1.5 million transactions. One early user was podcaster Peter McCormack, who called it “Amazon for drugs” and told Magazine how he wound up in hospital after three grams of cocaine arrived one day and he got carried away — literally, in an ambulance.
Authorities close in
By June, U.S. Senators Chuck Schumer and Joe Manchin had written to the attorney general and the Drug Enforcement Agency, demanding they take action against the marketplace.
Some of those actions were off-the-books, such as those by DEA Special Agent Carl Mark Force IV, the “lead undercover agent” who in 2015 was sentenced to 6.5 years for various crimes connected with the case. This included demanding exchanges freeze BTC accounts in order to withdraw the coins for himself as well as…
cointelegraph.com