A news report by the Chinese television channel, CCTV13, outlined a case of bitcoin-related fraud in the Zhongyuan Oil Field Public Security Bureau of Henan Province. The police report was first filed by a Henan resident, Wu, on July 27, 2017, in which he claimed that 188.31 bitcoins, or just over half a billion US dollars at the time, were stolen from his wallet.
A Meager Consolation
Little is known about the victim, Wu, except that they resemble a professional investor who began following the cryptocurrency ecosystem in 2016. A little later, in early 2017, he joined a bitcoin-related group on Wechat, the de-facto Chinese messenger app.
A group moderator, who Wu referred to as Dai in the police report, actively shared links to news articles referring to hacks affecting cryptocurrency exchanges and openly discouraged keeping large amounts on exchanges. Wu, concerned by these news articles, added Dai as a friend on the chat app for continued safety suggestions.
On July 16, 2017, Wu transferred his bitcoin balance over to the wallet recommended by Dai, all of which was stolen over the next few days, but not noticed until July 26, when the investor returned from a trip.
Presumably shaken by the loss, Wu informed Dai of his missing bitcoin and asked to meet him physically. Dai, however, turned down this request and instead, transferred 120,000 Chinese Yuan to comfort him.
Claiming that he was extending his goodwill, Dai told the investor that since it was him who recommended the bitcoin wallet, the 120,000 Yuan was meant to be a consolation. Upon receiving the sum though, Wu became suspicious of the moderator since of the amount of money in question was quite a large sum for a stranger to offer as a mere consolation.
A day later, he filed a report with the Henan Police, describing the moderator’s involvement in the theft at length as well.
String of Thefts
In August 2017, after a preliminary investigation was carried out, the police declared Dai to be a suspect in the case, who was promptly arrested in Shanghai. Following his arrest, the police uncovered a large number of laptops and 27 credit cards present in his room at the time. A bitcoin wallet, identical to the one sent to Wu, was found on one of those laptops, further cementing the case.
Dai later admitted to stealing the bitcoin during an interrogation by Henan police. He further confessed that the bitcoin wallet sent to Wu was, in fact, injected with malicious code. Being a programmer by profession, Dai would infect wallet programs with the malware.
Upon adding bitcoin to the wallet, the program would automatically broadcast the user’s private keys and passwords over the internet for Dai to intercept. The moderator admitted to three such thefts, amounting to approximately $3 million. The police, however, have only managed to recover $2 million from his frozen bank accounts.
The incident is another warning to those storing massive amounts of digital money like bitcoin. Hacks and breaches are nothing new in the cryptocurrency world, but phishing attempts such as this one have been relatively rare in the past. That said, with the rising valuation of digital currencies, they may become increasingly commonplace.