Serve the Unknown in the Crypto Age
An NFT, or Non-Fungible Token, is a unique digital asset verified using blockchain technology.[1] Unlike cryptocurrencies such as Bitcoin or Ethereum, which are interchangeable and can be swapped on a one-to-one basis, NFTs are distinct and cannot be exchanged like-for-like.[2] They represent ownership or proof of authenticity for a specific digital item, such as art, music, or even legal documents.[3]
Traditional methods of serving legal summons are ineffective when defendants’ identities or locations are unknown, especially when they use pseudonymous channels like cryptocurrency wallets.[4] NFTs offer an innovative solution by being airdropped to these wallets, which are often the only identifiers of such parties.[5] The blockchain’s immutable and transparent nature ensures the summons as a NFT is a lasting, verifiable record.[6] This method is effective, leveraging blockchain transparency and defendants’ active wallet transactions. Moreover, using NFTs for legal documents aligns with legal standards for alternative service methods when traditional ones fail.[7]
New York courts have led the charge in two significant legal precedents, showcasing the novel use of NFTs to serve legal summons to parties whose identities remain unknown.[8] These cases highlight the judiciary’s evolving approach as courts adapt traditional legal frameworks to meet the unique challenges presented by digital assets and anonymous defendants.[9]
In LCX AG v. John Doe, the plaintiff, LCX AG, a virtual asset service provider based in Liechtenstein, initiated the lawsuit to recover approximately $8 million worth of virtual assets stolen in 2022.[10] Given the anonymity of the defendants and the impracticability of traditional service methods, LCX AG sought an alternative service of process.[11] The court allowed the plaintiff to serve the defendants via airdropping a special-purpose Ethereum-based token (Service Token) into the defendants’ digital wallets.[12] This token contained a hyperlink to a website where legal documents were published.[13] The court found this method of service acceptable as it was reasonably calculated to notify the defendants of the action, considering their anonymity and the impracticality of traditional service methods.[14] The court’s reasoning was based on the flexibility of CPLR 308(5), which permits alternative service of process when traditional methods are impracticable. The court emphasized that due process requires the method of service to be reasonably calculated to apprise the defendant of the action.[15]
A similar opinion has also been rendered in a federal court in 2024.[16] In the bankruptcy case of In re Celsius Network LLC, the U.S. Bankruptcy Court for the Southern District of New York addressed the challenge of serving legal summons to defendants whose identities and locations were unknown.[17] The plaintiff sought to recover cryptocurrency that had been misappropriated and transferred to wallets owned or controlled by unidentified defendants. [18] Traditional service methods, as outlined in CPLR §§ 308(1)-(2) and (4), were deemed impracticable due to the defendants’ anonymity.[19] The court, therefore, granted a motion for alternative service by allowing the plaintiff to airdrop non-fungible tokens (NFTs) linked to a service website containing copies of the complaint directly to the defendants’ cryptocurrency wallets.[20]
Major steps of serving NFT-based legal papers are summarized below:
- NFT Creation: Creating NFT-based summons involves two approaches based on the number of unknown parties. For multiple parties, you can create an NFT directly on-chain by programming and deploying a smart contract with URLs in the token’s metadata linked to legal documents. For fewer parties, mint individual NFTs for each defendant using existing NFT marketplaces. Below is an example of a basic Ethereum-based NFT that attorneys can independently create on-chain.
- Distribution and Notification: After minting, NFTs can be airdropped or transferred to specific wallet addresses. For numerous parties, a distribution list can be programmed to airdrop NFTs systematically. For fewer parties, attorneys can use an existing NFT platform to transfer NFTs directly to the desired wallet addresses.
- Verification and Record-Keeping: When NFTs are airdropped or transferred, the blockchain records all transactions, offering a transparent, traceable history. This serves as evidence that the summons was issued and made publicly available, meeting legal due process requirements. See below the example service token minted by LCX AG and recorded on-chain.
- Court Filing: Attorneys should ensure all relevant records and any applicable expert affidavits are filed with the court.
Using NFTs to serve legal summons to unidentified individuals is a major step forward in combining law with technology.[23] This method tackles the challenges of anonymity in cryptocurrency transactions, providing a solution when traditional methods are ineffective.[24] The immutable and transparent nature of blockchain allows NFTs to record and verify legal notices, satisfying due process permanently.[25] Judiciary flexibility, as demonstrated in cases like LCX AG v. John Doe and In re Celsius Network LLC, enhances the legal system’s adaptability and encourages future innovation.[26]
Footnotes
