From an early Bitcoin developer to one of the biggest Bitcoin hackers – Zhong’s magical life

Zhong The Fascinating Journey of an Early Bitcoin Developer turned Masterful Bitcoin Hacker

Author: Eamon Javers, LianGuaiige Tortorelli, CNBC; Translation: Song Xue, LianGuai

• In 2012, someone stole 50,000 bitcoins from the illegal dark web marketplace Silk Road. Over time, the stolen bitcoins’ value skyrocketed to over $3 billion, making it one of the biggest mysteries in the cryptocurrency world for years.

• Nearly a decade after the 2012 hacking incident, the thief made a grave mistake, leading to the IRS-CI cracking the case.

• CNBC obtained unprecedented clues showing how investigators connected the thief to the cryptocurrency theft.

  • Does the team’s actions really have an impact on the price of the coin?
  • The horn of Grayscale’s victory against the SEC is about to sound, what can we expect next?
  • Optimism Soaring as Bitcoin ETF Approval Hopes Rise

Athens, Georgia, is home to the University of Georgia, and the local police there frequently deal with crimes related to the college town, such as burglaries, bar fights, and various disturbances. However, on the evening of March 13, 2019, they received a 911 call unlike anything the Athens-Clarke County Police Department had ever encountered.

On the other end of the line was 28-year-old Jimmy Zhong, a local party boy and a University of Georgia alumnus who frequented the bars in Athens. Unlike other troublemakers in town, Zhong was also a computer expert, with an exceptionally powerful digital home surveillance system.

Now, he was calling to report the theft of hundreds of thousands of dollars’ worth of cryptocurrency from his home. The thought of losing his money left Zhong feeling extremely uneasy.

In March 2019, someone broke into Zhong’s home by smashing a window.

“I was in a panic,” Zhong told the dispatcher, and CNBC obtained a recording of the call.

Zhong declined the ambulance offered by the dispatcher and began trying to explain the situation. “I’m an investor in Bitcoin, which is an online thing,” he said.

What happened next brought an end to nearly a decade of investigative work and solved one of the biggest crimes of the cryptocurrency era. It also led to the largest-ever seizure of cryptocurrency by the U.S. Department of Justice.

That winter night, Zhong’s emergency call set investigators on a long trail of digital breadcrumbs, tracing back to the early days of Bitcoin and uncovering the dark truths behind the hackers and programmers responsible for creating cryptocurrency. It was a world of heroes and villains swapping places, and possibly even the same person.

But things wouldn’t go as Zhong had hoped.

The 911 call didn’t identify any suspects in the Zhong home theft. The police were dealing with their first cryptocurrency case and, unfamiliar with this dark world, struggled to make progress on the investigation.

Therefore, Zhong turned to local private detective Robin Martinelli for help, who owns and operates Martinelli Investigative Services near Loganville, Georgia.

Robin Martinelli, owner and private detective of Martinelli Investigative Services.

Martinelli was formerly a sheriff’s deputy who later became a PI, but she is far from an expert in the cryptocurrency field. She specializes in litigation support, infidelity spouse investigations, and custody investigations, which have landed her company on an episode of “The Montel Williams Show.”

Martinelli recently underwent an amputation surgery, allowing her to conduct surveillance operations with the help of a prosthetic limb.

Nevertheless, she remains motivated to solve Zhong’s case.

In an interview with CNBC’s documentary “Cryptocurrency 911,” Martinelli said, “When you wake up and no longer have two feet on the ground but still need to run a company, you have to go out and give it your all.”

She first examined the reliable surveillance video footage from Zhong’s home. When reviewing the recording from the night of the crime, Martinelli noticed a tall, slim male figure.

Surveillance footage obtained by CNBC showed that someone broke into Zhong’s home in March 2019.

Martinelli said, “We could see that they were wearing gray hoods, almost like balaclavas, but they were nearly black ski masks.”

The suspect appeared to be familiar with Zhong’s home, leading Martinelli to believe that he could be a friend or at least someone who heard Zhong boasting about having Bitcoin. From the video, Martinelli was able to determine the suspect’s height and even the size of his hands.

She said that when she started her investigation, she monitored Zhong’s friends, followed them to their homes and the downtown bars on Broad Street and College Avenue. She installed a tracker on their car, browsed social media, and conducted background checks.

