Notice and process of service via NFTs: A new frontier in tech and litigation?
In a recent precedential decision involving electronic service to an unknown defendant, the High Court of England and Wales approved a special request to issue an interim injunction and permit service of a lawsuit via a non-fungible token (“NFT”). The case follows a similar decision in New York trial court. Both decisions raise issues as to how prevalent will NFT service become in the US and UK.
What are NFTs? Non-fungible tokens, or “NFTs,” are unique, one of kind, digital assets, usually linking ownership to unique physical or digital items, such as works of art, real estate, music, or videos. As a result, NFTs have become modern-day collectibles.
Service via an NFT. In Fabrizio D'Aloia v. Persons Unknown, Binance Holdings Ltd. and Others  EWCH 1723 (Ch) BL-2022-001008 (June 24, 2022), plaintiff sought to serve an unknown defendant who allegedly had defrauded the plaintiff into transferring digital assets in the amount of $2.1 million to a wallet controlled by the defendant after the defendant had portrayed itself as a TD Ameritrade platform. Because the defendant’s identity is not known, the plaintiff could not effect service through traditional manners under the law as a litigant might when the defendant’s identity is known. Following the Fabrizio D'Aloia, the plaintiff may now serve the defendant via email, as well as by having the notice embedded into an NFT, to the two digital wallets where the plaintiff had deposited his cryptocurrency that are purportedly controlled by the unknown defendant. Id. at 38-40.
The Fabrizio D'Aloia decision came on the heels of a similar decision issued by a New York state trial court in LCX AG v. John Doe Nos. 1-25, No. 154644/2022 (N.Y. Sup. Ct. June 2, 2022). IN LCX AG, the plaintiff sought to freeze $1.3 million in stolen digital assets located in a blockchain wallet address. It was estimated that the wallet address had additional stolen assets transferred to it, altogether in the approximate amount of $8 million. The LCX AG court agreed to the method of service because the identity of the defendant remained unknown, and the plaintiff had no other means by which to effect service. Under the court’s order, to effect service, the plaintiff had to deliver/airdrop the NFT to the digital asset wallet address and contain a hyperlink to a website created by its firm that hosted a published copy of the Court’s Order to Show Cause permitting the service, as well as all other papers upon which the court had based its decision. The hyperlink also had to include a method to track when a person clicked on the link.
What these Cases Mean. Is this a new direction in litigation, especially litigation involving cybercrime and cyber fraud? It could be. Certainly, service by NFTs will present victims (and their insurance companies via subrogation) new opportunities to pursue threat actors by using the digital asset wallets employed to effect the wrongdoing at issue. Obstacles for effectively enforcing a judgments and seizing assets to provide suitable restitution will remain. But NFT service may be a start for providing options to victims of cybercrime and solid footing to more meaningful challenge other obstacles in such a case.
Related item: English Court allows service of proceedings by blockchain technology using a non-fungible token (NFT)