Bitcoin: A Thief Sentenced in China for Memorizing a Seed Phrase

Eleven memorized words, 107 stolen bitcoins. A court in the Licang district of Qingdao sentenced a man identified as Zhang to ten years and nine months in prison and a fine of 100,000 yuan (approximately $15,000). While assisting an acquaintance in setting up his wallet, Zhang memorized eleven of the twelve words of his recovery phrase. He then used this to access the funds, according to a summary of the case published by the Chinese Supreme People's Procuratorate.

Key points of this article

• The victim had asked Mr. Zhang to help him convert 117 BTC into traditional currency.
• Mr. Zhang memorized eleven words of the recovery phrase before transferring 107 BTC.
• Prosecutors traced conversions that would have earned him the equivalent of over $97,000.
• The prosecution argued that bitcoins could be subject to theft under criminal law.

A Wallet Emptied After a Favor Among Friends

In July 2023, Mr. Feng wanted to convert 117 bitcoins and sought Mr. Zhang's help, who had previously assisted him with similar transactions. During the wallet setup, Mr. Feng wrote down the twelve words of his recovery phrase. Mr. Zhang, present beside him, memorized eleven. He then reconstructed the complete phrase and used it to access the wallet and transfer 107 bitcoins.

Mr. Feng reported the disappearance of the funds. The investigators traced the transactions and linked them to Zhang, who admitted to moving the bitcoins. However, he claimed he intended to protect the assets and said he lost money speculating afterward. Prosecutors countered his version with electronic statements that they claimed showed he made over $97,000 from his conversions. This figure corresponds to the amounts cashed out according to the prosecution, while the 107 BTC represents the stolen amount. The victim regrets trusting this acquaintance who stole over 100 bitcoins from him!

In China, Prosecutors Treated Bitcoins as Property That Can Be Stolen

China has imposed restrictions on activities related to cryptocurrencies, including their trading and mining. In this case, prosecutors had to determine whether bitcoins held by an individual could be classified as property to establish a theft offense. They retained this classification in their argument.

The case illustrates the distinction between the rules governing cryptocurrency activities and the criminal qualification of the appropriation of assets held by a third party. In Qingdao, it was on this second ground that the prosecution pursued Zhang and the court handed down its conviction.

The Recovery Phrase Must Remain Confidential, Even During Setup

A recovery phrase allows restoring a wallet on another device and regaining access to funds. A person who knows this phrase can therefore use it independently of the original device. In Mr. Feng's case, the decisive moment is when he notes the words in the presence of the person who came to help him.

In an interview with Cointelegraph, Alvin Kan, operations director of Bitget Wallet, emphasizes that this risk exists even when the exposure lasts only a moment. An acquaintance may explain how to install the app or verify a transfer. The generation and saving of the phrase can, however, be done privately.

In Qingdao, Mr. Zhang obtained the necessary information at the moment when the wallet was supposed to be secured. The confidentiality of the words is therefore crucial from their first appearance on the screen, as much as the protection of the copy that serves as a backup.

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