Trusted Crypto Relationship Ends in Multi-Million Dollar Theft
Chinese authorities have sentenced a man identified only by his surname Zhang to 10 years and nine months in prison after he stole 107 Bitcoin from an acquaintance by secretly memorizing the victim’s wallet recovery phrase.
The Licang District People’s Court in Qingdao also fined Zhang 100,000 yuan (approximately $13,800) after finding him guilty of illegally transferring and selling the cryptocurrency. His appeal was later rejected by the Qingdao Intermediate People’s Court, which upheld the original verdict in late 2025.
The case has attracted widespread attention across the crypto industry because it highlights how human trust-not technology-can become the biggest security vulnerability for digital assets.
How a Seed Phrase Became the Key to Millions
According to Chinese prosecutors, Zhang and the victim, identified as Feng, had built a relationship through repeated cryptocurrency transactions.
During one meeting, Zhang convinced Feng to transfer his holdings into a newly created wallet. While Feng carefully wrote down the 12-word recovery phrase, Zhang discreetly observed the process.
Investigators revealed that Zhang successfully memorized 11 of the 12 words while only noting the first letter of the final missing word. Later that evening, he systematically tested possible combinations until he reconstructed the complete recovery phrase.
Once successful, Zhang accessed the wallet and transferred all 107 Bitcoin through multiple transactions before converting the funds into cash.
Feng discovered the theft the following day when attempting to access his holdings and initially believed his wallet had been hacked.
Prosecutors Reject the "Protective Takeover" Defense
After blockchain investigators traced the transactions, authorities linked the stolen funds back to Zhang through IP address analysis.
Although Zhang admitted taking the Bitcoin, he claimed he had acted to "protect" Feng's assets from potential hackers and intended to safeguard the funds.
Prosecutors quickly dismantled that explanation.
Financial records showed Zhang transferred the Bitcoin through multiple exchanges before converting the crypto into 660,000 yuan (around $91,000) and routing the proceeds through several third-party bank accounts.
While the stolen Bitcoin was worth approximately 22.5 million yuan ($3.1 million) at the time of the theft, prosecutors based the criminal valuation on the amount Zhang ultimately received after liquidating the assets.
The case may now establish an important legal precedent for future cryptocurrency theft prosecutions in China.
Chinese Courts Continue Recognizing Bitcoin as Property
Although China banned cryptocurrency trading and mining in 2021, prosecutors argued that Bitcoin still qualifies as property under criminal law.
The court agreed, ruling that Bitcoin possesses measurable economic value, requires investment to obtain, and can be exclusively controlled through private keys and recovery phrases.
Importantly, judges clarified that recognizing Bitcoin as property does not legalize cryptocurrency trading or weaken the country's existing restrictions on digital assets.
Instead, the decision simply allows courts to prosecute theft involving cryptocurrencies in the same way as other forms of valuable property.
Seed Phrase Theft Becoming a Growing Security Threat
The Qingdao ruling follows another recent case in Fuzhou, where a different individual received 12 years and seven months in prison after stealing four Bitcoin from someone who trusted him with wallet access.
Both incidents demonstrate that even cold wallets and offline storage cannot protect users when someone gains physical access to recovery credentials.
China’s Supreme People’s Procuratorate has now classified seed phrase theft as a "new type of virtual currency crime" signaling that authorities expect similar cases to become increasingly common as cryptocurrency adoption continues to grow.
For crypto investors worldwide, the message is clear: the greatest risk may not come from hacker-but from the people standing closest to your wallet.
