From gaming assets to a new form of event ticketing, the range of utilities and use cases of non-fungible tokens (“NFTs”) has only just begun to develop in recent years and appear as vast as the human imagination.
Now, NFTs may also have a legitimate use in the legal system as a form of service for lawsuits that fail to be served upon the defendant by other means.
As blockchain technologies advance, so too have scam techniques progressed to better steal from crypto users. Thankfully, legal tools are also progressing in this way, specifically in the area of NFTs.
Two courts in the United States and the United Kingdom now permit the service of legal documents via NFT airdrop under certain conditions against such scammers that maintain anonymity.
The first court to permit the service of court documents by airdrop was the Supreme Court of the State of New York in early June of 2022. This landmark ruling comes due to a complaint filed by LCX AG (“LCX”), a cryptocurrency exchange that lost nearly $8 million dollars due to a hack in January of 2022.
The court allowed the plaintiff to serve a copy of the court’s order, including the complaint, upon the unknown defendant via airdrop of a “special-purpose token” (“Service Token”). The token itself includes a hyperlink with access to the complaint and court’s order.
Although the identity of the hacker(s) is currently unknown, LCX was able to track the stolen funds to two Ethereum wallets. The hyperlink provided within the Service Token also contains the ability to detect whether the link was opened to ensure that the complaint and order are viewed by the defendant.
Due to LCX’s inability to serve their complaint through a traditional method of service because of the hacker(s) anonymity, the New York Supreme Court permitted service through airdrop of the Service Token to the identified hacker wallets.
It is currently unclear whether other jurisdictions in the United States will permit service by NFT airdrop of a Service Token as New York now permits.
That said, a court in the United Kingdom has also upheld service of legal documents via airdrop to a defendant with an unknown identity in July of 2022.
The U.K. court authorized Italian business owner Fabrizio D’Aloia to serve an unknown individual with a Service Token to the known wallet of the person over a disputed lost sum of crypto funds.
Founder of an online gambling company called “Microgame,” D’Aloia’s dispute centers around approximately $2.33 million that he deposited in two crypto wallets that were fake and operated by a scammer that ran a fraudulent online brokerage.
Giambrone & Partners LLP, the firm that represents D’Aloia uploaded a post to social media, which states that the permission obtained by the High Court judge allowed for proceedings to obtain a worldwide freezing injunction possible to proceed in the face of the scammer’s unknown identity.
Although the above cases are pending further action, the development to permit service via airdrop is a significant step to bringing courts closer to addressing cryptocurrency’s complex relationship with traditional legal procedure. Broadly, this international shift reflects some courts’ acclimatization to blockchain technologies as a way to better help defrauded consumers proceed with litigation against unknown hackers and scammers with definitive wallets or wallets that are known to be the scammer’s wallet.
Should this extend to updating additional jurisdictions’ permitted delivery methods that constitute service (as outlined by the Federal Rules of Civil Procedure), proceedings against anonymous crypto scammers and hackers have better odds to move forward toward an eventual resolution.
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