U.S. Court Finalizes 2020 Seizure of $3 Billion in Bitcoin

Federal government finalizes ownership of more than 69,000 bitcoin from the Silk Road. Huge volumes of decade-old Bitcoin remain dormant.

Some ten years after the closure of the Silk Road, a U.S. court has given the federal government a final green light to seize 69,370 bitcoin stolen from the Silk Road by an anonymous hacker.

This judgment was made on December 10, 2023, in a U.S. District Court of Appeals in San Francisco. It lists former Silk Road proprietor Ross Ulbricht as the sole defendant, and specifies that there are multiple private claimants against him in addition to the federal government. Ulbricht was initially arrested in San Francisco, hence why the Ninth District Court took jurisdiction over the case. The Court declared that a previous judgment of August 18 will now take effect, and that “this constitutes the formal mandate of this Court” to seize nearly $3 billion worth of bitcoin. However, the actual story behind these assets is fairly more complicated than the legal brief might imply. 

For starters, the actual funds in question have not been the property of Ross Ulbricht or the Silk Road in quite some time — or ever. The Silk Road was an online marketplace, the first iteration of a darknet market using digital currency, and it was active during Bitcoin’s early days. It peddled a variety of goods and services, but especially it served as a black market for illegal items —  in particular an immense selection of narcotics. At its peak, the Silk Road was responsible for nearly 20% of the entire economy of bitcoin transactions worldwide, dealing in tens of millions of dollars at a time when a single bitcoin was worth less than $30. However, the site was shut down after a government sting operation in 2014, and the Bitcoin economy grew in other directions.

Source

The federal government has been seizing assets associated with the Silk Road for years, making headlines in 2019 when it seized 50,000 bitcoin from Silk Road hacker Jimmy Zhong. This bitcoin was only vulnerable to seizure because of theft, however. Due to the fact that all Bitcoin transactions are recorded on an open, public blockchain, analysts have determined that more than 370,000 bitcoins from the Silk Road still exist in various dormant wallets. The government is easily the world’s largest single holder of Bitcoin due to its seizures of this nature, holding some 200,000 bitcoin from various criminal sources, yet there are far more extant funds from this one business alone than the sum total of years’ worth of federal seizures. 

It’s a similar circumstance that enabled the federal government to make a seizure of this current bitcoin stockpile. These coins were stolen by an anonymous hacker referred to as “Individual X,” using a series of piecemeal transactions before the site’s closure. He kept them dormant from 2015 to 2020, but his decision to move some of the bitcoin that year put him on the government’s radar. A document from the San Francisco District Court made the additional claim that “Ulbricht became aware of Individual X’s online identity and threatened Individual X for return of the cryptocurrency to Ulbricht,” adding that “Individual X did not return the cryptocurrency but kept it and did not spend it.” 

It is unclear how exactly the imprisoned Ulbricht’s knowledge of the hacker’s identity factored into the resulting events, but Individual X ended up surrendering the 69,000 bitcoin to the federal government in exchange for continued anonymity and immunity from prosecution. His identity is known to law enforcement agencies, but the public has zero details. The imprisoned Ulbricht agreed to relinquish his claim on this stolen property in lieu of paying off a court-ordered debt, and for this reason he is listed as the defendant on these new judgments. His debts may be paid off thanks to these agreements, but Ulbricht remains incarcerated for life, a fact which the Bitcoin community as a whole considers a gross miscarriage of justice. Years of advocacy on his behalf have led major candidates in multiple presidential elections to voice their support, but as of yet his situation remains static.  

Interestingly, this is not the only case from a decade-old Bitcoin hack to see new developments this December. Mt. Gox was a Japanese exchange founded one year before the Silk Road, and closed one year afterwards. It enjoyed a dominant position in the world of Bitcoin exchanges that is truly unimaginable now, handling more than 70% of all trading volume at its peak. However, after a hack of hundreds of millions of coins that took place under dubious circumstances, Mt. Gox’s fall from grace was sudden and complete. 

Nearly one decade later, the exchange began honoring the agreements with these defrauded users as it began making payouts on December 26th. The exchange was able to recover some 20% of stolen funds, but its self-imposed deadline to actually repay customers has been subject to delay. Even these long-awaited reimbursements have seen some immediate difficulties. It was reported soon after that some of these recipients were accidentally double-paid, prompting Mt. Gox trustees to ask for half of the money back. Thankfully, Mt. Gox has offered their users the option of accepting reimbursement through bitcoin or several forms of fiat, and only PayPal recipients have experienced problems of this nature. 

The important takeaway from these events is the immense shadow that Bitcoin’s past can cast over its future. Even when the industry was small and a single bitcoin was worth less than one one-thousandth of its current value, the innovators of the early 2010s still operated businesses that dealt with hundreds of millions of dollars. Now that Bitcoin has grown up, these funds that were immense at the time have turned into behemoths with the power to drastically change the ecosystem. Even now, speculation has begun that a full reimbursement from Mt. Gox could shake up the whole ecosystem. Furthermore, although the federal government has claimed that it liquidates its seized bitcoin as fast as the process will allow, the 69,000 bitcoin from Individual X entered government custody three years ago. Only now has the formal transfer been completed, and the sales process has not begun in any capacity.

More than 300,000 bitcoins from the Silk Road remain dormant in various wallets, and the vast majority of 850,000 from Mt. Gox is in a similar state. At today’s prices, we are discussing tens and tens of billions of dollars that could spring back into relevance at any moment. Individual X moved funds after sitting on them for years, and now the gears are turning to bring $3 billion back into general circulation. And all the while, their value is growing and growing alongside Bitcoin’s success. It’s important for Bitcoiners today to be aware of their history, because we’re moving towards a future where trillions sleep right under our noses. Anything can happen.