As Martinelli watched Zhong’s bar friends come and go, she formed a low opinion of this group of people. She described them as “very casual, plastic, indifferent, maybe taking advantage of Zhong.”

Martinelli said that Zhong seemed resistant to her theories, especially when she started focusing on his circle of friends. Martinelli eventually identified a suspect whom she believed stole 150 Bitcoins from Zhong. At the time, the cryptocurrency was worth nearly $600,000.

She said Zhong doesn’t want to listen.

“When I mentioned that someone has to know where the cash is, he gets uneasy,” Martinelli said. She also understands why Zhong feels so hurt by the possibility of betrayal from those around him.

“Zhong wants to be loved,” she said. “He wants friends.”

Despite being fed up with this circle of friends, Martinelli still feels passionate about her client, whom she sees as an odd person looking for companionship.

“Zhong is a good person,” she said.

Many people around him share a similar view.

In the years leading up to the theft case, Zhong was known for splurging money in town. He was the kind of person who would buy an expensive round of drinks for the whole bar, with hundreds of dollars disappearing into eager throats in a matter of seconds.

Zhong taking a photo with two women in front of a luxury car.

According to court documents reviewed by CNBC, despite living in a shabby cottage off-campus, close to the student dorms and downtown university bars, he has stayed in upscale hotels, including the Ritz-Carlton, The Plaza, and The Waldorf Astoria. He shops at high-end stores like Louis Vuitton, Gucci, and Jimmy Choo. He drives luxury cars, including a Tesla. He bought a second house in Gainesville, Georgia, a waterfront mansion with a dock, just a short drive away from Athens. Inside, he filled it with jet skis, boats, stripper poles, and plenty of alcohol.

Zhong taking a photo with two women on a yacht.

His parties were epic.

Zhong was living his best life, but there was no apparent source of income. As far as anyone knew, he never really found a job. He told his friends that he got into Bitcoin early, mining thousands of coins when the technology was first invented, back in 2009. Zhong told people he dabbled in cryptocurrency since that year when Bitcoin was created by the mysterious Satoshi Nakamoto and a small group of developers who communicated online under pseudonyms.

Whatever Zhong did, he made a lot of money. And he was willing to spend it.

2018 was the year when Zhong, a Georgia Bulldog football team fan, gathered a small group of friends to go on a pilgrimage to Los Angeles after their beloved team won the Rose Bowl championship. Zhong took a group photo with his friends during the Rose Bowl game. “Being with Zhong feels like there are no limits,” said Stefana Masic, one of Zhong’s friends and a Georgia alum, in an interview with CNBC. Stefana Masic, Zhong’s friend, also mentioned that Zhong not only paid for all the plane tickets but also rented a private jet for their international flight. He even provided each friend with a reward of up to $10,000 to go crazy shopping on Rodeo Drive in Beverly Hills. They spent the money on clothes, accessories, and trinkets in the city. “I’ve never been on a private jet before, and I’ve never stayed in such a beautiful Airbnb. It’s cool because, you know, I got to experience things I wouldn’t normally do,” said Masic. While Zhong was cheering on his team in Los Angeles, little did he know that a group of undercover agents from the US Internal Revenue Service Criminal Investigation department, led by local officials, were painstakingly trying to solve a criminal case from years ago. According to court documents reviewed by CNBC, the investigators’ attention was drawn to a 2012 hacking attack where someone stole 50,000 bitcoins from a dark web marketplace called “Silk Road.” The website was one of the earliest cryptocurrency markets where anonymous buyers and sellers exchanged various illegal materials. It was filled with drugs, firearms, explicit content, and other things people wanted to keep secret. According to the court documents, the value of the bitcoins stolen by the Silk Road hacker has skyrocketed to over $3 billion over the years. Investigators can trace the movement of the cryptocurrency on the blockchain, which is a public distributed ledger of all transactions. However, they cannot see the identity of the new owners of the funds. So, they observed and waited for years as the hacker moved the funds from one account to another, stripped off some of the funds, and used a crypto “mixer” to obfuscate the source of the funds. Finally, the blockchain analysis company Chainalysis was able to track a digital wallet containing the stolen Silk Road assets and discovered that the hacker made a small mistake. He transferred funds worth about $800 to a cryptocurrency exchange that follows established banking rules, including the so-called “Know Your Customer” process, which requires account holders to provide their real names and addresses.

This account is registered under the name Zhong. The transaction took place in September 2019, specifically Zhong

Just this alone is not enough to prove that Zhong is the hacker. They need to be certain.

