The United States government seized more than $1 billion in bitcoins related to the shut down darknet website Silk Road. It is suing for the funds to be formally forfeited.
The Bitcoin seizure case is the largest cryptocurrency seizure in world history, and it explains why so many bitcoins exchanged hands this month. Financial analysts had noticed the large transfer on the public blockchain and said it was either because a Silk Road conspirator had tried to cash out, or because the coins had been stolen by cyberhackers.
Instead, the DOJ reported it found the real holder of the bitcoins, an individual it terms ‘Individual X,’ through their efforts to liquidate some of the money five years ago. The criminal complaint states that in April 2015, the account sent 100 bitcoin to a company called BTC-e that offers bitcoin-related services and ran as a cryptocurrency exchange without a license.
Silk Road – A Notorious Online Criminal Marketplace
US Attorney David Anderson said that Silk Road was one of the largest online criminal marketplaces before it was shut down. Anderson added that the prosecution of the founder of the site – Ross Ulbricht – in 2015 left a billion-dollar question. Where did all the money go? The forfeiture complaint this week answers the question in part. Approximately $1 billion of those illegal proceeds are now in the US government’s hands.
The complaint states that Individual X never worked with Silk Road. Instead, he or she was able to hack into the site and obtain illegal and unauthorized access to the website. The person then stole the illegal cryptocurrency from the site and moved it into virtual wallets that Individual X controlled.
According to the federal investigation, Ulbricht found out Individual X’s identity and threatened the person to return the bitcoins. However, Individual X did not give the cryptocurrency back. They simply kept it and never spent it.
United States of America vs. Approximately 69,370 Bitcoin
The complaint is officially titled, in part ‘United States of America vs. Approximately 69,370 Bitcoin,’ and requires the Department of Justice to prove that the cryptocurrency it seized is subject to forfeiture. This means the department must prove the funds are the proceeds of a crime.
“Criminal proceeds should not stay in the hands of the thieves,’ says IRS criminal investigator Kelly Jackson. Through the IRS’s expertise in following the funds, they were able to track down the tens of thousands of Bitcoins. The cyber crimes unit in Washington DC has specialized training in tracking down virtual currency transactions.
Blockchain Analysis Company Chainalysis Helped Government Investigation
Chainalysis stated that IRS agents used their company to study Bitcoin transactions that were performed by Silk Road. It found 54 undetected cryptocurrency transactions that indicated illegal activity. The company also found Individual X had stolen those funds from Silk Road.
Chainalysis data showed that Silk Road accounted for almost 20% of Bitcoin activity at its high point in 2013. The economic activity for Silk Road hit $435 million total in September 2013.
The seizure of $1 billion is equal to the value of all cash and all cash equivalents the US government seized in 2015.
References
US Seizes $1 Billion in Bitcoin Linked to Silk Road Site. Accessed at https://www.theguardian.com/technology/2020/nov/06/us-seizes-1bn-in-bitcoin-linked-to-silk-road-site
Bitcoin Seized From Silk Road Founder. Accessed at https://www.cnn.com/2020/11/06/business/bitcoin-seized-silk-road-ulbricht/index.html