💰 The Great Bitcoin Robbery
A couple managed to hide Bitcoin worth $4.5 billion for 6 years. Here's the story of how they were finally caught.
Apparently, it's scam season. From India's biggest bank fraud to a yogi ruling the NSE, some pretty big fraud cases have recently come to light.
And that's just in India.
Other much weirder fraud cases like that of Anna Delvey or that of the Tinder Swindler are giving a lot of juice to us to chat about (thanks Netflix!).
But today, we're going to talk about another high stakes fraud that has been ruling the headlines.
The curious case of the Bitfinex scam.Â
Partners in Crime
The Bitfinex scam took place in 2016 when bitcoins worth $72 million (now worth $4.5 billion) were stolen from the Hong Kong-based crypto exchange.
And after six long years, the US government may have finally unearthed the culprits behind the scam: Heather Morgan and Ilya Lichtenstein.
But wait, aren't Bitcoin transactions recorded on the blockchain? Then why did it take so long to catch the culprits?
Well, that's because they didn't use a lot of bitcoin they had stolen.
Yes, a majority of the bitcoin they stole remained parked in the wallet that they had used to steal the money. That wallet had been flagged by crypto exchanges so it couldn't really be used.
So, these two now had to come up with increasingly clever ways to make this illegal money seem legal.
And they did.
They opted to use several crypto exchanges on the dark web to convert their crypto into cash. But soon one of the biggest dark web crypto exchanges AlphaBay was shut down by the FBI. So, they had to be very careful now.
Thus, they designed several different aliases, Ids and crypto-wallets. And then made multiple tiny transactions from one wallet to the other creating a complex chain of small transactions that was incredibly time-consuming to track.
Just imagine if you had to track how a Rs. 5 coin got from the RBI to you!
They also created a number of startups all of which accepted Bitcoin to further convert this black money to white.
And then they contacted several services that convert cryptocurrencies into gift cards.
That's where they screwed up.
Cracking the Code
You see, the authorities had been tracking their bitcoin trail for all this time. They had flagged one cluster of bitcoin addresses that were engaged in suspicious activities but couldn't connect the transactions to the couple yet.
This cluster had conducted transactions worth $7.8 million from February 2019-December 2020!Â
And within these transactions, the authorities found a clue.
As we said, the couple was converting their crypto into gift cards and one such gift card worth $500 was sent to a Russian-registered email. But the transaction was conducted via an IP address linked to a New York-based cloud service provider. Â
This was exactly the breakthrough that the authorities needed. They began connecting the dots and eventually found that the email ID belonged to Lichtenstein.Â
But this was still not enough to connect the couple to the entire scam. And they could have gotten away if they hadn't made an amateur mistake.
You see, Lichtenstein had stored the passwords and keys for all their multiple crypto wallets on his cloud storage account.Â
Wondering what's wrong with that?
The police could easily get a warrant for the cloud storage account and access all their crypto wallets. They basically served all their crypto wallets to the authorities on a silver platter.
That's how the DOJ recovered $3.6 billion worth of bitcoin that was still left in the crypto wallet used for the hack. This is the biggest seizure of cryptocurrency ever made by the department!
However, it is unclear what will happen to this money. Umm, why?
Because when the hack took place, Bitfinex had given special tokens to those who lost money to compensate for their losses. These tokens could either give them shares of Bitfinex's parent company or could be redeemed later for the lost Bitcoin. Many users had no hope for the latter so they opted for the first option. But now that their Bitcoin has been recovered, that too after multiplying almost 40x, they obviously want it back.
It is yet unclear if Bitfinex will return their crypto to them.
And what about the scammers?
The couple, who interestingly has not been accused of theft but conspiracy to launder money, could face 20 years in jail.
Now, there are several interesting facets to this case:
The first being that Heather Morgan, the co-scammer, had written an article for Forbes that advised how to protect your business from cybercriminals. How ironic!
Secondly, the case has made it abundantly clear that crypto may be difficult to track but not impossible. So, criminals need to be wary about conducting crypto scams in the future or using cryptocurrency for money laundering.
Thirdly, it has started a conversation about whether or not cryptocurrencies are actually private or not. And if they aren't is that a good thing or a bad thing?
Well, private and largely untraceable cryptocurrencies also exist and are largely being used by criminals but that's a conversation for another day.
Right now, we're looking forward to the movie that Netflix is going to make on this weird and wacky couple.
Let us know what you feel about the whole cryptocurrencies being traceable debate on Twitter.
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