According to sources from two agencies, the US Internal Revenue Service (IRS) called the Athens-Clarke County Police Department for assistance. At the time, the police investigation into Zhong’s personal criminal report was at a standstill.

Lieutenant Jordy Thompson, who is in charge of the local property and financial crimes division, told CNBC, “I received a call from an IRS agent.” “He said, ‘Can I come talk to you about Zhong?’ I immediately thought, of course, I remember this case.”

After six months of dialing 911 to the local police.

Lieutenant Jordy Thompson, Athens-Clarke County Police.

Subsequently, Thompson teamed up with IRS-CI agent Trevor McAleenan and Shaun MaGruder, CEO of the cyber intelligence firm BlockTrace. MaGruder’s company, as an embedded contractor, works with the IRS and is hired for its expertise in resolving complex blockchain transactions.

Shaun MaGruder, CEO of Blacktruss.

The three investigators stated that they formulated a plan together. They would use deception to approach Zhong, telling him that they were investigating the criminal activity he mentioned in his phone call, where a thief stole hundreds of thousands of dollars worth of Bitcoin from him.

In fact, they were investigating the crimes committed by Zhong. The proceeds from this criminal activity are now worth billions of dollars.

Footage from a body camera exclusively obtained by CNBC shows that when these three men knocked on the door of his lakeside residence in Gainesville, Zhong warmly opened the door. He believed the officers and the two experts were there to help solve his cryptocurrency case.

“If you guys help me solve this problem, I’ll invite you to a party,” Zhong told the three men on the body camera.

The video shows the police officers praising him. They called his front door “beautiful.” They praised his speakers as “crazy” and complimented his dog, Chad. They requested to tour the house. The footage from the body camera shows them tapping on the stone floor, inspecting closets, and examining wood paneling. Zhong had no idea that they were searching for a hidden room.

Zhong led the investigators down to his basement, which was equipped with a full bar and a stripper pole.

“Is this where you work out?” McCarthy asked Zhong.

“No, that’s for the ladies,” Zhong replied.

CNBC obtained footage from a hidden camera that showed the investigators in Zhong’s basement, complete with a full bar and a stripper pole.

The camera also showed them carefully examining Zhong’s security system, asking him to explain each feature. Zhong was also filmed showing them a metal box he said he used to store $1 million in cash to impress a lady.

“Does it work?” Lieutenant Thompson asked.

“No,” Zhong said.

“Never has,” Thompson replied.

Law enforcement discovered that Zhong had flamethrowers in his house. They saw his AR-15 rifle hanging on the wall.

MaGruder remarked that Zhong’s expertise was evident.

“The way he uses a keyboard is like nothing I’ve ever seen before,” MaGruder said. “He doesn’t need a mouse because he knows all the shortcuts.”

The police used this trick to ask Zhong to open his laptop and explain how he initially acquired Bitcoin. Zhong sat on the couch next to the investigators, entered his password, and requested that they turn away while he typed.

When he opened the laptop, law enforcement could see his Bitcoin wallet.

“You see, he’s right here next to us, with $60-70 million worth of Bitcoin,” MaGruder said in an interview with CNBC.

CNBC obtained footage from a hidden camera showing Zhong displaying millions of dollars worth of Bitcoin on his laptop to the investigators.

The evidence was enough to convince the investigators that they were on the right track. MaGruder told CNBC that as he left Zhong’s house, he thought, “This is unbelievable. I think we found our guy.”

McCarthy said the first visit gave the investigators the federal search warrant for Zhong. On November 9, 2021, McCarthy, MaGruder, and Thompson returned with a large team of officers.

Before the police searched the house, McAleenan had to explain to Zhong that he didn’t really want to help him. He was trying to convict him.

“I said, Zhong, you know my name is Trevor. “I’m actually Trevor McAleenan. I’m a special agent with the IRS-CI criminal investigation division, and we’re here to execute a federally authorized search warrant on your house,” McAleenan said.

Trevor McAleenan, IRS-CI special agent.

“His expression was a bit like ‘Did I punked?’ said McAleenan.

McAleenan said that at the time, another officer slid a device called a “jiggler” into Zhong’s laptop, causing the cursor to move continuously, allowing law enforcement to access the password-protected contents of the computer.

