A federal judge in California has ordered the seizure of a treasure trove of bitcoin that previously belonged to a group of darknet drug dealers. The 391.5873617 BTC are, as of January 21, worth over $12.2 million and have been in the possession of federal marshals since 2019. The warrant for the seizure was filed with the U.S. District Court for the Central District of California on December 29, 2020.

As a means of laundering some of their ill-gotten profits, the drug dealers converted approximately $600,000 worth of their bitcoin holdings into cash, with which they purchased a 1974 Triumph fishing boat and a squid-fishing license. (Such licenses in California cost upwards of $3,000.)

The bitcoin, boat, and squid license are listed as the defendants in the action. According to the complaint:

the defendant Bitcoin was derived from the sales of illegal drugs, including fentanyl patches and opioids dispensed without prescription, on the Darknet between 2016 and 2019…The Vendor began selling illegal prescription drugs on the Darknet in approximately 2014 using multiple marketplaces, including Dream, Silk Road, AlphaBay and Wall Street Market, and from 2014 and thereafter made approximately $250,000 worth of Bitcoin each month from the illegal drug sales.

Investigators first showed interest in the case in December 2017 and raided the dealers’ base in Ventura, CA on January 11, 2019. Although details haven’t been fully disclosed, the bitcoin appear to have been held in what is known as offline ”cold storage.”

Bitcoin, although a digital currency with no tangible existence outside of its online blockchain ledger, is pseudonymously bought and sold through keys (a cryptocurrency key is basically a very large number) that are held in “wallets” of one form or another. Keys may be stored in virtual online wallets together with other account information for convenience, or they may be held offline in electronic devices that can be connected to a computer when necessary. These offline wallets, generally accessed by PINs or passwords, are where the keys to bitcoin that are not to be traded are usually placed for safe-keeping to avoid online pilfering. When authorities report the seizure of cryptocurrency, they mean they have recovered the keys and not the wallets.

The seizure became newsworthy as the price of bitcoin soared to an all-time high against the U.S. dollar, reaching a value of more than $40,000 on January 8, more than double the peak it reached during the 2017 boom. The value of 1 BTC has since declined to $31,184 as of January 21. A likely reason for the resurgence in Bitcoin’s popularity is as a store of value in the face of fears of inflation; its value has also soared close to a technical juncture in the unfolding of the bitcoin algorithm as the available supply of the currency tends toward its total possible supply of 21 million BTC.

According to the complaint:

The Defendants [i.e. the bitcoin, the boat and the license] are in the custody of the United States Marshals Service in this District, where they shall remain subject to this Court’s jurisdiction during the pendency of this action.

The case, United States of America vs. 391.5873617 in Bitcoin, was assigned to district judge Christina A. Snyder.

The seizure of the 391.5873617 BTC comes as a San Francisco area programmer has revealed that he has lost the keys to over 7,000 BTC, worth well over $200 million. He cannot remember the PIN to his offline wallet and has been employing a device that only allows ten guesses at the PIN before locking permanently. It is estimated that 20% off all bitcoin is lost forever thanks to similar mishaps. Federal authorities were thus lucky indeed to have been able to unlock the 391.5873617 BTC they seized. There is no way of knowing how many ill-gotten bitcoin gains are lost forever, not only to their owners but to law enforcement officials as well.

The accused drug dealers are in federal custody, although their identities have not been made public.