Reading time: ≈ 10 min • Last updated: • Based on CVERC & DoJ Reports
December 2025 Investigation: In October 2025, the U.S. Department of Justice announced the largest cryptocurrency forfeiture in history: approximately 12.7 million Bitcoin (~$15B) seized from an alleged transnational fraud network. But according to a bombshell report from China's National Computer Virus Emergency Response Center (CVERC), this wasn't just law enforcement—it was a state-sanctioned cyber operation.
1. Operation "Black Eats Black": The $15B Heist
The story begins with one of crypto's biggest mysteries: In 2020, over 127,000 Bitcoin (worth ~$150B today) vanished from the LuBian mining pool, linked to the Cambodian-based "Prince Holding Group." For nearly four years, the fortune lay dormant.
China's Accusation: According to China's CVERC report, this wasn't ordinary theft. The hackers exploited a specific cryptographic weakness, left the coins untouched for years (atypical behavior), and the stolen assets eventually ended up in wallets identified as belonging to the U.S. government. Their conclusion: a "national-level hacker organization" executed this operation.
The Timeline of a $15B Operation
| Date | Event | Bitcoin Amount | Value (Then/Now) | Key Actor |
|---|---|---|---|---|
| 2020 | Massive theft from LuBian mining pool | 127,000+ BTC | $1.5B / ~$150B | Unknown hackers |
| 2024 (Mid) | Dormant Bitcoin moved to new wallets | 127,000+ BTC | $8B+ / ~$150B | Wallet movement |
| 2025 (Oct) | U.S. DoJ announces historic forfeiture | ~12.7M BTC* | ~$15B | U.S. Department of Justice |
*Note: The DoJ's forfeiture (12.7M BTC) appears to be a different figure from the 2020 hack (127K BTC). This discrepancy is central to the mystery. The DoJ's amount represents the specific seizure from Chen Zhi's alleged operation.
The core of China's accusation is the "black eats black" strategy: one state allegedly hacking cybercriminals linked to another state, then using its own legal system to legitimize the seizure. The U.S. maintains this was a standard law enforcement action against criminal proceeds.
2. Blockchain Forensics: Following the $15B Digital Trail
Paradoxically, the very feature that attracts some to cryptocurrency—transparency—makes it a powerful forensic tool. Every Bitcoin transaction is recorded on a public, immutable ledger.
How Blockchain Forensics Works
Specialized firms like Chainalysis and Elliptic have built tools to "cluster" wallet addresses, trace fund flows across exchanges, and identify patterns. In this case, analysts could:
- Map the Prince Holding Group's network of tens of thousands of fake social media accounts and wallets.
- Track the 2020 stolen funds as they sat dormant, then moved in 2024.
- Identify connections between those wallets and wallets later flagged by the DoJ in its forfeiture complaint.
The Investigator's Advantage: "Every crypto transaction creates a permanent trail that allows investigators to catch criminals even years after their crimes." This is the new reality of digital forensics.
This capability is being deployed at an unprecedented scale. In a two-month period in 2025, U.S. and international partners seized over $22 billion in illicit crypto assets. The FBI received nearly 150,000 crypto-related complaints in 2024 alone.
3. The Technical Exploit: Cracking the Wallet with a Weak PRNG
According to the CVERC report, the 2020 hackers didn't steal private keys through phishing or malware. They allegedly exploited a fundamental flaw in how the wallet was created.
The Pseudo-Random Number Generator (PRNG) Vulnerability
A Bitcoin wallet's security rests entirely on its private key—a massively large, random number. This number should be generated by a cryptographically secure PRNG.
- The Flaw: If a wallet-generating application uses a weak or predictable PRNG, the resulting private keys are not truly random.
- The Attack: By reverse-engineering the flawed algorithm, an attacker can "brute-force" calculate possible private keys for wallets generated by that software.
- The Scale: This wouldn't work against a properly generated wallet, but against one with a weak key, it could be cracked in hours or days.
Why This Points to a State Actor: Identifying a specific, obscure PRNG flaw across a vast pool of Bitcoin, and having the computational resources to exploit it at scale, suggests sophistication beyond typical cybercriminals.
4. The Legal Framework: From Hack to Legitimate Forfeiture
Whether the initial acquisition was a state hack or criminal theft, the U.S. government's subsequent forfeiture followed established legal procedures, creating a veneer of legitimacy.
