2016 Bitfinex hack

The Bitfinex cryptocurrency exchange was hacked in August 2016.[1] 119,756 bitcoin, worth about US$72 million at the time, were stolen.[1]

In February 2022, the US government recovered and seized a portion of the stolen bitcoin, then worth US$3.6 billion,[2] by decrypting a file owned by Ilya Lichtenstein that contained addresses and private keys associated with the stolen funds.[3] Lichtenstein and his wife, Heather R. Morgan, were charged with conspiracy to launder money.[3]

Hack

In August 2016, the Bitfinex cryptocurrency exchange, based in Hong Kong, announced it had suffered a security breach.[4] Around 2,000 approved transactions were sent to a single wallet from users' segregated wallets.[5][6] Immediately thereafter, Bitcoin's trading price plunged by 20%, causing the value of the stolen Bitcoin to dip to US$58 million.[1] After learning of the breach, Bitfinex halted all Bitcoin withdrawals and trading[7] and said it was tracking down the hack.[6] Exchange customers, even those whose accounts had not been broken into, had their account balance reduced by 36% and received BFX tokens in proportion to their losses.[8] The exchange's access to U.S. dollar payments and withdrawals was then curtailed. The hack happened even though Bitfinex was securing the funds with BitGo, which uses multiple-signature security.[9]

Laundering

Small amounts of money began to move out of the single wallet in early 2017 through the marketplace AlphaBay to launder it. After AlphaBay was shuttered by international law enforcement led by the FBI, the money was rerouted to the Russian marketplace Hydra. The shutdown of AlphaBay may have given law enforcement access to the service's internal transaction logs to connect pieces together.[5]

In February 2022, a New York couple, Ilya Lichtenstein (age 34) and his wife Heather R. Morgan (age 31),[5] were charged by US federal authorities with conspiring to launder the bitcoin, which was then worth US$3.6 billion.[2][10] If found guilty, each of the pair faces a maximum sentence of 20 years in prison for the alleged conspiracy to launder money, and a maximum sentence of five years for the alleged conspiracy to defraud the United States.[10][11] Neither were accused of perpetrating the hack.[12] Law enforcement were able to acquire a search warrant for a cloud storage service used by Lichtenstein, obtaining a spreadsheet of wallet addresses linked to the hack, and their passwords. One of the wallets had around 94,000 Bitcoin. Due to the openness and transparency of the blockchain, law enforcement was able to track the money; and obtaining the passwords allowed them to seize it.[5]

Some of the funds were moved towards more traditional financial accounts and used on gold, NFTs, and a Walmart gift card spent on Uber rides and a PlayStation.[13] Though hundreds of millions of dollars were converted to fiat currency, 80% of the Bitcoin were still in the original wallet at the center of the hack.[5]

Shortly after the couple's arrest, Netflix ordered a documentary series that will cover the story of Lichtenstein's and Morgan's alleged crimes.[14]

See also

References
  1. Tsang, Amie (August 3, 2016). "Bitcoin Plunges After Hacking of Exchange in Hong Kong". The New York Times. Hong Kong. Archived from the original on May 18, 2017.
  2. Barrett, Devlin (February 8, 2022). "Feds arrest couple, seize $3.6 billion in hacked bitcoin funds". The Washington Post.
  3. "Case: 1 :22-mj-00022 - Complaint with Arrest Warrant" (Press release). February 7, 2022.
  4. "Bitfinex comes back from $69 million bitcoin heist". May 21, 2017. Archived from the original on May 22, 2017.
  5. Chow, Andrew R (February 10, 2022). "Inside the Chess Match That Led the Feds to $3.6 Billion in Stolen Bitcoin". Time. Archived from the original on 2022-02-10. Retrieved February 12, 2022.
  6. "Bitcoin Worth $72M Was Stolen in Bitfinex Exchange Hack in Hong Kong". Fortune. Archived from the original on November 20, 2016. Retrieved October 26, 2016.
  7. Shekhtman, Lonnie (August 3, 2016). "Bitcoin security breaches raise questions about digital currency's future". Christian Science Monitor. Archived from the original on May 28, 2017.
  8. Baldwin, Clare (August 6, 2016). "Bitfinex exchange customers to get 36 percent haircut, debt token". Reuters. Archived from the original on March 16, 2019. Retrieved June 20, 2018.
  9. "Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong". Reuters. 2016-08-03. Retrieved 2021-10-14.
  10. Lyngaas, Sean (February 8, 2022). "Feds arrest a New York couple and seize $3.6 billion in stolen cryptocurrency". CNN News. p. 1. Retrieved February 9, 2022.
  11. "Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency". www.justice.gov. 2022-02-08. Retrieved 2022-10-31.
  12. "US Justice's largest ever financial seizure sees two arrests over $3.6bn stolen crypto". InternationalInvestment. 2022-02-09. Retrieved 2022-02-17.
  13. "The Ballad of Razzlekhan and Dutch, Bitcoin's Bonnie and Clyde". Vanity Fair. 2022-08-16. Retrieved 2022-08-18.
  14. Roth, Emma (February 12, 2022). "Netflix orders docuseries on crypto laundering couple". The Verge. Retrieved February 13, 2022.
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