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In the era of the internet, perception and reality hardly ever collide.
The ideal way for me to begin my text is with this sentence. This describes the history of the current era.
A judicial epilogue has emerged from one of the largest cryptocurrency scams to date, aligning with the recurring themes of cryptocurrencies and the increasing prevalence of scams in this field.
This is the tale of Bitcoin Bonnie and Clyde, two contemporary scammers.
But to add some weight to this article, let me share with you some statistics.
The Federal Trade Commission (FTC) estimates that cryptocurrency fraud lost $679 million in the first half of 2024, according to Sangfor. Investment scams were the most common type of crypto-related scam, accounting for 46% of all cases.
But let's start in order.
During the summer of 2016, someone in Hong Kong found a flaw in the Bitfinex cryptocurrency exchange's code and stole 119,754 bitcoins, which were worth $72 million at the time.
At the time, Bitfinex was among the top exchanges for purchasing and selling digital assets, including cryptocurrency.
What I want to highlight is that the value of Bitcoin was approximately $600 at the time, and it increased to approximately $69,000 in 2021.
Consequently, the stolen coins were valued at $8.3 billion, making this the most significant incident.
Furthermore, it's important to acknowledge that the cryptocurrency market experiences significant fluctuations.
In 2022, its value dropped from 8.3 billion to 2.5 billion dollars.
With the introduction of Bitcoin, a new era of money began.
Before then, there was no such thing as financial anonymity on the Internet. Every time we made a purchase, we were required to divulge our data, stored in databases.
Everything starts to change in 2009, when Bitcoin first appears. None of us, I think, had any faith in how the banking sector would improve.
But the emergence of cryptocurrency has ushered in a new period of criminal activity.
As a result, websites on the dark web emerged, simplifying the process of purchasing uranium, weapons, poisons, drugs, fake diplomas, and other items using Bitcoin and other cryptocurrencies.
As I have stated, the Internet's ability to provide financial anonymity directly contributes to the proliferation of ransomware attacks on computer systems, as criminals and scammers are always on the lookout for opportunities.
Attackers took people and businesses as "hostages" and demanded a Bitcoin "ransom" to access their computer systems.
According to the FBI's 2021 report, there are seven bank robberies and 4,000 ransomware attacks in a single day.
Imagine that.
When you think of a hacker, the first image that comes to mind is a teenage boy hacking in his home's basement. However, well-organized groups, some of which are even supported by certain countries, now steal cryptocurrency.
Like regular robberies, hacking is a highly difficult crime to catch and prosecute.
The only way is to catch the thief with the stolen money.
Investigators attempted to follow the flow of the stolen bitcoins for some time following the Bitfinex breach, but they were unable.
Somewhere on the blockchain, the money was simply sitting.
We discovered early in 2017 that the dark market was laundering some stolen cryptocurrency.
After apprehending the founder of the AlphaBay website, which sold stolen cryptocurrency, the detectives found hints on the confiscated servers that led them to Wal Street.
Additionally, they discovered a peculiar young couple in the heart of Manhattan, who did not conform to the characteristics of organized international hacker groups.
Their social media accounts showed:
"Dutch" was the pseudonym of Ilya Lichtenstein, a 34-year-old Russian-accented young man with dark hair and piercing eyes who blogged about cryptocurrencies on his X (Twitter) account and occasionally retweeted Snowden.
Posting images of himself and his pet cat, Clarissa, he described himself as an investor, an innovative young man who loves big data, automation, blockchain technology, and mountaineering.
A young woman named Heather Morgan had several accounts on social media sites like Facebook, X, and TikTok. She also had three accounts on Instagram: one for herself, one for her alter ego rapper Razzlekhan, and one for her pet cat, Clarissa.
She holds a master's degree in the economics of international development and a bachelor's degree in economics and international relations, according to her LinkedIn profile.
All of these struck investigators as quite odd, particularly since the couple didn't pretend to be billionaire cryptocurrency thieves or lead extravagant lives.
Ilya and Heather, on the other hand, lived their lives away from social media, which is a stark contrast to how many people today aspire to be well-known and pretend to lead prosperous and successful lives on social media.
They spent money on gold coin purchases and travels they didn't really advertise. Prior to the COVID epidemic, they travelled to Ukraine and laid the foundation for their future together.
Additionally, investigators watched and followed this pair as they got married.
During the wedding, friends noted that Heather had been acting strangely lately and questioned how they managed to afford such an extravagant wedding.
They even made a connection between Heather's approach to overcoming life's challenges and her alter ego, Razzlekhan.
Liechtenstein masterminded one of the largest bitcoin thefts in history in 2016, involving the billions of dollars taken from cryptocurrency exchange Bitfinex.
He gained access to the Bitfinex network using a variety of sophisticated hacking tools and methods.
Once Lichtenstein gained access to their systems, he falsely approved over 2,000 transactions, transferring 119,754 bitcoins from Bitfinex to a wallet he controlled.
Lichtenstein returned to Bitfinex's network and erased log files and login credentials in order to hide his activities.
After the hack, Lichtenstein asked his wife, Heather, to help him launder the stolen money.
The two employed a variety of advanced washing techniques, including:
The process involves depositing stolen funds into accounts on various darknet markets and cryptocurrency exchanges.
Withdrawing funds obscures the transaction history trail by stopping the flow of funds.
They laundered the stolen money using a service known as Bitcoin Fog.
Lichtenstein claimed to have used hashing services like Bitcoin Fog, a popular darknet tool, to conceal assets.
But this was not his primary washing technique. When he discovered that other services "suited his purposes better," he stopped using that specific mixer.
However, because blockchain transactions are transparent, it may be possible to trace their behavior.
Most of the pilfered funds remained in the wallet unaltered for years.
However, as the money gradually began to move from wallets into the conventional banking system, investigators were able to start linking transactions to actual people.
That's how they ended up with this odd couple.
Investigators used a search warrant to raid the apartment at 75 Wall Street in early January 2022 after all leads pointed to the pair.
They caught them off guard before they had a chance to encrypt their laptops and phones.
The most crucial aspect of the arrest was catching the criminals off guard so they couldn't lock their electronics or shut down their laptops, which in this case might have contained crucial hints about the location of the stolen cryptocurrency.
Investigators found a variety of foreign currencies in transparent plastic bags, along with $40,000 in cash secured with pink elastic bands.
They found over fifty computers, tablets, phones, and other gadgets in the residence.
A month later, the government used the raid's evidence to conclusively link Lichtenstein and Morgan to the online wallet involved in the Bitfinex hack.
Both charges carry a maximum 25-year jail sentence.
They described the arrest in its news release as the "largest financial seizure" in US history.
The government seized 94,000 bitcoins, valued at approximately $3.6 billion, but 25,000 of the original coins remain missing.
According to the Fed, a complex money laundering process moved the coins from Liechtenstein's wallet and transferred some of the stolen money into bank accounts controlled by Morgan and Liechtenstein.
Since his arrest in February 2022, Lichtenstein has served time in prison and issued an apology for his behaviour.
Lichtenstein acknowledged being responsible for the hacking as part of a plea agreement.
The court found him guilty of one of the biggest bitcoin thefts ever and sentenced him to five years in prison.
In addition, Morgan entered a guilty plea to one count of conspiracy to commit money laundering last year.
Her sentencing is scheduled to be announced in the next few days.
The Lichtenstein and Morgan case illustrates both the growing capacity of law enforcement to track down and confiscate illicitly obtained cryptocurrency as well as developments in blockchain security and monitoring.
Additionally, I always stress that if you choose to invest in cryptocurrencies, you should exercise extreme caution.
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