The U.S. Forfeiture Process for Cryptocurrency
- Investigation & Tracing: Agencies like the FBI or IRS-CI use blockchain forensics to link crypto assets to specific crimes (fraud, hacking, money laundering).
- Seizure Warrant: A judge approves a warrant based on probable cause that the assets are linked to crime.
- Civil Forfeiture Action: The government files a case against the property itself (e.g., "United States v. 12.7 million Bitcoin").
- Notice & Claim Period: The alleged owners (like Chen Zhi) can contest the forfeiture in court.
- Forfeiture Order: If unchallenged or successful in court, the government takes ownership.
Matthew L. Schwartz, a lawyer for Chen Zhi, has argued the government's narrative is "seriously misleading" and is working with crypto experts to trace the provenance of the seized coins. This legal battle highlights the tension between law enforcement's power and defendants' rights in the digital age.
5. The Strategic Bitcoin Reserve: A National Digital Stockpile
In March 2025, a landmark Executive Order transformed the U.S. government's relationship with seized crypto. It established the "Strategic Bitcoin Reserve" (SBR).
The Strategic Bitcoin Reserve: Key Provisions
| Policy Element | Description | Strategic Rationale |
|---|---|---|
| Purpose | To serve as a strategic national reserve asset, analogous to gold holdings. | Formalize Bitcoin as a "digital gold" store of value. |
| Funding | Capitalized with Bitcoin forfeited by the U.S. government. | Convert illicit proceeds into state assets at zero acquisition cost. |
| Disposition Policy | Assets are to be held, not routinely sold on the open market. | Maintain long-term value, avoid market disruption, gain "first-mover" advantage. |
| Official Stated Goal | To "harness, not limit, the power of digital assets for our prosperity." | Signal U.S. leadership and acceptance of the new asset class. |
The Bigger Picture: The SBR transforms cryptocurrency from a law enforcement trophy or budget line item into a geopolitical strategic asset. It signals that the U.S. views top-tier crypto not just as property to be seized, but as a reserve commodity to be accumulated and wielded for national objectives.
6. Blockchain as a Warfare Domain: Offense, Defense, and Asymmetric Power
The alleged "black eats black" operation represents just one tactic in a broader integration of crypto and blockchain into national security strategy.
The Three Pillars of Blockchain Warfare
1. The Offensive Weapon
States like North Korea have famously used cryptocurrency theft and ransomware to fund their regimes, seizing hundreds of millions. The alleged U.S. operation, if true, would be a more advanced offensive move: using superior cyber capability to directly appropriate an adversary's illicit digital wealth, simultaneously crippling their financing and enriching the state treasury.
2. The Defensive Shield
Beyond crypto assets, the underlying blockchain technology is being researched by defense agencies. The U.S. Department of Defense explores blockchain for securing communications, supply chain logs, and sensitive data transfers. Its decentralized nature eliminates single points of failure, creating networks more resilient to cyberattacks.
3. The Asymmetric Tool
Blockchain technology also empowers non-state actors and smaller nations. During the 2022 invasion, Ukraine raised over $212 million in crypto donations, showcasing how decentralized finance can crowdsource defense funding outside traditional, potentially blockable, banking systems.
7. Geopolitical Fallout: Accusations, Denials, and the New Cold War
China's public accusation is a significant escalation in the information war surrounding cyber operations, which are typically conducted in the shadows and rarely explicitly attributed by victim states.
The Stated Positions
| Party | Public Position | Likely Strategic Goal |
|---|---|---|
| China (CVERC) | The U.S. executed a "national-level hack" in a "black eats black" operation to steal and then legitimize seizure of assets. | Counter U.S. moral/legal framing, paint U.S. as a hypocritical cyber aggressor, deter future operations. |
| United States (DoJ) | The forfeiture was a lawful action against criminal proceeds from a massive fraud scheme (the "Prince Holding Group"). | Assert legal authority, demonstrate cyber forensics prowess, legitimize the seizure and the Strategic Bitcoin Reserve. |
| Defense (Chen Zhi's Lawyer) | The government's story is "seriously misleading"; challenging the provenance and narrative in court. | Create reasonable doubt, recover assets, expose potential flaws in the government's investigation. |
This public clash over a $15 billion digital asset seizure marks a new frontier in geopolitical competition. It's no longer just about stealing secrets or disrupting infrastructure; it's about directly seizing and controlling digital financial assets on a previously unimaginable scale.
