September 20, 2022
In the recent case of D'Aloia v Person Unknown & Others, a precedent was set by permitting the service of legal proceedings by non-fungible token airdrop. To date, this is the second time worldwide that the courts have allowed service by this method, and showcases the evolving use cases of NFTs. But what does this mean for the future of NFTs in a legal setting? And can we expect to witness this again?
The claimant, Fabrizio D’Aloia alleged to be a victim of a scam, which saw him lose large deposits of Tether and USDC, two well-known stablecoins within the cryptocurrency space. This scam appears to have been conducted by a “Persons Unknown”, who falsely represented their website as a well-known US-based brokerage.
Subsequently, Fabrizio found that his open trades on the website had been closed. He obtained evidence showing that his Tether and USDC deposits had been transferred to private wallets operated by, or under the control of, five different crypto exchanges.
Understandably, Fabrizio was pretty frustrated. He applied to the Court for an interim freezing injunction against “Persons Unknown” to prevent them from disposing of his stablecoins. Fabrizio went one step further and applied for a disclosure order, which would allow Fabrizio to gain access to documents that would allow him to trace his deposits.
However, most interestingly, Fabrizio also applied for permission from the Court to actually serve the disclosure order on the “Persons Unknown” by NFT airdrop.
In this case, counsel for Fabrizio argued for service by NFT airdrop. Essentially, the Banker’s Trust disclosure order would be ‘tokenised’ and sent to the fraudulent wallets with that transmission being recorded on a blockchain. While it’s unconfirmed, it is suspected that the NFT contained a hyperlink to the order documentation.
The Court held the ‘good reason’ threshold was met without objection because service by NFT airdrop would increase the chances of the “Persons Unknown” being put on notice of the proceedings.
Well, potentially. It’s very refreshing to see the English courts embracing emerging technology to strive to do justice. However, there are a few points to note.
First, the Court’s main reason for allowing service by NFT airdrop was because of how difficult it would be to otherwise serve the “Persons Unknown”. Ultimately, Fabrizio had no idea who they were or where they were located. However, the fraudulent addresses to which Fabrizio made his first transfers were known, making service by NFT airdrop relatively easy and convenient.
Second, service wasn’t just made by NFT airdrop but also by e-mail using the e-mail address with which Fabrizio corresponded when he initially tried to withdraw his Tether and USDC. Whilst counsel for Fabrizio did not request it, the Court expressed some hesitance in allowing service by NFT airdrop alone. It remains to be seen whether this could reflect a general reluctance of the courts to move away from more conventional service methods in these types of cases.
For individuals who find themselves subject to scams where the identity of the scammer is hidden by pseudonyms and wallet addresses, the ability to have legal proceedings served against a wallet address (with or without traditional service methods) is a big step forward. But it’s likely that there will need to be additional measures if we’re to see the service of documents resulting in successful outcomes for applicants.
Nevertheless, this case provides a precedent for service by NFT and, by extension, other cryptoasset airdrops in English law. In a nutshell, a particularly interesting example of the English courts embracing emerging technology to help administer justice.
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