Former Fed Employee Sentenced For Running Bitcoin Mining Software On A Fed Computer

Tyler Durden's picture

In an amusing twist on the "fiat vs digital" money debate, a former Federal Reserve employee who tried to fuse the two, was sentenced to 12 months’ probation and fined $5,000 for installing unauthorized software on a Fed server to connect with a bitcoin network, the Office of the Fed's Inspector General said.

According to the WSJ, Nicholas Berthaume, who worked as a network systems communications analyst at the Fed board in Washington, installed software so he could connect to an online bitcoin network to earn bitcoins, i.e. bitcoin mining, the Fed’s inspector general said. The software was in place from about March 2012 to June 2014, according to a court document. It was not clear how many thousands of a bitcoin he managed to earn this way. 

“Berthaume installed unauthorized software on a Board server to connect to an online bitcoin network in order to earn bitcoins. Bitcoins are earned as compensation when users allow their systems’ computing power to be part of the structure that processes, verifies, and records bitcoin transactions."

The IG said the investigation wasn’t able to determine how many bitcoins had been earned, owing to anonymity of the network. Actually, the reason why the probe was unable to determine what Berthaume's profit was is that it was negligible as bitcoin mining leads to nominal gains at best, and is why massive bitcoin mining arrays set up in places like Iceland are barely breaking even above operating costs.

Berthaume also modified certain security safeguards so he could access the server from his home, the IG said. When investigators from the IG’s office confronted him about the software, he denied any knowledge of it, then later remotely deleted it, the IG said.

Berthaume was subsequently fired, the IG said, and struck a deal in October to plead guilty in U.S. District Court for the District of Columbia to one misdemeanor charge of unlawful use of government property, a charge that carried a fine of up to $100,000 and a year in jail. He received his sentence Friday.

The IG said the incident didn’t result in a loss of Fed information, but the central bank has implemented “security enhancements” as a result of the case. “This case demonstrates how my office will vigorously pursue Board employees who unlawfully abuse their positions and use government property for personal gain,” Fed IG Mark Bialek said.

Moral of the story, if employed by the Fed, it is much more lucrative to leak confidential data to Goldman - and not get caught - than trying to mine a fraction of a bitcoin every year and almost end up in prison for it.

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Stan522's picture

Double dipping.;....

fourZero's picture

anyone else notice the rapid deterioration of the comments on ZH since Trump won?  It's like 4chan puked its guts all over and all the loonies came out of the woodwork.

OfAllElaboratePlans's picture
OfAllElaboratePlans (not verified) fourZero Jan 30, 2017 1:26 PM

fonestar worked for the FED all along ~ who knew?

UndergroundPost's picture

Loonies are those who voted for Crooked Hillary

CounterPartyVice's picture

Clearly sending a message here. If you had any doubts about the Fed's insecurity face to Bitcoin, here it is. Losing control, one block at the time.

Are those computers used to order pizza too?

Joe Davola's picture

My guess is they know how much he mined, but are trying to make people think they don't have the tech to trace bitcoin - so they let this guy off with a slap on the wrist so as not to scare off the big fish.

The problem with Bitcoin as it is implemented today is that the entire history is public. Transactions are attributed to random identifiers that in themselves carry no information about the person controlling the accounts. But if users are not extremely careful, network analysis can reveal both the financial behavior and the real identities of the people behind the accounts. (Several companies, such as Chainalysis, now provide such a service.)

If the Fed doesn't have network analysis capabilities to track this, then we've got bigger problems than this guy.

Ghost of Porky's picture

He's hiding the bitcoins in his arse. Time for cavity search.

sober_kiwi's picture

He would have joined his computers to a mining pool. You can have thousands of computers in a pool, from all around the world. When a block is mined, each account in the pool that had computers in the pool gets a cut of the BTC in the block. 

The point here is even if one of his computers mined a block of 50BTC, there is no connection or way of linking that to any wallet he had. The coins go to the pool, and the pool holds these- tracked in a ledger. He could withdraw at anypoint, but it would not likly be the coins he mined. 

So if you accept the assumption that he was part of a pool (which most people who mine are), then unless he made some hugly clumsey mistake, the odds are drasticly in favour of obsecuring his minimg history. Im saying it in a bit of a clumsey way, but basically there is no way for an investigator to find out how many coins he mined (unless they get that info from the owner of the mining pool, who would operate overseas somewhere). 

NewHugh's picture

You lie.  Shillary...

fourZero's picture

Right, because anyone who opposes Hair Gropenfuhrer must be a Hillary shill, much like everyone who voted for Trump is a racist.



NewHugh's picture

You're either a shill, or a stupid libtard in denial who claims to be "moderate".

fourZero's picture

keep throwing darts, you'll eventually hit the board.

NewHugh's picture

Answer me this HONESTLY.  Who'd you vote for in the primaries?  Bet you it was Bernout.

UndergroundPost's picture

Double saved. Why does ZH comments do that sometimes?

