U.S. Officials Seize $3.6 Billion in Bitcoin from Bitfinex Hack
In early February 2022, the Justice Department announced that it had seized more than $3.6 billion worth of Bitcoin allegedly stolen by a New York couple six years ago. The couple, Ilya Lichtenstein and Heather Morgan, were accused of conspiring to launder 119,754 Bitcoin that was stolen in 2016 from Hong Kong-based Bitfinex.
Bitcoin Hack and Seizure
Lichenstein and Morgan are being charged with serious crimes including money laundering and conspiracy to defraud the U.S. They could each be facing 25 years in prison. So far, the couple has not been charged related to the actual hacking of Bitfinex, but the investigation is ongoing. When the breach happened, however, the hacker initiated 2,000 transactions that sent the Bitcoin to a digital wallet controlled by Mr. Lichenstein.
The couple was released on bond – $5 million for Mr. Lichenstein, and $3 million for Ms. Morgan. Their lawyer has not responded to request for comment. Bitfinex is one of the world’s largest digital currency exchanges. At the time of the seizure, it was the Justice Department’s largest seizure ever.
Is the Crypto Sector Vulnerable to Hackers?
The breach in 2016 came at a time when many currency exchanges were experiencing hackings. Large amounts of digital currency was stolen over a period of time. The hackings underscored potential vulnerabilities in the crypto sector. Hackers have managed to score hundreds of millions of dollars in attacks on digital currency exchanges.
This and other hacks shine light on areas where law enforcement and digital currency exchanges can improve tracking and stopping hackers. The good news is that the secure recording of transactions in the Blockchain can help identify criminal activity. Tom Robinson, who is co-founder of Elliptic, a cryptocurrency analysis firm, says,
“This shows that even when sophisticated money laundering techniques are used, the indelible blockchain records usually allow law enforcement to link criminal activity to individuals.”
Deputy Attorney General Lisa Monaco agrees, saying that cryptocurrency is not “a safe haven for criminals.” She further says,
“In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions.”
In the case of the Bitfinex hack, investigators were able to trace the movement of the Bitcoin taken from Bitfinex and moved to Mr. Lichenstien’s digital wallet. The Blockchain uses permanent, unchangeable ledgers to record transactions. Investigators can use this information to track where the Bitcoin moves and how it is spent.
The Justice Department is also furthering their efforts to protect those who use digital currencies and exchanges legitimately. Kenneth A. Polite, Jr. is the head of the department’s criminal division. He says,
“We will not allow cryptocurrency to be a safe haven for money laundering or a zone of lawlessness within our financial system.”
With more Americans than ever buying and selling cryptocurrencies, it is important for law enforcement to understand how transactions occur and are recorded, and what potential threats may look like in the Blockchain. It is also important that they understand cryptocurrency mining and related implications.