The U.S. Department of Justice Exposes the Details Of The Bitfinex Hack

【TL; DR】

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1. On February 8, the US Department of Justice announced that the Bitfinex hacking case in August 2016 had been solved.
2. The two suspects were accused of conspiracy to launder money and defraud the US government, and will be sentenced to 25 years in prison.
3. Some 94,000 stolen Bitcoins have been recovered and are expected to be returned to their original owners.
4. The two suspects have gradually laundered money mainly through small transactions on the dark network over the years. So far, they have completed the transfer of approximately 25,000 Bitcoins, making a total profit of $2.9 million.
5. Cryptocurrency is not a safe haven for criminals. Based on the traceability of cryptocurrency, many encryption analysis tools have played an important role in solving cases like this.

On February 8th, the U.S. Department of Justice (DOJ) announced that it had cracked the Bitfinex hack case that occurred in August 2016 and arrested two suspects, Ilya Lichtenstein (34 year old) and his wife Heather Morgan (31 year old ) in New York.

In this case, up to 119,756 bitcoins were stolen from Bitfinex accounts at the current price of approximately $70 million. With the rise of Bitcoin price, the value of stolen Bitcoins have risen to $4.5 billion. This case is also the second largest Bitcoin loss case in history, second only to the 2014 Mt.Gox coin theft case.

Lisa O. Monaco, Deputy Attorney General of DOJ, said the case was the largest financial seizure in the Department's history. The two suspects were accused of conspiracy to launder money and defraud the US government, and will be sentenced to 25 years' in prison. Court staff have recovered and seized approximately 94,000 stolen Bitcoins from the digital wallets held by two suspects. These stolen assets are expected to be returned by the court to their original owners. Presently, the two suspects have been released on bail of $5 million and US $3 million respectively.

The Whole Story

It is reported that the couple both are tech practitioners. Ilya, who was born in Russia and moved to the United States at the age of 6. At present, he is the co-founder of the company MixRank, and his wife Morgan is an entrepreneur and rapper.

According to the documents released by the court, in early August 2016, two hackers invaded the Bitfinex system, an exchange under the stablecoin platform Tether, launched 2072 unauthorized Bitcoin transactions, and transferred a total of 119,754.8121 Bitcoins to an external wallet (Wallet 1CGA4s) containing 2072 addresses. Affected by the hacks, Bitcoin prices plunged by more than 20% in one day. For the users who suffered losses, Bitfinex provided the debt token BFX Token through Omni Protocol. The face value of each BFX will be gradually repurchased by Bitfinex at the face value of US $1, and the repurchase was not completed until April 2017.


Subsequently, the two hackers began a complex and long process of money laundering. The main channel being the dark network, allowing the stolen Bitcoins to be transferred to another wallet without leaving traces on the chain. Since January 2017, Bitcoin in Wallet 1CGA4s had been flowing to the dark network market AlphaBay, then to the ownerless accounts of multiple exchanges, and then to multiple accounts controlled by the two suspects step by step.


The most challenging step was using the darknet to launder money. In order to avoid arousing suspicions, the money laundering process had to be completed slowly in the form of small transfers. The two suspects registered their accounts with false identities and prepared computer automation programs to initiate small transactions at high frequency and gradually complete money laundering. The two also diverted funds many times and transferred funds frequently to confuse the line of sight. Since January 2017, the two have completed the transfer of approximately 25,000 Bitcoins, making a total profit of $2.9 million.


After searching the apartments of the two suspects, law enforcement officers found a file containing more than 2000 addresses (Wallet 1CGA4s) and private key information in the suspect's cloud disk, and found the remaining 94643 Bitcoins in the address. This well-documented file became one of the decisive pieces of evidence used to unravel the case.

Virtual Currency is Not a Safe Haven for Crime

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With the increasing application of virtual currencies, many virtual currency related crimes have also begun to emerge one after another. Security and anonymity are the two main features of cryptocurrency and blockchain technology, which also brings new challenges to the investigation and evidence collection for regulators.

Since the encrypted wallets do not require KYC verification, the wallet of the node can be used as long as there is a private key. This makes it difficult to verify the user's real identity in general. However, if the hacker needed to convert virtual currency into fiat currency, they would inevitably need to go through KYC protocol's in the end. The identities of the two suspects were finally revealed in the accounts of the exchange they used.

As the Deputy Attorney General of the Ministry of Justice said, cryptocurrency is not a safe haven for criminals. Based on the traceability of cryptocurrency, many encryption analysis tools have also played an important role in solving cases like this. Although the two suspects tried their best to weave a complicated transfer network, they finally failed and were arrested. On February 12, Netflix also announced that it would shoot a documentary, detailing the course of the case. However, according to the current evidence, it is not enough to prove whether the two suspects are the hackers themselves and whether there are other secrets in the case that are still under further investigation.



Author: Gate.io Observer: Edward.H
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