8. Strategic Implications: The New Rules of Crypto & Global Power
The $15B Bitcoin seizure and the surrounding accusations are a watershed moment. They reveal new rules for how state power is projected in the digital age.
4 Key Implications for the Future
1. The End of "Offshore" Crypto Havens
Large, opaque holdings of cryptocurrency—especially those linked to state-affiliated or criminal entities—are now glaring targets. Blockchain forensics, combined with international legal cooperation, can pierce jurisdictional veils. The message to adversarial states and criminal syndicates alike: your crypto is trackable and seizeable.
2. Crypto as a Formal Tool of Statecraft
With the Strategic Bitcoin Reserve, the U.S. has formalized crypto as a reserve asset. Other nations will likely follow, creating national "digital gold" stockpiles. This could fundamentally alter Bitcoin's market dynamics, locking up significant supply in state vaults and increasing its perceived legitimacy as a macro asset.
3. The Privacy Arms Race Will Go Hyperbolic
As tracing and seizure capabilities become the norm, demand for true privacy-preserving technologies (zk-SNARKs, privacy coins, advanced mixers) will skyrocket. This will trigger a relentless cycle of innovation in privacy tech followed by new forensic countermeasures.
4. A New Dimension of Geopolitical Leverage
Control over the global crypto infrastructure—exchanges, forensic firms, wallet providers, and regulatory standards—is becoming a critical source of "soft power." The ability to "unbank" adversaries in the digital realm or freeze their assets on-chain is a potent new form of economic sanction.
9. FAQ – Bitcoin as a Digital Weapon Answered
Quick answers to the most critical questions about state-level crypto warfare.
A: According to the U.S. Department of Justice, no. They assert they seized the Bitcoin through legal forfeiture proceedings after a criminal investigation. China's CVERC claims, based on technical analysis, that the initial 2020 theft was conducted by a "national-level hacker organization" they imply is U.S.-affiliated. The truth remains contested and is at the heart of the geopolitical dispute.
A: Under the March 2025 Executive Order, forfeited Bitcoin is transferred to the Strategic Bitcoin Reserve (SBR). Policy dictates it be held as a long-term strategic national asset, not immediately sold on the open market. It effectively becomes part of the U.S. government's balance sheet as "digital gold."
A: No, not without due process. They must establish probable cause that the assets are linked to criminal activity and obtain a warrant or forfeiture order from a judge. However, this case demonstrates the immense scale and sophistication of their tracking and legal capabilities, which could pose risks to any large holdings with questionable origins.
A: It means Bitcoin is transparent and pseudonymous, not anonymous. Every transaction is public. If you can link a wallet address to a real identity (through an exchange KYC, a transaction pattern, or a mistake), the entire history of that wallet's funds can be traced. Its security from hacking depends entirely on the strength of your private key and how it was generated.
A: It's highly likely. The U.S. has provided a potential blueprint: develop advanced blockchain forensics, build legal frameworks for forfeiture, and create a state strategy for holding seized assets. Adversarial and allied states are almost certainly studying this case to develop their own offensive and defensive capabilities in the crypto domain.
10. Verdict: The New Rules of Digital Warfare Are Being Written
Whether China's specific "black eats black" accusation is proven true or not is almost secondary to the monumental shift it reveals. The battlefield has expanded irrevocably into the digital financial realm.
For other nations, the implications are stark:
- Illicit cryptocurrency holdings are not safe from U.S. reach.
- Blockchain transparency is a double-edged sword that can be weaponized against you.
- The race for sovereign digital asset reserves has officially begun.
The era of cryptocurrency as an anarchic frontier is conclusively over. It has been absorbed into the fabric of state power and geopolitical competition. It is now a domain of warfare—economic, cyber, and informational—where dominance goes to those who best master the trinity of code, cryptography, and capital.
The rules for this new domain are being written in real-time, through operations like this seizure, through policies like the Strategic Bitcoin Reserve, and through accusations like those from CVERC. For investors, developers, and citizens, understanding that crypto is now a theater of state conflict is no longer optional—it's essential for navigating the future.
Final thought: The greatest legacy of this $15 billion mystery may not be the fate of the Bitcoin itself, but the undeniable proof it provides: in the 21st century, financial assets can be digitally targeted, captured, and weaponized. The age of blockchain warfare has arrived.