Dragon HAwk's picture

Touch and wait..  no double taps, especially on a phone or tablet. try that for starters

813kml's picture

No sense in wasting all those clock cycles between CTRL-Ps.

Implied Violins's picture

Seeing as there are tungsten weights taped to every CTL-P in the building, I reckon his software never even got fully installed.

tmosley's picture

If he was mining in 2012, he made a LOT of money, actually. Depending on how much hashing power he was able to access, he could have made millions worth of BTC, assuming he waited until the peak (or until today) to sell.

Best part, for him, is that they will never know, and once he's out, he can go to some non-extradition country and live like a king for the rest of his life.

813kml's picture

Doubtful that he got to keep it, .gov doesn't look kindly upon efficiency.

MsCreant's picture

If TM is right, they have to find it to take it from him. One point the article was making is that because of anonymity, they don't know how much he made. They can't find it or they would know.

Or they are lying.

The Saint's picture
The Saint (not verified) MsCreant Jan 30, 2017 1:56 PM

Waterboard the sucker.  Make him talk!  Where are the bitcoins?


detached.amusement's picture

and if the guy were  truly smart, he'd represent himself and start out his case by asking the court to clarify just whose computers they belonged to, and tell the prosecution that they are going to have to lay out some paperwork to show folks just how it is that these devices are "government" "owned" if these charges are to be treated with any legitimacy

Jack's Raging Bile Duct's picture

Hahaha. Touche! "Private" institution and all. What a minefield that would be for the lawyers to wade through. They either cut him loose or set some dangerous precedence.

Spigot's picture

In fact he probably harvested at least 50 Bitcoins on one machine, and if he was installing this remotely on a number of machines as a background job running at night he well could have harvested over 1000 Bitcoins during that period.

My guess is that he had installed the miner software on many FED machines to run after hours using their GPU's then had joined a pool which directed the rewards from the external pool to his wallet, which he then transferred again to another wallet.

I would suggest he was using Slushpool which is based in Czek Republic, so they can't get any information from them.

Let's just put it this way, he knew what he was doing and figured out a way to supplement his salary while at the same time gambling that if he did lose his job he was in a far better end result. This makes me guess he had compromised more than 1 machine and made closer to the 250-500 bitcoin rewards range.

If he started doing this in early 2012 Bitcoin was $5, ending in 2014 $650, so a great gamble on his part, over a hundred banger and no cost.


That - is some funny shit you got there..............

UndergroundPost's picture

Digital currency IS fiat currency

tmosley's picture

If you honestly think that, then you don't know the meaning of at least one of those terms.

Bendromeda Strain's picture

He didn't say "bitcoin", he said digital currency. There is a difference. Is Samsung Pay real money?

JRobby's picture

Paid Trolls as a result of Obama signing the "Defense Funding" bill into law over Christmas. 

Your bank accounts are now being monitored as a result of your jackass comment. Troll.

Jack's Raging Bile Duct's picture

It started before Trump. First after the great purge in late 2012 and early 2013. Then it descended further still once Trump was the leading Red Team candidate. ZH has alot more recognition these days, and like a newspaper, writes to a "broader" audience.

any_mouse's picture

It is strange is that some of the accounts are well over a year old.

Yet the names are unfamiliar among the comments.

Deep sleeper accounts.

There is the strong possibility that ZH has become controlled opposition.

The first alternative LIE to the mainstream LIE.

jcaz's picture

Did he pay the fine in Bitcoins?

Raffie's picture

He got $2k from Btc and lost his $150k job....

He never was good at math.

The_Passenger's picture

"Actually, the reason why the probe was unable to determine what Berthaume's profit was is that it was negligible as bitcoin mining leads to nominal gains at best, and is why massive bitcoin mining arrays set up in places like Iceland are barely breaking even above operating costs."

Well that is if you factor in electricity and hardware cost... which were not paid by Berthaume. Depending on how good the servers are he could have made a significant amount in BTC. Just to give you an idea, our biggest server at univeristy can draw 1000 Euro worth of electricty per hour...

Have they analyzed electricty consumption over that period? 

Raffie's picture


I remember a person at worked got caught using 1k+ PCs to find the next prime number.

He was slapped then walked.

sleigher's picture

I used work PC's, well a bunch of VM's, to crack some keys.  512 bit keys which aren't that strong anymore but were at the time.  Glad I never got caught...

TwelveOhOne's picture

Yeah a few years before Bitcoin, a former employee was running Boinc and Folding@Home on all the work computers.  I told him it wasn't a good idea...

thesonandheir's picture

He wasn't big enough to get away with it.

Frito's picture

Shouldn't be too hard to get off.  How can a Fed a computer be a government computer? You would probably be a good lawyer though

MsCreant's picture

It is a private company, isn't it? Good observation. 

LetThemEatRand's picture

The Fed is private, but my guess is that the government supplies their computers.  So it was technically a "government" computer.   Just another FU from the Fed to taxpayers.

Pumpkin's picture

He wasn't big enough to get away with it.


Didn't bring in the right 'partners'.

carbonmutant's picture

Blockchains forever... lol