The police swarmed in and opened every crevice in search of evidence. McAleenan said they found a popcorn tin hidden in a closet upstairs, containing a computer with millions of dollars worth of bitcoins.

Investigation found a single board computer hidden inside the popcorn tin, with millions of dollars worth of bitcoins.

Investigation found a single board computer inside the popcorn tin.

McAleenan said they used trained sniffer dogs to detect electronic devices and found a safe buried in the concrete beneath the basement floor tiles. Court documents stated that the safe contained precious metals, stacks of cash, and physical bitcoins minted in the early days of cryptocurrency. They also found a wallet with bitcoins, which originated from the 2012 original hacker attack on Silk Road.

Investigators found physical bitcoins and cash in the search warrant.

Zhong was caught.

“We can only say we succeeded in the middle of the night,” McAleenan said. “We found the evidence we were looking for. The house lit up. I mean, every agent on the website was ecstatic.”

As they sorted through the evidence, the agents discovered some other unusual things about Zhong. In encrypted slang, he was an “Original Gangster” or OG.

Investigators found that as early as 2009, the year Bitcoin was invented, Zhong was one of a small group of early programmers dedicated to developing and improving the technology. McAleenan said that compared to other OG players who later became famous in the Bitcoin community, his contributions were smaller. But the investigators concluded that he made contributions to the original Bitcoin code and provided ideas on key topics such as reducing blockchain size to early developers.

In other words, a hacker who was involved in the development of Bitcoin itself later became one of the largest Bitcoin thieves in history.

McAleenan said, “As far as Bitcoin core software developers go, he was one of the OGs we talk about.” “He’s been in this space for a long time.”

The role Zhong played in Bitcoin history, as described by Nathaniel Popper, the author of “Digital Gold: The Untold Story of Bitcoin,” is ironic and symbolizes the culture that was originally created around cryptocurrencies.

Nathaniel Popper, author of “Digital Gold: The Untold Story of Bitcoin.”

Popper told CNBC, “Everyone comes here for their own reasons.” “So, it’s a very diverse and quirky group of people.”

“Bitcoin is always full of irony,” Popper said. “Yes, it’s ironic that one Bitcoin supporter steals Bitcoin from another Bitcoin supporter. But I think that’s also part of what defines Bitcoin to some extent.”

Zhong was charged with telecommunications fraud. After pleading guilty, he was sentenced to one year and one day in federal prison. Zhong, now 33 years old, began his prison term on July 14, 2023, at the federal prison in Montgomery, Alabama.

In the end, Zhong failed to keep the Bitcoin in his hands. The U.S. government seized these assets. According to a forfeiture document reviewed by CNBC, officials initiated a process to allow victims of the hacker attack to reclaim their Bitcoin.

No one came forward to claim the stolen goods. This isn’t surprising, as the main users of Silk Road in 2012 were drug dealers and their customers. The federal government simply sold the stolen bitcoins and kept the proceeds. According to the IRS, some of the revenue may be shared with the Athens-Clarke County Police Department to recognize the assistance provided by local officers in this case.

After the April 14th verdict, when leaving the court, CNBC attempted to ask Zhong about his role in the crime. Zhong covered his head with a jacket and left without saying a word.

When addressing the judge before the verdict, Zhong expressed that owning billions of stolen bitcoins made him feel important.

Zhong appeared in court along with his lawyers Michael Bachner and John Galan.

Zhong’s lawyer, Michael Bachner, stated that this theft case did not actually harm the US government.

Michael Bachner, Zhong’s lawyer.

Bachner told CNBC, “The government certainly has not been harmed by Zhong’s actions.” “If Zhong hadn’t stolen these coins, and the government had actually confiscated them from [Silk Road operator Ross Ulbricht], they would have been sold in 2014, just like any other coins.”

Bachner said that by then, the government would have “received $320 per coin, or about $14 million.” “Now, because Zhong owns them, the government has made a profit of $3 billion.”

Zhong requested not to be sentenced to prison, as he is concerned about the fate of his 13-year-old dog, Chad. Zhong’s life hasn’t been easy. He has autism spectrum disorder and Bachner stated that he has suffered severe bullying at school. Over the years, he found solace in online communities where he could utilize his computing skills.

Charlie, Zhong’s old dog.

As for the initial crime Zhong committed – the bitcoin theft incident in March 2019 that led him to make a 911 call – it was never solved. The culprit is still at-large.

Zhong’s dog Chad lives with his friends.

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